Why, and How Often, Do Beauty Brands Fail?

The “lipstick index” is a long-standing theory in the beauty industry that when the economy goes down, beauty sales rise. The gist being: “You may not be able to afford a Chanel bag, but you can afford a Chanel lipstick.”

It’s potentially why the beauty space is a multibillion-dollar industry; the US market alone is worth $60 billion and is estimated to be worth $75 billion by 2025, according to insights from McKinsey & Company. Each year, as a result, thousands of new cosmetics companies launch. (In fact, the number of brands in the U.S. increased four percent this year, hitting 4,254, per market research firm IBIS World.)

Yet, most makeup categories during the 2008 recession saw a decline, including lipstick. The beauty industry is not bullet-proof, and with rumors of another recession brewing, industry leaders everywhere are bracing. Some, like Forma Beauty and Revlon, have already filed for bankruptcy. It begs the question: what makes one company more primed for success in an already overcrowded beauty space than others? On the flip side, what really contributes to a brand’s downfall?

We decided to try and find out. Keep reading to see what seasoned leaders and successful entrepreneurs have to say below.

The Sink or Swim Factor: A Clear, Distinct Concept

For many founders, the “why” behind a brand is what drives them to create a business in the first place, and is often the idea that keeps them motivated when faced with potential failure. That’s why industry experts agree that focusing on a product’s concept and point of distinction is what sets up a beauty brand for success in the long run.

Take celebrity endorsed skin-care brands, for example. Everyone from Kim Kardashian to Hailey Bieber to Scarlett Johansson (to name a few) launched beauty companies in 2022, focusing on “skin-minimalism” and highlighting a simple, pared down skin-care routine. While it may seem counterintuitive to buy more products to keep your routine simple, this is an example of how consumers will continue to consume and what a brand is selling is actually the concept.

The Sink or Swim Factor: Differentiation From the Competition

One of the biggest hurdles for beauty brands today, according to Nichole Powell, founder of bug spray and sunscreen line Kinfield, is the lack of product differentiation on the market. “It feels as though a new brand is launching every week, which makes competition stiff, and the pandemic made manufacturing lead times longer than ever – tying up crucial cash for months,” she says. “It takes a rare combination of business smarts and marketing powers for a modern beauty brand to survive, let alone thrive.”

Lisa Price, the founder of Carol’s Daughter, agrees that the general market has always been overcrowded, but it continues to grow. To that point, now the focus is on niche needs. “Who’s vegan, who’s sustainable, what social platforms do they stand for?” says Price. “You don’t focus on the overcrowding, you focus on the white space.” That said, Price points out that while you can focus on a niche need, if the system isn’t set up to invest in those ideas then that’s where brands will run into a roadblock, especially Black-founded brands.

“There’s this natural instinct to do whatever it takes to survive,” says Tisha Thompson, founder of LYS Beauty. “I knew in my gut the importance of creating a brand centered around clean beauty, but that was affordable and inclusive. It’s nearly impossible to find products that exist at that intersection.”

The Sink or Swim Factor: Cash Flow

If you aren’t a celebrity who has the means and notoriety to invest and promote your own beauty brand, then the path forward for most beauty brands is finding investors to supplement cash flow. But Amber Fillerup Clark, founder of Dae hair, says it’s important for brands to be selective with who they bring on. “Keeping your passion alive is everything and you need investors who value your passion and will help it flourish.” That’s why she was super scrappy with the money she had. “Self-fund for as long as you can,” says Clark.

The last few years has shown a rise of brands launching with just one or two hero products. Tami Blake, founder of Free + True Skincare, says this is a great way for brands to launch without digging themselves into a financial hole. “It allows you to test the market without having to invest in the R&D, marketing, and packaging needed to promote a full-blown skin-care or beauty line.”

But even with launching Kinfield with only two products, Powell says she faced financial challenges during the pandemic that she could have never anticipated. “The uncertainty during that time meant that I had to say no to a number of possible growth opportunities, choosing to keep my company alive rather than run a risky bet that might lead to growth – or to lights out,” says Powell. “I kept our operations lean and scrappy, which enabled us to survive, even if it may have cost us some of the aggressive early growth that certain investors find so appealing.”

This January, Powell appeared on “Shark Tank” to make a deal. “The best investors can offer both investment capital and support,” says Powell about the experience. “Shark Tank was a unique experience in that it was an investment discussion, with the added benefit of getting to share our brand story and products with the four million viewers who were also tuning in.”

The Sink or Swim Factor: Access to Shelf Space

Getting your products on the shelf of a retailer means visibility, and the more people who see your product, the more likely they are to buy it. That said, not everyone is awarded the opportunity. In a report conducted by McKinsey’s Institute for Black Economic Mobility, they outlined the systemic challenges facing Black-founded and Black-owned brands and how a more equitable beauty market could result in a $2.6 billion opportunity – if retailers would just invest in key areas, like shelf space.

“There is a significant imbalance in the number of brands that sit on shelves in stores compared to the Black-owned brands in the amount of space they are allocated,” says Thompson. “More often than not, those items are left to be online-only assortments, which makes it really tough for the consumer to experience and interact with the product.” That’s why movements like the Fifteen Percent Pledge have been so instrumental in changing the tide. “This is a material concern that affects businesses from truly thriving in beauty,” says Thompson. “Having the opportunity to experience the products in stores like other brands is important to success.”

Still, lack of shelf space is a barrier that affects beauty founders across the board, especially those trying to break into the industry with a niche product. Powell says she created a new category of “beauty” with her line of outdoor essentials, and it wasn’t something a lot of investors or retail buyers understood. “[They didn’t understand] why sunscreen should sit in a beauty or skin-care aisle,” she says. “It took time for both buyers and investors to understand why truly clean sunscreens and functional DEET-free repellents were needed – because it wasn’t something they had seen before.”

The Sink or Swim Factor: Knowing Your Priorities

Price remembers during a virtual event where she was speaking to entrepreneurs about the state of businesses in the midst of the pandemic. She recounted headlines where major airlines and big companies were seeking federal relief and bailouts just to stay afloat and keep their staff employed. Even huge conglomerates need to ask for help sometimes. “Things don’t necessarily go wrong because you made a mistake or because you didn’t know something,” says Price. “Ultimately, it’s the cycle of business and you can’t control getting money out of someone’s pocket.”

Powell says she learned from watching other founders burn themselves out while trying to live up to the “hustle” culture that it wasn’t for her. “It’s easy to fill your hours with meaningless work and events, but it takes a clear mind and vision to know how to prioritize your time and to create space in your day for the deep work that long-term success requires.”

For Clark, it boils down to staying authentic to your brand’s DNA and ultimately, yourself. “I got so inspired by what was around me and things really started to fall into place,” says Clark. “It all happened really organically because it came from a place of true creative flow. If I could go back to the beginning I would give myself the advice of being more confident in myself and what I bring to the table.”