#83. Bluemercury took cosmetics out of department stores, pioneering small-format beauty retail. We talk with co-founder Barry Beck about starting the company with his wife Marla and navigating through various retail cycles to grow their business to more than 200 storefronts in 20 years—all the while remaining true to their playbook. The Loose Threads Podcast features in-depth discussions with leaders across the rapidly changing consumer economy.

Check out the full transcript below.

Richie: [00:00:07] Welcome to the 83rd episode of the Loose Threads Podcast, a show about the rapidly changing consumer economy. This episode is brought to you by Loose Threads Membership, which gives you actionable analysis and insights that drive growth, and Loose Threads Espresso, your energizing and high-pressure filter for consumer news—in context. We also have a newsletter that features the latest open letters to CEOs, podcasts with industry leaders and news from Loose Threads. Check it all out at LooseThreads.com.

Richie: [00:00:34] Joining me today is Barry Beck, a co-founder of Bluemercury, a retailer that pioneered the small-format beauty store and has grown to a collection of over 200 of them in almost 20 years.

Barry: [00:00:44] It occurred to me that everything had been pulled out of department stores so I thought to myself, “Why not cosmetics?” I’d like to say it was like a light bulb went off in my head, but the truth is it was like fireworks.

Richie: [00:00:57] Barry founded the company with his wife Marla and they’ve gone through numerous retail cycles throughout their time in business. But they’ve constantly returned to the same playbook that made them successful in the first place: Stay small, grow in a smart way and give people something they can’t find elsewhere. Here’s my talk with Barry Beck.

Richie: [00:01:17] So I’m curious, to start: What is the last article you read about this industry broadly that you disagreed with?

Barry: [00:01:24] I think the last article I read and I can’t remember which—actually it was in a Philadelphia magazine talking about the fact that Walnut Street in Philadelphia is being hollowed out and that retail is dead and that is something I completely disagree with. I don’t believe that retail is dead. I think that retail is really just simply going to change more in the next three to five years than it probably has changed in the last 100 years and that’s my take on that.

Richie: [00:01:55] So it was a local story about the local retail footprint.

Barry: [00:01:59] It is except that Walnut Street, certainly when we started Bluemercury, it was the location of our third store. It was the site of one of our many “aha” moments in the industry and, at the time, I believe it was the fourth best shopping district in America according to Visa credit card statistics. So I think it’s a material data point for overall shopping in America. It’s not some sort of obscure market. It’s a major market. Fifth biggest city in America today behind Houston. And so it’s a real—

Richie: [00:02:31] So they took that local story, zoomed out to a larger picture but came to a conclusion that you would strongly disagree with.

Barry: [00:02:36] Correct.

Richie: [00:02:37] So now, if we jump back, I’m curious to talk a bit about your background before Bluemercury started and then we can kind of work our way through the story. And I also want to spend a good amount time talking about the market and everything; where it is today and where it’s going in the future as well. But before this little company existed, what were you doing?

Barry: [00:02:51] So I was running a company, the Washington division of a company called U.S. Maintenance, which I started with my brother and a friend. It was based in Philadelphia. I started the company with my brother when I was still in college. I was a junior at Cornell University and we basically created an industry around chain store maintenance. Just an example would be we went to companies like Starbucks, Bed Bath & Beyond, Home Depot and said, “How do you think about a store in Alaska or California that you’re locked out of?” And they said, “Oh, it’s really difficult for us. It’s almost chaos. Our store manager goes to the phone book and they have to call the local locksmith.” We had this concept of bringing order to chaos through a national account strategy where we gave them one point of contact, one source for billing and we really created that industry, a national chain store maintenance business. It was wildly successful. Ultimately, The company was sold to EMCOR group which is a Fortune 500 public company.

Richie: [00:03:51] Did you plan to do the retail store thing or did it just kind of happen?

Barry: [00:03:56] So I was involved with U.S. maintenance, running that business and I wasn’t totally satisfied. I called my older brother, who was one of my partners in Philadelphia, and I said, “I’m not really satisfied with the business.” He said, “No, no, no. Everything’s fine. Take a look at your bank account statement and what I want you to do is put it under your pillow at night and through osmosis you’ll become happy.” So I tried that. But the truth is I wasn’t totally satisfied. You have to remember it was about ’99 and it was against the backdrop of the internet boom. And I’ve always felt that there’s no such thing as a great entrepreneur who didn’t ride some great wave. Rockefeller rode industrialization, Henry Ford rode combustion engines, Jeff Bezos rode the internet and ecommerce. And so I knew this was an amazing opportunity. I wanted to get involved and I convinced my team that we should think about selling the business and I went to an investment banking meeting in Washington D.C. back then and there was a public company that was buying all the companies in my industry and I thought it was a good idea for us to sell to them. It was in that meeting that I met a woman, a young gal actually. Her Name was Marla. She ultimately, of course, became my wife and she really blew me away. I think although we’re polar opposites, it was an immediate attraction and we began to bat around ideas together and talk about this new fangled thing called the internet which was very, very early.

Richie: [00:05:19] Do you have memories of what it looked like or felt like?

Barry: [00:05:21] It was slow, it was clunky, it was full of cowboys, it was a new frontier. They say the pioneers get the arrows but it’s the settlers that get the land which is something I think about a lot. People say it’s all about first mover advantage but there’s a lot to be said for last mover advantage. By the way, Mark Zuckerberg came around to the internet, this idea of the internet, 15 years later. And so it was really early and we were very early and I have to say that sometimes being too early is just being wrong.

Richie: [00:05:54] Right.

Barry: [00:05:54] We had the idea—we started to bat around ideas together. What are we doing in this old world industry? We should look at a new industry. And we talked about what we could sell on the internet and the idea was to sell luxury cosmetics on the internet which we thought was a great idea. We didn’t think anyone was doing it at the time. It was a very exciting time. Money was abundant. Money was cheap. We raised a million dollars in under two weeks with just an idea. And that was the start of the company.

Richie: [00:06:28] So the plan’s to sell these things online. You go out and raise this money. You’ve built a business before. You’ve done it in the retail space. What’s the first year of that like with the money in the bank?

Barry: [00:06:39] The first year, for me, was similar to the first few years of my first company. Sometimes being an entrepreneur, starting a company feels like you’re eating glass. There’s no such thing as a business plan that ever survived its interaction with its first customer. So we had this idea that we were going to sell cosmetics online. There was a few problems with that. Number one: Nobody was shopping online. It was great technology. It was tantamount to giving a Tesla to the Romans. This is really what was going on. The only people that really shopped at our website were competitors, to see what we were doing, what our packaging looked like, how we were going to fulfill our orders. And there was a couple other problems. The customers weren’t used to shopping online. They were used to going to stores, particularly the mall and department stores, to purchase cosmetics. And I think the third problem is these exclusive brands that we courted were acutely afraid of the internet. In fact, its ubiquity and what I hoped to bring to the marketplace was something that they were particularly afraid of because it was the exclusivity which really drove the value of some of these brands and so the business really didn’t work. I mean that was the reality.

Richie: [00:07:52] How long did it take you to realize that?

Barry: [00:07:54] I think it started to set in probably within 90 days.

Richie: [00:07:59] Really?

Barry: [00:07:59] Within 90 days. Because we started to court all these brands and we could not get them to return our calls. Actually, true story is that I called a gal named Karen Katz, she was the head of Neiman Marcus, and I asked her to come sit on my Board of Directors. I figured that would give me quick access to these brands and she did fly up to Washington, D.C. to see me. And, in the end, they felt like I would become a competitor to them or we were competitive. So, in the one sense I was crestfallen because one of my hopes to gain access to this industry 20 years ago, that hope was dashed. But, on the other hand, I was a little bit encouraged because they thought I could be a competitor. I just didn’t know how.

Barry: [00:08:41] Ultimately, what happened is, while I was searching for a solution, Marla and I were walking down M Street in Georgetown and we came across an independent beauty boutique that carried a couple of interesting brands, brands that no one had ever heard at the time. I thought that was interesting. I guess it occurred to me that everything had been pulled out of department stores. I knew that. Kitchen goods—Williams Sonoma. Electronics—Best Buy. Furniture—Pottery Barn. So I thought to myself, “Why not cosmetics?” I’d like to say it was like a light bulb went off in my head but the truth is it was like fireworks. I think that these sort of serendipitous junctures in business caused the creation of some of America’s greatest companies and they’re so interesting to think about and talk about but really are seldom regarded.

Barry: [00:09:31] I wonder how many of your listeners have ever heard of a company called Burbn. Burbn was a location check-in app where people used to go meet their friends and share photos and the problem is the company was becoming insolvent. It was ultimately going to go bankrupt than the founders looked at their little fledgling startup and said, “Gee, the most used feature of our app is photo sharing.” They really focused on that and they changed the name of their company to Instagram and the rest is history.

Richie: [00:09:58] So you and your wife’s stumble upon this store. It’s selling these niche brands at the time. How long does it take you to realize you want to buy the store?

Barry: [00:10:05] Basically what happened there was that we couldn’t get access to these brands, no matter how hard we tried.

Richie: [00:10:13] Why do you think this boutique could?

Barry: [00:10:15] That starts here in New York City. And I’ll just make a parallel in fashion. So there was a young designer many years ago, 30 years ago. His name was Giorgio Armani and Giorgio was a struggling designer. He came to New York and he partnered with another entrepreneur who went by the name of Barney Pressman who eventually created—he was a discount retailer downtown but they moved uptown and created a fancy store and they had a restaurant upstairs and they had an exclusive with Giorgio Armani. But what happened—I’m gonna make a parallel to cosmetics.They had as exclusive. He couldn’t sell his products anywhere inside New York City. But, unfortunately, the business wasn’t enough for Giorgio Armani himself and the Giorgio Armanis in the cosmetics world. And so they needed to find some distribution points outside of New York and, of course, they went to their partners, the big department stores, the Barneys of the world, Bergdorfs if they had an exclusive there and said, “Listen, why don’t we go to these one horse towns like Washington, D.C.? Small boutiques like Fred Segal in Los Angeles. Something small like Brownes in Miami?” If anyone’s ever heard of these small chains. They said, “Listen, let us have our distribution there. They’re not a threat to you in New York and we can earn some cash flow so we can keep our business alive and continue to provide these great products to you and your clientele in New York.” And one of the beneficiaries of this distribution offshoot was a beauty boutique named EFX in Georgetown.

Barry: [00:11:48] So I came across this beauty boutique and I said, “Why don’t you partner with me? This new fangled thing called the internet could drive some customers to you. And, on the other hand—you could get some revenue from it and, on the other hand, I’d have access to these brands.” And we set up a strategic partnership. As I got closer to the business, I realize, like every entrepreneur, her business—it looked great upfront and it was so beautiful and her store was so beautiful and I was so excited and she carried so many great brands. But what I ultimately realized, like every entrepreneur, on the surface they all look like swans gliding across the surface but underneath she was paddling like hell, could barely stay afloat. She needed me to help her to keep her business afloat and I provided some financial help and business advice. Ultimately, I said, “In order for me to continue to supply you with this advice, help and management we had to formalize our relationship.” And what happened—it came in the form of a management agreement with purchase option which basically said, “Look, I’ll continue to help you and I’ll fund your business.” Because I needed that because if she went out of business I was in a lot of trouble. I would continue to fund the business and if I liked what I saw over time I had an option to purchase it.

Barry: [00:13:02] One of my big concerns was it wasn’t the upside that I was worried about. It was much more of the unknown liabilities. I exercised my option, purchased the company. I changed the name to Bluemercury which was the name of my internet company. I actually amalgamated the two businesses and the rest is history. There was Bluemercury. In fact, we became a Harvard Business School case study, a case that we teach now twice a year. The case was recently updated. We were there twice this year to teach it. We were credited by Harvard Business School as coining the phrase “clicks and bricks” because our initial investors, which included the founders of America Online—which I try to tell my kids what that is and they have no idea but it was the Google of its day—they hated the idea of the old-fashioned store. We convinced them that it was really stores combined with the internet that was really the most powerful feature. Of course, fast forward 20 years later, you see that today. If I could send myself a certified letter you’d know I was right. You could look at the timeline of speeches I’ve given or articles I’ve been featured in and I said that I always thought that companies like Amazon and eBay were going to go into a physical world retail. They just were because I felt like it was nearly impossible to fully express your brand without having a physical presence. And, of course, fast forward three years later after I was saying that, Amazon steps in. What do they do? They buy Whole Foods.

Richie: [00:14:28] So you have two stores right? You rebrand them as Bluemercury. You merge them with online. Over the next few years, what do you start to do? Do you say, “We have to really grow the footprint. Do we redo the store?” What’s the priority list in your head now that you have these two things as you look to the next few years?

Barry: [00:14:44] The funny story about that is, when we went to buy the business, we realized that actually the entrepreneur didn’t even own the business which is funny, right? Who owned it? The bank. The entrepreneur had a $150,000 loan out to the bank. I had now started to manage the business but hadn’t exercised my purchase option. My next move was to go to the bank. I sat down in the board room and they came in and I said, “Gentlemen, you’ve lost all your money.” And I proceeded to explain to them they had $150,000 inventory loan out to this business and I laid out the charts and spreadsheets and projected cash flows of the business in its current form. I told them that the only way they could ever get their money back on this loan was if they doubled down and they put down another $150,000. I fixed the business and that’s what happened. I think the patient was in the emergency room by that point. I stabilized it.

Barry: [00:15:36] Remember, I was running two struggling businesses at the same time. I was running Bluemercury, the internet business, separate company–struggling, running out of cash. I had to do layoffs. It was very, very difficult. At the same time, I intersected with EFX—struggling business, in the operating room. And what I did was I took about six to ten months and I stabilized the patients.

Richie: [00:16:00] Did that seem daunting or you felt it was a doable thing to accomplish?

Barry: [00:16:04] It’s easy to look back and romanticize it and say it was easy. I had a lot of expertise. My first company went insolvent twice. Every business goes through reinvention and tough times. So I was no stranger to it. Frankly, although I don’t love to have the proverbial gun to my head, I think it’s when I’m at my best.

Barry: [00:16:24] And then we said, “Okay, patient stabilized. Let’s open a third store.” So we went to Philadelphia. I was from Philadelphia. I knew the market and I could sleep on my sister’s couch if i ever needed to. And we decided to open a store on Walnut Street.

Richie: [00:16:40] Full circle.

Barry: [00:16:41] Backed to Walnut Street. I’ll never forget I went to a meeting with a local real estate guy and I said, “Walnut Street’s amazing. I love Walnut but I can’t afford it.” The rent was so high. They said why don’t I take a side street? And one of his comments to me, he said, “Let me ask you a question. When do you need to be successful?” I said, “Well, Jesus. This is a bet-the-company move. The day I open the doors, I have to be successful. If I can’t make it on Walnut Street, better to know now.” So the funny thing is, it’s a funny story, this is really the second sort of “aha” moment at Bluemercury.

Barry: [00:17:14] We opened our store to very little fanfare although we did open on the best block in the Tri-State area on the best side of the street in a beautiful historic building. It was beautiful. But the problem is it was historic and I couldn’t get a sign. The department in Philadelphia is very slow moving. They’re called L&I, licenses and inspections. They wouldn’t give me a sign.

Richie: [00:17:35] Which is a problem for a new retail concept.

Barry: [00:17:38] We’re big on signage. To not have a sign. If you drive around New York City, you see our stores everywhere and it’s part of my strategy. I loved having big signage. My brand and our bags and our store fronts. So this is very big. Everybody knows that today, of course. But the first customer came in and she explained my business to me better than I could explain it to anyone today. She went to write a check and she said, “Oh my gosh, this is the greatest thing to ever happen to Philadelphia. I used to have to drive all the way out to King of Prussia mall to get my cosmetics. Now I can shop right in my neighborhood where I live my life and get my groceries and go to the gym.” And she went to write her check and it was a several thousand dollars, first sale of the day. And then she looked at me and she said, “Yeah, it’s so great but what do you call this place? There’s no sign.”

Barry: [00:18:27] So Marla and I were working the sales floor at the time together. We used to work the store floor. I said to the client, I said, “Look the name of the company is Bluemercury.” And then I looked at Marla, whispered in her ear, “I think we’ve really got a business.” And so what happened is we opened our—that was our third story. We opened a fourth store on the main line in suburban Philadelphia near to where I grew up. But it was really our fifth store we opened in Princeton, New Jersey where we started to get a lot of media attention and we became known as something of the Starbucks of cosmetics and the business really started to click. It was really working.

Richie: [00:19:00] So I’m curious to talk a bit about the store size and the format because the big box stores and department stores always had huge footprint so to speak. You fast forward all the way to now and everyone’s going backwards towards these smaller format stores after going really big. But 10, 12, 15 years ago you were playing with a really smaller, more reasonable format. And I’m curious: you found that in the two boutiques. How big were they roughly?

Barry: [00:19:26] 1,800.

Richie: [00:19:27] 1,800. So under a few thousand square feet. But you continued to keep that format, invest in this neighborhood-like feel. Talk a bit about that because it seemed to be in contrast and is still in contrast to a lot of the other formats and approaches which are just tens of thousands of square feet and so forth.

Barry: [00:19:44] It’s funny. A friend of mine who was a good friend with Bill Gates and I asked him to ask Bill for a good piece of advice for me if I wanted to do a new venture later my life. And one of the things Bill said was, “No more paper clips.” So I said, “This is like the second richest guy in the world and that’s the business advice he passes on to you to pass to me? No more paper clips? What does that mean?” He said, “Hard to start a business from the ground up. Always better to buy business.” So I think that when we came across this EFX boutique, the entrepreneur was interesting. They were a pioneer. They were avant-garde. Couldn’t see the national play. That’s what I was looking at. So I think that’s one thing.

Barry: [00:20:21] I think parallel path-ing that thought process. You have to think about the department stores. Why were they created? They were one of the greatest inventions of American living and lifestyle. They were created for two main reasons; convenience and breadth of selection. This is why the department store was created. But what happened was, with this sort of disintermediation caused by the internet, they were not the only source for breadth of selection. And then this idea of densification leading to localization meaning that people were going to begin to shop in their neighborhoods where they lived their lives, where their Starbucks was. They would pop into Bluemercury for a quick lipstick or learn a new tip or trick. You have to think about, in the luxury cosmetics business, fifteen years ago, 90% of all luxury cosmetics were purchased at department stores. By 2014, it was down to 60% and still sinking. That was really a trend. Also, if you look at other statistics on store count and store size–I think according to McKinsey and Company, store count over the past 10 years has increased by at or about 11% but the footprint has decreased by nearly 4%. So what, clearly, statistically you’re seeing is a proliferation of actually more retail but smaller footprint.

Barry: [00:21:41] And so I think that we were really a pioneer of that trend and I think that we’ve been widely recognized as a pioneer of Main Street shopping in America today. I think that, once we come in and establish these neighborhoods, then the landlords can get more rent from other tenants. This is sort of this anchor tenant effect that these landlords see and it’s been very successful for us and it’s worked very well for the landlords. It’s worked very well for the customer. So it’s really a flywheel effect. Everybody wins.

Richie: [00:22:13] So we’re in kind of early to mid-2000s. You have five stores. The model’s working. What next?

Barry: [00:22:18] It’s funny. So what happened there is our fifth store is in Princeton and a guy who sat on the Board of Princeton kept coming into my store and leaving his card. His name was Bill Fisher and he was the middle boy, a billionaire in his own right of the Fisher family from San Francisco who used to sell Levi’s for a living, got frustrated with dad and then they started to create their own brand; The Gap and then Old Navy and Banana Republic. But I guess I eventually call Bill and I said, “How can I help you?” And he said, “Look, we love beauty.” And he said, “I want to make an investment in the company.” And, of course, I saw stars in my eyes for a little bit. But, of course, then I realized that a client who acts as his own investment banker has a fool as a client. So we engaged a company called William Blair & Company out of Chicago and we ran a process and we took a strategic investment from a company here in New York City called [???] Group who are former McKinsey and BCG consultants. We partner with them and we started to really accelerate our growth.

Richie: [00:23:19] And so you take more money in. What’s on the docket of here’s where we’re going to spend that money? Where does it go?

Barry: [00:23:25] Lots of mistakes. What happened then was we had this idea of a total acceleration of the business which, [in] eventuality, became known as a failed strategy, the mall strategy. There was a theory in the boardroom that was, wait a minute, here we are slugging it out. First of all, business is never linear and there’s rarely any shortcuts.

Richie: [00:23:52] Do you think capital is a shortcut?

Barry: [00:23:54] No you know what happens with us. I always found every time I had a pocketful of money, I tried to GBF, the Harvard Model, get big fast, accelerate growth and I think it makes you drunk and stupid.

Richie: [00:24:05] Because you see that a lot today now with a lot of these brands that are trying to take a five, ten year brand building process, pump $50 million in and compress it into two or three years.

Barry: [00:24:14] You mean the drunken sailor strategy? It happens and sometimes it really works. But this idea of, “We got to get big fast and we have to be the first mover.” But the truth is, like we talked about earlier with Facebook, sometimes it’s a last mover advantage. So we set in on the mall strategy and this idea was create one conforming lease for ten different locations with one landlord like Simon Property Group. We went and opened up at or about ten mall stores, all of which today are closed, the only stores we’ve ever closed since the company’s founding which says a lot considering how many stores we have which is approaching 200. We closed all those stores. It was painful, agonizing. It was actually, in some ways, more painful than when we almost went insolvent or bankrupt when we first started the company. Because here I was, I built this great company, it was really exciting, I made one misstep.

Barry: [00:25:09] I think one of the biggest challenges was it was against the backdrop of The great recession of 2008. So not only did we make an operational error but we had a massive contraction in American economy. I hid behind it. This is something I haven’t really talked about to anyone, frankly, I’m telling you now. I hid behind the great recession of 2008 when Bluemercury almost collapsed. But the truth is our customers were still coming into our stores and buying and our core business was still solid. In fact, Marla and I like to say that we’ve grown the revenue of the company every single year since its inception including 2008. But what caused us to almost go insolvent was actually an operational error.

Richie: [00:25:58] What did you think was going to happen and then how did that not happen?

Barry: [00:26:02] Well, look, you don’t know what you don’t know.

Richie: [00:26:03] Yeah.

Barry: [00:26:04] And it seemed like a smart strategy.

Richie: [00:26:06] Because?

Barry: [00:26:07] Because we could get big fast. Shortcut. But we should’ve stuck to our knitting. We got ahead of ourselves. So we went to the malls where there was an abundance of competition; problem. Nobody knew who we were; problem. We weren’t seeing our customers with the frequency; problem. We weren’t convenient; problem. Other than that, it was a great idea. We upended everything that we had built and we had to right the ship which I did which was painful. I’ll never forget. I was in Palm Beach and I was meeting with a friend and I showed him our books and I said, “Look at what’s going on with the business. I’m ready to quit. I just don’t think I have the stamina or the strength to right the ship.” And one of my great advisers looked at me and he said, “No, no no. You’re going to go ahead and close all these stores.” And I just took a deep breath, got my scuba suit on and I dove in and I went about writing the business, making change to our corporate structure, streamlining the business. And the truth is, when we came out of the great recession of 2008, we knew more about who we are, more about what our mission is, more about the direction we were heading than we did going in, clearly. And we just really came out stronger than ever and we became this juggernaut.

Barry: [00:27:23] Coming out of 2008, one of the things that we noticed was this millennial generation which, by the way, so many real estate companies and retailers find this environment to be VUCA, which is volatile, uncertain, complex, and ambiguous. You know how do I talk to, how do I work with this new set of young digerati who grew up with the internet at the palm of their hand? They have a whole new way of getting information and trying to figure out how they’re gonna make their shopping decisions in the future. By the way, one thing that we noticed was that the millennials were the largest generation of vegetarians in history. We had our clients who were coming in and looking for more natural products. This was a big trend that we saw early. For being in such a glamorous business, we really spend a lot of time studying the data. We’re data junkies. They were coming to our stores and they were saying, “On the one hand, I love my doctor’s products but I know, I’m reading on the internet they’re filled with harmful ingredients; parabens, sulfate, surfactants. And, on the other hand, I like to buy these natural products. The only problem is they smell bad, the packaging is terrible and they don’t work.” And we saw an opportunity and we lept in and created m-61 powerful skincare.

Barry: [00:28:40] We’ve actually created almost a consumer monopoly. Some of our products, our PowerGlow Peel, we sell one every eight to ten seconds. It’s really become our Coca-Cola, a gateway drug for us. And then, later on, after that, we created Lune+Aster which was a vegan makeup line which has become a runaway success for us as well. We just launched Formidable which is a long-lasting vegan mascara which we can barely keep in stock. It has been a runaway success for us as well. And so this is really the future of proprietary brands for us.

Richie: [00:29:11] Bring us up to the Macy’s acquisition. Where does the business get to before that? And then talk through what you were thinking and why and why you ultimately went through and then we’ll talk about the present.

Barry: [00:29:24] One of the big moves that we made that really was a big move out of the great recession which is interesting: The business was in trouble. I needed some breathing room to do a turnaround. I had partners in place and I felt, maybe incorrectly, but I’ve been accused of being the sailor that reacts to every wave that hits the boat, and so I was worried that if I made one more misstep I could be removed. I decided to make a bold move. I said, “We’re going to open up our first Manhattan store.” We chose a store on the Upper West Side at 83rd and Broadway. We had actresses coming in. It really catapulted us to the national stage. Someone said to me, “You really don’t have a company until you open up in New York.” I don’t know if I believe that but—

Richie: [00:30:09] Right. But the model’s from D.C.

Barry: [00:30:10] Yeah, correct.

Richie: [00:30:11] Yeah.

Barry: [00:30:12] And so it was a really successful store, really solidified our coming out of the great recession and a rebirth of the company and we really started moving along and we really discovered New York. Now, with nearly 20 stores or more in New York City, we’ve really figured out New York City and we’re opening stores in New York. I think that garnered a lot of national attention. But we were still growing every function of the company on our own; H.R., accounting, supply chain. And so we were looking for a strategic partner who could really help us grow to the next level and we hired an advisor, which came in the form of Goldman Sachs & Company, and they helped us really weigh our strategic options and that’s really how we came to met Macy’s.

Richie: [00:30:58] What did you start to realize that made you comfortable with a move like that?

Barry: [00:31:01] Well there was multiple suitors and, in the end, we loved Terry and Jeff. This is a company that owns a day of the year, Thanksgiving. They were so core in their retail and omni-channel capabilities that we thought it made a lot of sense for us. And, frankly, it was an amazing recognition of the innovation and value that we had created. But, at the same time the irony after all these years of building my company in a neighborhood, the irony of selling to a tier-one department store, frankly the large department store in America, is this irony that isn’t lost on me.

Barry: [00:31:39] But, again, you have to remember, against the backdrop of building every function my own, it really made a lot of sense for us. The gentleman who ran the process for Goldman Sachs & Company told me something funny. He said, as he was walking down these hallways at Goldman Sachs, he said to me, “It’s funny.” I said, “What?” He said, “I never really got more high fives in my career than when the Bluemercury deal was announced.” And it really speaks to the power of our consumer brands. We really built this thing into an iconic luxury brand and household name with a national footprint and this is something I really always wanted to do.

Barry: [00:32:17] I know it sounds a little emotional but I’m very emotionally attached to the company and that’s always been one of my struggles. Someone says, “What’s the struggle you face the most today?” And I would say that that struggle is that I think, in some ways, Bluemercury has become part of me. And, certainly, I think that I’m part of it and I think that Marla and I are very closely affiliated with the company.

Richie: [00:32:41] Yeah.

Barry: [00:32:41] And that’s part of who the company is; a mom-and-pop business with a national footprint.

Richie: [00:32:47] Yeah. It’s interesting too because often the most telling metric of an acquisition is if the founders stay and how long they stay for.

Barry: [00:32:55] It’s been nearly four years.

Richie: [00:32:57] Right. What was your thinking continually around how long you ride this out for and that you were going to continue to stay and operate this business? And why, is my question.

Barry: [00:33:08] A couple things. We love the company. Jeff and Terry were—they’re just everything which is great—it can be great about corporate America. These are brilliant business guys, highly strategic, know everything there is to know about retail. They’re handsome, they cut an amazing picture. Really, they’re the full package. Who wouldn’t want to partner with them? They’re just amazing business guys. This is a Fortune 100 company, one of the largest companies in America and, as an entrepreneur, I’m able to now operate with resources I could never have imagined as a standalone venture. Also I would add that, in a trend that’s really sweeping across America today, this idea of founders of prominent startups are able to sell their cake and have it to where Macy’s has allowed us to continue to run the company, flex our entrepreneurial muscles by growing these proprietary brands and opening new stores, swim in our own lane as we continue to learn from each other and they’ve been very supportive of that. It’s just been an amazing partnership and this is really an amazing company and with great executives and the relationship is strong.

Richie: [00:34:16] Yeah. You see the same thing with Instagram now too where they’re having the best time ever. Many years after the acquisition, the founders are still running the company. It’s interesting, the game theory of: do you stay to continue unlocking the potential and that the best times are ahead if you’re there versus, if you just sell, get out and go, let someone else handle it?

Barry: [00:34:34] I think that everyone at Bluemercury would be happy to know that you just compared Bluemercury’s relationship with Macy’s to Instagram and Facebook. If you’re offering that up, we’re taking it.

Richie: [00:34:44] And your own and your wife’s, as the founders, to staying engaged. What do you believe—I know it’s probably hard to pick one—is your wife’s greatest contribution to the business?

Barry: [00:34:54] Marla is an incredible entrepreneur, a genius strategist. She is able to combine this fan girl’s brilliance around product with the mind of a brilliant Harvard MBA. I like to tell people, if I could describe Marla in one idea, it’s beautiful mind which is that she is someone who can look at a pile of data and see something that nobody else sees. It’s almost like the numbers just leap off the page to Marla and she’s quickly able to connect the dots very quickly and see what’s next. As we grow Bluemercury, I like to say the bigger we get, the smaller I need to think and just continuing to study the data to find the trends and see what’s next.

Barry: [00:35:43] And I believe that—people ask me what the future holds and we’ve been at the forefront of almost every major trend or major successful trend in beauty since our founding. We were the first to create a national neighborhood beauty boutique. We were the first to create a powerful cosmeceutical brand, a vegan makeup line that really works, that can get you out the door and feeling polished and powerful. We were the first to identify the trend in men purchasing in the makeup category. So I really don’t see anything on the forefront that would keep us from continuing to dominate in the beauty category into the future.

Richie: [00:36:19] So I was introduced to you or saw you speak for the first time at ICSE last year. A lot of people were there at the conference. Everyone is multitasking like they do during those conferences. I was as well. And then all I hear is, “We’ve already beat Amazon.” And I look up and it’s you and you were talking on stage—I think Scott Galloway had asked you about Amazon. You had a very bold statement about that and talked about how you’re in the neighborhoods and you’re in places that, if I’m retelling this somewhat correctly, that you don’t think they can go or won’t go. That was probably the boldest statement I’ve ever heard someone say about that company and I was curious just where that came from and what the thinking was behind that and how you look at your existing setup, compared to them, moving forward.

Barry: [00:37:01] First, I would say, just to disarm that statement, which is the fact that any business plan that isn’t changing everyday is a business that’s failing.

Richie: [00:37:09] This was a year ago too.

Barry: [00:37:10] Yeah, well, I’m just saying that every business plan that isn’t changing everyday is failing and it’s only management that keeps it from falling apart. I mean the business is just this thing. The whole theory of Amazon is last mile delivery. We’re already in the last mile, where you live your life, where you buy your groceries, on your way home from the gym. Come to Bluemercury. Pop in for a quick tip or trick or grab a lip gloss. We’re already in the neighborhood. We’ve already beaten them there. You’ve got to walk by my store anyway whether you’re in Greenwich or New Canaan or Bethesda, Maryland or Brentwood or Santa Monica. I’m already in that neighborhood. Think about this stat: A majority of our customers in the cities live within a five mile radius and in the suburbs, never more than a 15 minute drive door to door. So we’ve already beaten them in that strategy. We’re already there. We’re actually closer. So they came in and they did the Whole Foods model but they’re still not as convenient. I mean how many people walk by Whole Foods everyday outside New York City? Not as many. But there’s droves of people walking up and down Bethesda Avenue. And so this is what I meant by that. By the way, we have not seen attrition of our business due to Amazon. So we’re still winning.

Richie: [00:38:25] And then this is my last question: As you look forward, how do you think about the next few years from the perspective of having over or close to over 200 stores but also knowing that spend will continue to shift online at whatever pace it does? And how do you balance those from where you sit?

Barry: [00:38:41] For me, I think about that in a couple ways. Number one: Location is still everything and I believe that the smart retailers will realize that their stores can become their most powerful asset and that there’s more opportunity than ever for more well-placed stores of the right size.

Barry: [00:39:01] But there’s really three big trends going on that I think will continue to drive customers into stores in the beauty category and certainly into Bluemercury. I think number one is this need for problem solving the beauty buying journey. The beauty buying journey is a really complex and personal journey and that very few customers of the Bluemercury type are going to try to go online to solve their acne or rosacea. They’d rather come into our stores for personal experience. So I think that’s number one. And, by the way, the internet is benefiting us and we’re getting an increasing share of wallet. There were more photographs taken last year than since the invention of the camera. Every moment is a red carpet moment. People are realizing that their image is forever. Looking good is, especially these days, more youthful and vibrant is a competitive advantage in dating and the workplace. So this is driving purchase in the beauty category. But people need personal advice because the buying journey in beauty is complex.

Barry: [00:39:59] Number two: There’s a lot of product proliferation which means that it’s never been cheaper before to create a beauty brand and so there’s so many new products created every day and so customers need Bluemercury to make sense of it all. They come in, we explain the products to them, which is right for them, we give them samples. The difference between our sampling program and others is, if you need an eye cream, we’ll give you three or four samples where some place may give you one. And, frankly, more than 50% of the time, customers come into a Bluemercury store looking for a solution to a beauty problem. Less than 25% of the time are [they] actually coming in looking for a brand or a product within a brand.

Barry: [00:40:36] And I think that the last thing is really the need for good judgment. The Bluemercury customer, even with the advent of artificial intelligence and online algorithms, our customers prefer a personal in-store experience. We’re so convenient, we’re in that last mile where you live your life. And so, for these reasons and there are many others, but for these three key reasons, I really just, again, don’t see a reason why we’re not going to continue to perform and dominate this category into the future.

Richie: [00:41:04] Awesome. Thanks so much for talking.

Barry: [00:41:05] My pleasure. Thanks.

Richie: [00:41:10] Thanks for listening to the Loose Threads Podcast. You can read full transcript of the podcast and join the newsletter at LooseThreads.com. Feel free to also leave a review on iTunes. We always appreciate it. And thanks to George Drake Jr. for editing this episode. We have a great roster of upcoming guests including Bouchra Ezzahraoui of AUrate, Rachel Winard of Soapwalla and Kara Cohen of DripKit. Thanks for listening and talk to us.