Preview

Walgreens refreshes its beauty aisle with Birchbox partnership, but it’s not the only mass retailer to embrace cosmetics.

What happened
  • Walgreens is launching a pilot partnership program with the online subscription beauty service Birchbox both online and at 11 stores across six cities—Chicago, Los Angeles, Dallas, Miami, Minneapolis and New York. The stores will devote 400 to 1,000 square feet to a “Build your own Birchbox” experience, further cinching the drugstore’s efforts to cater to millennial shoppers by offering more premium brands in the beauty sector. The company has also taken an undisclosed minority stake in Birchbox.
  • This news comes just months after Birchbox’s acquisition deal with QVC fell through and the company’s initial investor, Viking Global Investors, bought a majority stake and poured $15 million into the brand to keep it alive. Founded in 2010, Birchbox has struggled with debt tied to poor unit economics and an inflated subscription box market. The company previously discussed acquisition plans with Walmart—now the Walgreens partnership will get it in front of new faces and ideally spur new business.
Why it matters
  • Much of Birchbox’s problems revolve around scaling sustainably, and Walgreens will ideally allow for cheaper customer acquisition. But the success of the partnership for the beauty brand will be dependent on how Birchbox uses it to sell its own (higher-margin) brands as opposed to other brands. It’s also not clear how Birchbox will use the Walgreens partnership to convert drugstore shoppers into monthly or yearly subscribers. Additionally, the partnership may unravel in the long term, since both Walgreens and Birchbox want to become destinations in their own right.
  • The partnership is also Walgreens’ latest effort to harness cosmetics and remake the drugstore experience in the face of direct-to-consumer and Amazon threats. The company acquired the British drugstore chain Alliance Boots in 2014, known for its beauty aisle, and has since debuted a Beauty Enthusiast membership program, as well as rejuvenated its brand assortment with more high-profile names like NYX and OPI. But Birchbox will bring an experiential component to Walgreens to help it stand out, despite the competition. Among other mass retailers, CVS debuted a K-Beauty HQ section and an exclusive K-beauty brand in August 2018—Target also expanded its digital beauty services this year and began selling $7 beauty boxes with monthly samples.

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