On the macro level, the internet has provided an easily accessible point of entry for new brands. In turn, this has increased competition on an exponential level, forcing digitally-native brands to find new ways to express their value and personality, which they largely attempted to accomplish with online marketing.

But in the past few years, digital advertising has taken over brands’ marketing strategies—and taken out bigger and bigger chunks from their budgets. Though social media platforms and the internet more broadly are crucial spaces where brands can speak to consumers, the average Facebook ad cost rose more than 16 times between 2011 and 2018 alone, making a digital-only strategy unsustainable. Consequently, more digitally-native brands are moving offline.

Featuring case studies on:

Class I Brands

Casper, Kylie Cosmetics, Warby Parker

Class II Brands

Glossier, Goop

Class III Brands

Bevel, Fenty Beauty

The structure and framework of the report has also been updated from last year. Fast or Frivolous 2017 determined three brand classifications:

  • Heritage: Brands that existed before the internet, mainly as product and marketing companies that focused on designing and manufacturing reputable products, which they would distribute wholesale or via retail.
  • Digitally-Native Phase 1: Brands that took existing products and sold them on internet.
  • Digitally-Native Phase 2: Brands founded after 2012 that started online and worked to build communities around their products and create lifestyle brands.

We have revised our brand criteria to more accurately reflect interactions and evolutions within the landscape, decoupling the origin of the brand from the purpose it serves.

Origin

  • Digitally-native: the brand started online only.
  • Traditional: the brand started either offline or both online and offline.

Purpose

  • Class I: Product companies. (Many of these brands may pitch themselves to be “lifestyle brands,” but they remain product companies.)
  • Class II: Companies that create community around their products or brand for commercial benefit.
  • Class III: Brands that create products that serve as a vehicle that propel a value system or a movement forward.

All the data in this report comes from publicly reported information, book and data sources. Fundraising information comes courtesy of Pitchbook; Earned Media Value (EMV) via Tribe Dynamics.

We calculated averages or estimated when numbers from multiple sources differed. Because some of the brands we studied are private companies, we confirmed information to the best of our abilities.

Casper (Digitally-Native, Class I)

Like other digitally-native brands, Casper spends a significant amount on marketing, but can achieve more with immersive storefronts like the Dreamery, which merge advertising with product-based experience.

As a digitally-native brand that existed online-only for the first three or so years, Casper’s marketing expense is directly tied to the company’s need to acquire new customers, make more money and scale. In New York, the company has invested in a seemingly never-ending stream of subway ads and in the first three quarters of 2016, it spent $19 million on ad dollars in the U.S. alone—a number that rose to an estimated $24 million during the same period in 2017. As of November 2018, it maintained 70 active ads on Facebook and Instagram, according to our 2018 Q3 Megaphone Report, the majority of which showcased products, and none of which included discounts.

Additionally, Casper has used traditional marketing channels, including television, outdoor ads and podcasts. In 2015, the company began publishing a digital, sleep-centric blog called Van Winkle’s, which it folded in November 2017 to create a quarterly print magazine, Woolly, which covers a wider range of wellness-related topics. Depending on the performance of Woolly, which Casper includes with some purchases and also sells separately for $12 at stores and online, the company could potentially foster cultural resonance for its brand beyond mattresses and even beyond sleep—something to capitalize on in today’s self-care-focused consumer economy. Becoming more than just a product company would be a huge differentiator for a digitally-native brand, given their abundance and increasingly homogenous marketing.

Though Casper actually has more product categories than most other digitally-native mattress brands, it is still essentially a single-product-per-category company, serving up “the best mattress,” “the best pillow,” and “the best sheets” (it now also sells dog beds). With mattresses as the most profitable SKU, but typically a one-time purchase, Casper can always use more customers—an anxiety that will not subside for as long as it remains a product company. Though in early 2018, co-founder and CEO Philip Krim mentioned that customer acquisition costs had leveled out and decreased in some cases, this is likely due to the brand’s recent expansion into owned brick-and-mortar stores, and not a result of decreasing costs on digital marketing channels. There are already signs that this isn’t enough for the long, or even the medium term given the company’s recent announcement that it plans to create 200 stores by 2021.

Casper’s ability to use stores as a marketing mechanism will help it most in the long run. At the Dreamery, which opened in summer 2018, visitors can pay $25 for a 45-minute nap in a private sleeping pod outfitted with Casper’s mattresses, sheets, pillows, blankets, along with complementary eye masks, toiletries, pajamas and meditative audio (sheets are changed in between nappers). Not only does the Dreamery tap into the experience economy, but it’s also positioned adjacent to Casper’s flagship New York store, allowing nappers to go next door, purchase a mattress and bring the experience home with them. A destination in its own right, the Dreamery is an immersive advertisement, at least for those willing to fork over the money for an expensive siesta.

With both of these retail concepts, Casper is already light years ahead of the stale retail that contributed to Mattress Firm’s downfall—a mixture of overexpansion to what became 3,000, mostly large-format stores in 2018 with lackluster experience. As the time goes on, the company can scale concepts like the napmobiles and the Dreamery other locations like airports, offices and campuses. Creating spaces that highlight what makes Casper unique while inviting consumers to try the product like they would in their normal lives will serve it best in the long run.

Kylie Cosmetics (Digitally-Native, Class I)

Since its 2016 launch, Kylie Jenner’s Kylie Cosmetics remains one the fastest-growing beauty brands ever, as well as one of the fastest-growing digitally-native brands. In its first 18 months, the brand made $420 million in sales and Forbes values the brand at $900 million—for comparison, achieving a $1 billion valuation took legacy players like Bobbi Brown Beauty 25 years to accomplish, and L’Oréal’s Lancôme 80 years. Though revenue numbers remain contestable, WWD estimates Kylie Cosmetics made $386 million in 2017. The brand is on track to make up to $500 million in 2018, placing it in our $251-$500 million revenue bucket.

Jenner launched her first product, Kylie Lip Kits, in November 2015 via Instagram, before Kylie Cosmetics was a full-fledged brand. To do so, Jenner found a production partner in Seed Beauty, a vertically integrated manufacturer, which she either pays at wholesale prices (a 40-50% margin) or through royalties since Kylie owns 100% of the equity in the business. For the Lip Kits, Jenner paid the manufacturer approximately $250,000 of her own savings from modeling to create 15,000 units, which promptly sold out in 30 seconds, making approximately $435,000. Three months later, in February 2016, Jenner released six new shades of the lip product, officially rebranding as Kylie Cosmetics. The additional 500,000 units sold out in ten minutes, garnering $14.5 million. By the end of 2016, Kylie Cosmetics offered more than 50 SKUs, amounting to $307 million in sales.

Growth appears to have slowed in 2017, with Forbes estimating a revenue increase of only 7% (up to $330 million), despite launching 30 new SKUs. On the other hand, WWD, estimated 25% growth earlier in the year, bringing revenue to $386 million. In any case, the brand has grown its SKU count to approximately 353 products as of November 2018, ranging from blushes to eyeshadow palettes and highlighters—61 of which are currently sold out on the ecommerce site.

Kylie Cosmetics turned a large Instagram fanbase into a customer base, but the drop model and Jenner’s position at the helm has questionable longevity.

Social media has played an integral role in the development of Kylie Cosmetics more heavily than other digitally-native brands. Jenner announced her Lip Kits over Instagram, where she has 117 million followers (as of October 2018), and continued to follow the digital flagship model for each subsequent product launch. This helped Kylie Cosmetics attain an EMV of $73.5 million in Q4 2017 according to Tribe Dynamics, building excitement among her audience, and leading these products to sell out quickly. Of course, this was also tied to the brand’s intentionally shallow inventories—producing more inventory from the get-go à la Fenty would likely have garnered Jenner steeper revenues from the beginning, since selling out means leaving money on the table.

As the sole owner, Jenner also avoids FTC regulations regarding celebrity and influencer marketing, which has helped keep advertising and customer acquisition costs near zero. Unlike other digitally-native brands, Kylie Cosmetics has zero active Facebook or Instagram ads as of October 2018, according to our 2018 Q3 Megaphone Report, relying on her own social media channel and that of her brand to speak for itself. Inextricably attached to the brand in terms of direct marketing (social media), indirect (fame as a reality TV star), as well as brand and product ideation, Kylie Cosmetics commands an authenticity that rivals many other brands and has helped the beauty venture reach stardom in its own right.

However, recent developments suggest that this marketing strategy is not enough to raise revenue figures and acquire new customers. The decline in revenue growth in 2017 highlights both Kylie Cosmetics’ dependence on Instagram marketing and its finite potential to breed sales. One potential reason for this slump was Jenner’s six-month hiatus from Instagram during her pregnancy that year. The brand also succumbed to a 34% decrease in EMV between Q4 2017 and Q3 2018, down to $48.4 million.

In addition, the Instagram drop model has the brand addicted to producing new SKUs ad infinitum in order to keep customers excited and meet sales expectations. While this can work as long as shoppers are interested, it has led to other side effects that don’t necessarily benefit the brand. As with other brands that favor the product drop and limited inventories, a secondary market has formed around Lip Kits and other products, often hiking up prices that create a middleman between Jenner and her customers, without allowing Jenner to collect additional revenue.

Partnering with Ulta Beauty on a wholesale deal suggests that digital-only growth has a ceiling, but will it dilute Kylie Cosmetics’ brand equity and direct sales mechanism?

The recent announcement that Kylie Cosmetics would be sold at all 1,124 Ulta Beauty stores and online starting in the 2018 holding season raised questions about the sustainability of online-only businesses—even for those as large and successful as Jenner’s. The move signaled that selling online and direct-to-consumer can contribute to a rapid ascent, but the acquisition of new shoppers is worth swallowing these margin cuts.

Kylie Cosmetics previously dabbled in pop-ups at TopShop across seven U.S. cities for the 2017 holiday, but 99% of growth remained digital. But the much more serious foray into brick-and-mortar wholesale suggests that Kylie Cosmetics hit a revenue plateau with its digital-only sales strategy heavily reliant on flagship product drops. In 2018, the brand noticeably revved up discounting, indicating a decline in organic sales that the brand must offset with greater promotionality. That said, moving into wholesale will likely provide a more sustainable sales flow and reach new customers, especially in the offline realm.

Despite the margin cuts Kylie Cosmetics will take and the risk that selling at Ulta could potentially cannibalize Jenner’s direct sales channel, Ulta has a wide pool of consumers that Kylie Cosmetics can tap into. At the end of 2017, the retailer had 28 million members in its loyalty program—a pool of customers who account for 90% of the beauty retailer’s revenue. If Jenner seeks to keep growing the brand and direct-to-consumer sales are stagnating, Ulta prevents Jenner from having to bear the cost of creating owned retail while still entering the offline realm.

Jenner held out going into wholesale significantly longer than many of the largest digitally-native brands from a revenue perspective, but even she had to see the light offered by offline and wholesale avenues if she wanted growth to continue. Still, because the founder is so tied to Kylie Cosmetics and maintains full equity to this day, she should be aware that broaching wholesale means she will have less control over how her brand appears to customers and how it will communicate with them. In the run-up to the November launch at Ulta, Jenner has tweeted multiple times, cultivating excitement and using the language of the product drop, applied this time to an offline context. Though the products that will sell at Ulta are not new items in actuality, Jenner seems to be mimicking the flagship drop model that built her brand on Instagram in stores, at least rhetorically, which will likely resonate with Kylie Cosmetics shoppers. For instance, she tweeted in early November 2018 that she will start selling her “best LIP KITS” at Ulta “and from there will expand to SO MANY more amazing things FAST,” effectively keeping consumers on their toes. Moving forward, how Jenner maintains direct communication with her customer base while selling at Ulta will be something to watch.

Warby Parker (Digitally-Native, Class I)

Warby Parker was founded in 2010 as a digitally-native eyewear brand, offering glasses at only $95 a pair and sending shoppers five pairs of blanks to try on at home before finalizing a purchase. In 2013, the company made $35 million in revenue, which grew to more than $100 million in 2015. According to Pitchbook, the company made $330 million in 2017 revenue, placing it in our $251-$500 million revenue bucket. Founded prior to many digitally-native brands, its rise has made the company a model and industry standard for other digitally-native brands, many of which refer to themselves as the “Warby Parker of X,” filling in the blank with their specific product.

Central to Warby Parker’s brand story is its high level of investment. The company has raised approximately $290 million in total, including its most recently $75 million round in March 2018, which values the company at more than $1.7 billion with the potential to file for an IPO in the near future. However, revenue for the company remains low given its sky-high valuation; the valuation of Luxottica, the traditional eyewear brand and Warby Parker rival, is only 2.6 times its annual revenue, compared to over five times for the digitally-native glasses company.

Warby Parker views owned retail as an opportunity for customer research and marketing—not just a sales mechanism.

After its initially rapid rise, Warby Parker saw stagnating growth, leading it to take on offline retail in order to gain new customers. The brand opened its first brick-and-mortar store in 2013 at its New York office after testing physical retail via shop-in-shops at various boutiques. By the end of 2014, it had grown its footprint to ten stores, which earned approximately $3,000 per square foot annually. By January 2017, this retail presence had expanded to 41 locations and reached 80 in October 2018—the company hopes for 100 by the end of the year. This wide-reaching square footage has endowed the company with a larger physical presence relative to most digitally-native brands, with perhaps Casper being the main competitor (the mattress company is pursuing 200 brick-and-mortar locations by 2021).

It makes sense that Warby Parker would invest in building out a physical presence given the personalized nature of glasses—in fact, the company was convinced to open its original New York store after customers expressed interest in testing out eyewear in person (before any stores existed, one of the founders let shoppers try on glasses in his apartment). Especially as an early digitally-native brand, Warby Parker was able to secure more flexible lease terms with real estate companies that were eager to bring a digitally-native tenant offline and rejuvenate their properties. Brick-and-mortar retail has also been crucial in reducing digital ad spend for the company. As of November 2018, the company had 110 active Facebook and Instagram ads, according to our 2018 Q3 Megapone Report, but will face rising marketing costs on the platform in the future; between 2012 (two year after Warby Parker was founded) and 2017, Facebook advertising costs grew more than 17 times. Finally, moving offline has helped address Warby Parker’s relatively high shipping costs—sending ecommerce customers five pairs of glasses can result in a sunk cost if he or she doesn’t end up purchasing a pair—plus, customers are more likely to find a pair that fits in store.

However, brick-and-mortar has increasingly been driven by Warby Parker’s need for growth as online sales have slowed. In fact, the share of eyewear sold online has not grown as fast as Warby Parker’s founders originally anticipated, comprising only 3-4% of eyewear sales in 2017. Paradoxically, advancing an offline strategy has helped power Warby Parker’s ecommerce efforts. As early as 2015, the company found that 85% of in-store shoppers had already browsed products online—a statistic that has motivated the company to develop new tactics that bridge these two channels. In 2017, for example, the company launched an app that allows consumers to test their vision at home and try on glasses virtually. Using its unique point-of-sale system, a shopper can try on glasses in store and later purchase the frames online, or vice versa—sales associates can also bring up her shopping history on an iPad to view her product preferences and prescription. The company also notes that after opening a new location, it experiences lower ecommerce transactions in the area, which rebound and gain momentum nine to 12 months later.

As a digitally-native brand, Warby Parker’s early offline retail strategy was a crash course in hiring and training sales associates. It also set the company back with significant overhead costs. But in the long term, these storefronts have offset their initial expenditures by serving as delivery hubs that help reduce shipping costs and acting as physical marketing campaigns. The design of these stores plays to current shopping trends while reinforcing Warby Parker’s image against that of competitors. For one, Warby Parker locations feature full-length mirrors that help customers view their glasses as part of an outfit, and also encourage selfies, which lets customers organically market the brand. Accents of wood and books recall elegant libraries with a modern twist that echo the brand’s intelligent, but approachable identity.

More importantly, data has fueled Warby Parker’s retail strategy. Geographic trends—a series of 129 metrics from customers’ age, education level, income and shopping habits—have informed where to set up shop. For example, Warby Parker is more actively working to move beyond its coastal origins to capture consumers’ attention elsewhere in the U.S. This makes sense for a brand whose founding values are about enhancing the accessibility and affordability of eyewear, and it’s also a way for the company to acquire new customers in an effort to find new streams of revenue and account for its high fundraising total.

In April 2018, Warby Parker opened a store in Alabama for the first time, followed by Raleigh, North Carolina in September. In addition designing stores individually—a tactic many digitally-native brands have chosen to guide their brick-and-mortar expansion, setting themselves apart from the single-blueprint method favored by many traditional brands—it’s also expanding to suburban spaces like strip malls to meet customers where they are inclined to shop. The company’s marketing strategy is tied up in this trajectory: When Warby Parker created a mobile shop out of yellow school bus in 2012, it served as both a roaming advertisement and a gauge of consumer interest in the different cities where it parked.

With the help of this strategically expanded square footage, the company is on track to increase its revenue in 2018, but it must continue to grow in order to offset its large amount of funding and increase its share of the eyewear market in the face of competitors, both traditional and digital. Zenni Optical held almost half of the ecommerce eyewear market in 2017 and unlike Warby Parker, the company has raised zero external capital. These factors will continue to push the brand to look further to brick-and-mortar.

As Warby Parker attempts to become a one-stop shop for eyewear needs, its retail strategy suggests that in order to find new growth, the company must turn away from its digitally-native roots.

More sustainably than opening new stores in new markets, the company is expanding in-store services, starting with 20-minute eye exams, which are offered at 14 locations at the time of writing. This simultaneously keeps customers coming back over the long term while making their experience of the brand less transactional. While a version of experiential retail, eye exams do much more for customers than provide the Instagram-friendly experience that so many digitally-native companies are fond of in their offline strategy. Instead, Warby Parker’s services position the brand to become a one-stop shop for eye care—it’s a way for consumers to access healthcare services outside of an optometrist’s office where they can also browse eyewear afterward.

Warby Parker isn’t the first glasses retailer to provide in-store eye exams, and it seems like a necessary step for the company, considering most shoppers won’t purchase glasses without knowing their prescription first—this was also a main obstacle for the brand when it was a digital-only retailer. Down the line, providing more services will likely help reel in additional traffic, toggling customers between the offline and online world of Warby Parker. Moving forward, if Warby Parker can continue to use digital technologies to catalyze effective brick-and-mortar retail, it will see increasing synergy between offline and online retail that will provide a boon to the company’s overall revenue.

Glossier (Digitally-Native, Class II)

Glossier was founded in 2014 by Emily Weiss, creator of beauty blog Into the Gloss, which launched in 2010. The brand currently operates only two permanent brick-and-mortar stores, in addition to selling online in seven countries. Though the company does not disclose revenue numbers, it reported a 600% increase in revenue between 2015 and 2016, growing an additional threefold between 2016 and 2017. It has raised $85 million to date, including its latest $52 million round in February 2018. We place Glossier in our $51-100 million revenue bucket.

Glossier was built on the back of Into the Gloss—a beauty blog whose expertise and approachability cultivated an authentic and trustworthy relationship with readers-turned-customers.

Into the Gloss (ITG) markets itself as “beauty tips, trends and product,” beginning with the series, “The Top Shelf,” which features profiles of noteworthy individuals and their at-home cosmetics routines. Building a solid customer base for Glossier four years before the brand’s launch in 2014. By that time, the site was receiving 8.5 million monthly page views and boasted 188,000 Instagram followers—Glossier’s Instagram account had 18,000 followers before any beauty products even materialized. Fast forward to November 2018 and Glossier now has 1.5 million Instagram followers.

ITG effectively served as a marketing mechanism for the brand from day one, filing a similar role as Goop’s newsletter did for Gwyneth Paltrow’s brand—unlike Goop, however, ITG and Glossier remain separate brands that encourage traffic flow between the ecommerce site and blog. ITG regularly features the Glossier brand and products, acting as press for product launches, publishing long-form product reviews and giving the inside scoop on Glossier HQ. Like Goop, this helps Glossier market itself in its own, relatable language. But the distinguishability between Glossier and ITG is crucial for ITG to remain a go-to resource for beauty insights, advice and expertise reporting on myriad other brands and products instead of acting as a press machine.

ITG didn’t just get its readers excited about Glossier—it collected four years of data on trends in the beauty industry to fuel research and development. In 2014, Glossier officially launched with four skincare products—face mist, concealer, skin salve, and priming moisturizer—that sold online only for $12 to $26. One month later, the company raised $8.4 million, using it to grow its ecommerce presence and launch new products. To do so, Glossier exercised its blogging community, asking for insight on consumer preferences that informed product development. For instance, in January 2015, Weiss asked her followers what they wanted in a face wash, which ultimately became Glossier’s Milky Jelly Cleanser. Crowdsourcing for a new face moisturizer a year later, the founder’s post received 1,000 comments providing feedback. The ITG community continues to prove vital to Glossier’s expansion, particularly in 2017, when the brand launched a new product every six to eight weeks—and it will likely remain an incredibly useful resource in the future.

Glossier let customers speak for and develop the brand, largely via digital word-of-mouth.

Central to Glossier’s growth has been a bottom-up approach to marketing—a productization strategy predicated on engaging with the “crowd,” which give individual consumers the reins to help shape the future beauty brand. Peppered across the ecommerce site are phrases such as, “beauty in real life,” and, “democratize beauty,” fortifying a two-way dialogue with shoppers. This language also decentralizes authority: Weiss was never the face behind ITG or Glossier. Instead, a range of contributors molded ITG and a sea of customers have and continue to sculpt the beauty brand today.

This tenet has guided Glossier as its business expands. Growing largely via word-of-mouth, especially on social media, the brand has always prioritized the customer’s voice over its own corporate one. In fact, the company stated that for its first year, it lacked formal advertising altogether and that in 2016, 79% of sales stemmed from peer-to-peer and organic marketing. It welcomed 1,000 of its best customers to join a special Slack channel, illustrating that it valued their input on the brand’s development, and also launched a rep program with 11 people in December 2016, giving each participant a unique landing page on Glossier’s site where they could build a profile, in addition to posting about the brand on social (by 2017, the program had grown to 500 representatives). Though the commission structure for this multi-level marketing strategy has evolved as the program has grown, as of July 2017, reps received commission based on the number of sales they helped finalize—up to 20%—in addition to $30 credit each month. It’s a version of influencer marketing, but Glossier strives to let individuals speak for its brand, eschewing the celebrity-first approach many companies seek out to raise their status. This not only reinforces the brand’s approachability and evades what would otherwise be steep traditional marketing costs.

Over time, Glossier has grown a corporate marketing strategy in addition to these grassroots evangelists, but attempted to act in ways that showcase a digitally-native company in unexpected ways that also tap into its fanbase. According to the founder in 2017, Glossier had never released any of its then-26 products in the same manner. In September 2017, it unveiled billboards in LA and New York for a new product, Body Hero, featuring size-inclusive models. The brand’s first fragrance, Glossier You, was mailed to existing customers as a sample one month prior to launch in the hope that recipients would post on social media about it—the company also revamped a brick-and-mortar space at its New York showroom in Body Hero’s honor.

However, as of November 2018, the company also has 62 active Facebook and Instagram ads—half of which are promotional—according to our 2018 Q3 Megaphone Report. This is surprising for a brand that tries to price its products at an accessible level and avoid discounting; Earlier in 2018, a company representative stated that Glossier currently receives only 20% of traffic from advertising and 80% from “owned, earned, and peer-to-peer referral.” Interestingly, Glossier’s Q3 2018 EMV was approximately $19.2 million EMV—a far cry from Fenty Beauty’s $86.8 million or even Kylie Cosmetics’ $48.4 million. The numbers speak to Glossier’s smaller size, both in revenue and resonance, compared to the other two celebrity brands whose ambassadors wield great influence over consumers. However, while Glossier’s focus on the crowd is a slower path to growth, it may prove more effective in the long term, since the brand’s presence is not reliant on a single person.

Moving forward, Glossier’s development is likely to focus on keeping customers engaged, whether or not it leads to a sale. The brand has long provided free weekly smartphone wallpaper downloads via its Instagram account and featured customers’ social media posts in its Instagram Stories. It was also one of the original digitally-native brands to send customers a set of stickers—both of which are subtle ways that Glossier markets itself organically without pushing product.

Glossier’s sustainable ecommerce expansion and limited brick-and-mortar footprint grew out of its organic, digital marketing.

Thus far, the brand’s solid online following has kept the focus on ecommerce—Glossier is now available online in seven countries, including the U.S., Canada, the UK, Ireland, Sweden, Denmark and France—a movement that has followed the company’s site traffic (for instance, before the brand was able to ship to the UK, London was fourth place in terms of website visits). Glossier also opposes selling via third parties, preferring direct channels, whether ecommerce or owned retail. Weiss has said that Glossier has no plans to sell on Amazon, and the brand does not wholesale at any retailers.

Glossier has not relied too heavily on brick-and-mortar, opening a series of pop-ups across various cities, from Chicago and London (which attracted more than 10,000 shoppers to the store) to New York and San Francisco in addition to two permanent stores: In New York, which first opened as a showroom in December 2016 (which had a 65% conversion rate) and later relaunched as a flagship in November 2018; and Los Angeles, which opened in May 2018. After raising $52 million in Series C funding in February 2018, Weiss stated the money would be used to “keep building the beauty company of the future: the one that you [her customers] shape.” In turn, this limited brick-and-mortar footprint is inextricably tied to the company’s intention not to use retail to drive growth. Weiss has also said that she has no intention of opening up dozens of stores.

Now at its newly relaunched New York store and first flagship, Glossier hopes to merge the online and offline experience not only with a unique point-of-sale system that allows customers in-store to complete a purchase online and vice versa, but also in using the location as a community watering hole. Its sales associates—called Offline Editors—are primed to speak to customers as educated friends and the storefront includes spaces devoted to creating social media posts and experiencing Glossier’s best-selling product, the Boy Brow (another way that Glossier is illustrating its two-way dialogue with customers). Instead of replicating these two stores across the U.S. and overseas, however, the company is positioning them as destinations—a mecca for Glossier customers to experience the brand IRL. In fact, Weiss stated in 2018 that 50% of traffic to its permanent stores is out-of-state and international. For this reason, the company thinks of owned retail as an emotional experience rather than a sales mechanism. In creating a new space for its community, the brand can continue gathering insights from customers, pre-existing and new, but also embody its tagline, “beauty in real life.”

Goop (Digitally-Native, Class II)

Goop’s newsletter built a following behind the brand long before it embraced ecommerce, which gave it optionality.

Goop, founded in 2008 as Gwyneth Paltrow’s biweekly lifestyle email newsletter, has blossomed into a fast-growing consumer brand since it launched ecommerce in 2012. The company tripled its revenue between 2015 and 2016, and again between 2016 and 2017, reaching an estimated $60 million. In 2018, its revenue is expected to more than double to at least $100 million, placing it in our $101-250 million revenue bucket. Since inception, Goop has raised a total of $75 million.

With its free newsletter, Goop provides an easy point-of-entry to readers and potential customers. Before selling any product, it created a following behind the brand—in 2014, subscribers totalled 700,000, which grew to 1 million in 2016, and reached 8 million in March 2018, with a 30% open rate. In June 2018, 2.4 million people visit its site each month, according to the company—its podcast, focused on interviews with wellness gurus, attracts 100,000 to 650,000 listeners each week.

Because the Goop brand started as a newsletter of Paltrow’s favorite trends and products, the email has essentially served as a long-term marketing campaign, authentic to the company and what it stands for: a trustworthy site of Paltrow’s recommendations. Open one of their newsletters and you’re likely to see Paltrow featured in it more than a dozen times.

This fan and customer base will play a crucial role as the company focuses increasingly on retail opportunities at its growing number of pop-ups, permanent stores, and live events, including the annual Goop Summit, starting in 2017. However, the incongruence between a free newsletter and the premium price point of many of Goop’s products, both private-label and otherwise, will limit customer conversion. Though Paltrow, in speaking for the company, has acknowledged that her brand is “aspirational,” and therefore not accessible to everyone, Goop has not acted in a way that aims to bridge this gap, which may restrict growth in the long run. Additionally, as the company alienates some shoppers with pseudoscience, it risks shrinking the potential and large customer base it has been cultivating—and needs to to meet its growing valuation.

With full ownership over its media channel, which acts as a customer acquisition funnel, Goop can market its products in its native language.

As the newsletter grew into a full-fledged publication centered on fashion, beauty and wellness, Goop also turned to branded products in 2016, harnessing its media arm to advertise its recommendations alongside its own products: G. Label for apparel, G. Sport for activewear, and goop by Juice Beauty for cosmetics (which was created as a partnership, and thus does not come with the benefits of a pure private label). As of October 2018, the brand has 72 active Facebook and Instagram ads, according to our 2018 Q3 Megaphone Report, all of which share links from Goop.com, promoting the company’s own content marketing recommendations and products while simultaneously exerting full control over the coverage and editorialization of the Goop brand. Still, this level of ownership over its social media channels may be increasingly defensive rather than preemptive, given the amount of negative press Goop has received for spouting unfounded scientific benefits behind some of its products—the ability to control the whole customer journey from beginning to end. Though the Goop brand is trustworthy in the sense that product and lifestyle recommendations are sourced from Paltrow herself or vetted by her team, the reasoning behind their endorsement does not necessarily flow from a veritable source.

Goop needs to diversify its retail in order to find customers willing to pay an “aspirational” price point.

Regardless of how large its newsletter subscription pool is, retail expansion is becoming increasingly necessary for Goop: When the only ways for consumers to participate in the brand are making (typically expensive) purchases or reading Paltrow’s email, the brand must embed in new markets to find its target customers if it’s going to make a profit. In order to do so, the brand has worked in the past few years to diversify retail via wholesale and especially owned channels. In 2011, Goop began a wholesale partnership with Net-a-Porter, and has since established other deals with premium retailers including Cos Bar and Nordstrom, which brings it in touch with more customers willing to pay its premium price point.

More recently, Goop has placed much more attention on owned retail, which brings in higher margins than wholesale. In 2014, the company started opening pop-ups, which have been sponsored by companies like Prada and Cadillac, allowing Goop to open the temporary storefronts at zero cost while almost everything else is profit, according to the company. In 2019, Goop plans to double the number of pop-ups to 12.

In September 2017, the company also opened its first permanent store, Goop Labs, in Los Angeles, bringing the concept to New York in November 2018 with plans to expand to London by 2020. This development is guided by customer activity; Goop found that in-store and online commerce comprise 50% of its business (with advertising and brand partners filling in the other half), and that the New York region makes up 12% of online sales. Knowing that 43% of its 2017 retail sales stemmed from Los Angeles, largely buoyed by the new permanent store in the city, Goop sought out a new permanent revenue stream in New York (to be sure, it tested the market with four pop-ups beginning in 2015, all of which performed well). But instead of simply replicating its LA store in New York, the company is curating its merchandise to account for both the seasonality of the East Coast and the higher incomes of regional customers, who on average have an annual income of $100,000 or higher.

Bevel (Digitally-Native, Class III)

Walker & Company was founded in 2013 by Tristan Walker, and simultaneously launched Bevel, its flagship subscription-based men’s shaving brand for people with coarser hair. The 2017 launch of its second traditional brand, FORM, for women’s hair, debuted both online and at Sephora. While the company does not disclose revenue numbers, we estimate that it falls in our $51-$100 million in revenue bucket for 2018.

Bevel prioritizes word-of-mouth growth and education-as-marketing, which keeps costs low and the brand image authentic.

From the beginning, Bevel has made a concerted effort to look to the crowd, rooting Bevel in local communities in order to spread via word-of-mouth. To do so, Walker partnered with black barber shops, which would receive a commission from the brand when a customer purchases a Bevel product. The brand also turned to podcast advertisements—a burgeoning media channel, particularly for the black community at the time of Bevel’s launch. It also landed high-profile celebrity endorsements from the rapper Nas (who is also an angel investor in the holding company) to the basketball player Quincy Acy.

Walker & Company’s marketing is educational and cultural in nature, built on sharing stories and forging person-to-person connections within the black community; Walker felt that information for people of color about grooming was underrepresented in the media. While it has since folded, Bevel initially operated a blog—Bevel Etiquette—devoted to sharing information about men’s grooming and style. Likewise, FORM—which comes with the tagline, “We’re here because of you”—features photographs of women and text about their personal hair history on its site. This strategy also helps match shoppers with the right products—today, FORM’s online customers are greeted with a short quiz that asks about their hair needs, which the company uses to recommend certain items.

Though many digital brands like Walker & Co. are going offline and pursuing traditional marketing strategies, these techniques have been used by heritage brands for decades. As Walker & Company demonstrates, brands that plant seeds in grassroots, community-based marketing give their company a local and relatable face, setting the groundwork for word-of-mouth growth. Especially for Class III Brands, which work to promote a socially-minded mission, Bevel’s marketing strategy is tied to the company’s broader purpose, and therefore authenticates the overall brand.

Fenty Beauty (Traditional, Class III)

Rihanna’s audience, coupled with Sephora’s retail expertise, has provided Fenty with frontend and backend knowhow that rivals most brands.

With Rihanna serving as co-designer and brand ambassador, Fenty has been able to engage with its audience both directly and indirectly. As of November 2018, Rihanna had access to 65.8 million Instagram followers compared to Fenty’s 5.5 million and Sephora’s 15.6 million; her celebrity status served as a marketing mechanism in the build up to the brand’s launch and beyond. Given her role in the brand’s creation and execution, Rihanna has been able to promote Fenty more authentically—her partnership with Kendo also means that her social media posts about the brand do not need to include the “paid partnership” label and that Sephora can avoid what would otherwise been high marketing costs, even including what it pays in royalties to Rihanna. As of October 2018, the brand has only eight active Facebook and Instagram ads, according to our 2018 Q3 Megaphone Report, half of which serve as product launch posts. At the same time, Sephora brings both funds and years of experience in the beauty industry, enacting high-quality traditional advertisements, including the brand’s promotional commercial.

Though Kendo and Sephora provide Fenty with these traditional channels, allowing the young brand to be more ambitious than most, its diversified marketing and retail strategy help it tap into larger customer acquisition and growth opportunities, which shouldn’t be overlooked. Harnessing Rihanna’s star power as well as Sephora’s expertise, Fenty garnered more than $118 million EMV in its first quarter according to Tribe Dynamics, outperforming celebrity brand behemoth Kylie Cosmetics.

With Rihanna contributing largely to the brand’s social media presence, Sephora is able to concentrate on the Fenty supply chain and retail experience. Thanks to Sephora’s dominance over the cosmetics industry as the second largest beauty retailer in the U.S., Fenty evades concerns other celebrity brands have faced, such as Kylie Cosmetics, whose imminent foray into Ulta Beauty stores suggests the digitally-native brand reached a ceiling on digital growth, even with a celebrity at the forefront with wide-reaching social media power. Right now, Fenty’s digital channels, both in terms of celebrity marketing and direct sales, in addition to its traditional channels at Sephora, give the brand the best of both worlds. It also ensures that both Fenty and Sephora command autonomy over what they do best—a formula that would only be disrupted if Rihanna left the helm of the brand.