Beauty Startups To Watch: The Rising Stars Of Vietnam's Cosmetics Industry
Tung Tran of VIC Partners talks about the D2C business model, the state of Vietnam's beauty and cosmetics industry and successful startups.
by Tung Tran
Tung Tran is the Managing Director at VIC Partners, a Vietnam-based private investment group of credited, high-net-worth entrepreneurs with a shared interest in angel investing and nurturing startups in Vietnam. Positioning themselves as a private investment club, VIC Partners invest in early stage technology startups.
Tung’s background is in investment analytics, private banking and financial advisory services. He has previously worked at Viettel Group and JPMorgan Chase.
In recent years, businesses applying the D2C (Direct-To-Consumer) model have disrupted almost all industries and achieved remarkable success, particularly in the beauty and cosmetics industry.
Global success stories
In 2019, Kylie Cosmetics, an American cosmetics brand founded in 2014 by Kylie Jenner, a social media influencer, was worth nearly $1.2 billion, making Kylie the youngest self-made billionaire in the world at 22.
Starting small with a collection of three lipsticks priced at $29 apiece, Kylie quickly sold 15,000 lipsticks thanks to her burning passion for the beauty industry, big influence on social media, and a deep understanding of the real needs of her target customers.In 2019, Kylie Cosmetics was worth nearly $1.2 billion, making Kylie the youngest self-made billionaire in the world at 22.
Following the initial success, Kylie launched a liquid lipstick line, eye cream, makeup palettes, cosmetic bags, etc.; cooperated with other influencers and established fashion brands to launch new product lines timed around the holidays season; and expanded into skin care and baby products.
In just 18 months, Kylie Cosmetics reached $420 million in sales revenue. By the end of 2019, Kylie sold a 51% stake of Kylie Cosmetics to Coty Inc., an American company with more than 100 years of experience in manufacturing beauty products, for $ 600 million.
KORA Organics – an Australian clean cosmetics brand founded by Miranda Kerr in 2009 was valued at 13.2 billion USD in 2018. Being passionate about health and skin care, Miranda, a supermodel and a mother of two, founded KORA on a commitment to use 100% clean ingredients.
KORA products have been exclusively distributed by one supermarket chain / department store in each country to guarantee product provenance. After 10 years of operation, KORA Organics is now sold in 25 countries.Starting with Fenty Beauty foundation, Rihanna launched a makeup line “so that people everywhere would be included,” focusing on a wide range of traditionally hard-to-match skin tones, creating formulas that work for all skin types, and pinpointing universal shades.
The Honest Company – an American beauty and baby products brand founded by Jessica Alba, a Hollywood actor, and Brian Lee in 2011 with $6 million of their own money. Their products are completely free of toxic chemicals, reasonably priced, and environment-friendly.
The company grew fast and achieved $1B valuation in just 3 years thanks to a couple of fundraising series. Perhaps too fast, in retrospect, as quality control of some new product lines in new markets slipped leading to a series of scandals and lawsuits in 2015-2017 that greatly affected the company’s reputation and revenue.
The Honesst Co. had to call for a new capital round at less than $1 billion. Since then, however, the company has returned to the original mission of bringing safe and clean products to consumers, invested more in R&D, enhanced quality control, reduced the number of new products, and is on the upward trajectory again.
Other successful cases that stand out include Drunk Elephant (D2C cosmetics brand acquired by Shiseido for $845 million), Glossier ($1.2 billion in the latest valuation), ColourPop, Juvia’s Place, Jeffree Star Cosmetics, Dollar Shave Club (D2C razor brand acquired by Unilever for 1 billion USD), and Away Luggage (D2C suitcase brand worth $1.4 billion).
What is D2C exactly?
D2C is a business model in which businesses distribute products directly to customers (through official stores, websites, e-commerce, and social networks), eliminating intermediaries. Businesses may own several manufacturing plants or cooperate with foreign manufacturing partners then import, label, and distribute.
Common difficulties encountered by startups following the D2C model
- High competition in the market leads to high cost of acquiring new customers (CAC). Sometimes, for some struggling businesses, CAC could be even higher than the lifetime value of customers (LTV), far from achieving the ratio LTV / CAC = 3;
- In order to reduce CAC, in early stages, businesses rely on highly-engaged communities and charismatic founders (who often are also KOLs/influencers), exposing those businesses to a potential reputational risk should there be scandals involving their influencers and KOLs.
- Capex investments are often larger than at technology startups.
- Having to handle many tasks in the supply chain: from finding good manufacturing partners, importing, quality control, warehousing, marketing, distribution, logistics, and customer care.
Advantages of startups under the D2C model
- Ability to collect a lot of real user data and continuously innovate and improve products based on direct feedback from the users, which is often more accurate than feedback from intermediaries;
- Quick application of new marketing strategies to appeal to young users;
- Good balance of quality and attractive pricing compared to major brands thanks to cutting multiple layers of distribution intermediaries;
- Huge profit margin: gross margin is usually not less than 50% and can be as high as 70-80% in some cases. Chances are D2C startups will hit positive EBITDA earlier than many technology platforms.
Common traits of successful cases
- User-centric: bringing a lot of value to customers, from decent quality (green, clean, organic, etc.), affordable prices, personalized shopping experience (personalized advice, meticulous packaging, thank-you cards, etc.), dedicated customer service — thereby building a direct relationship between the brand and customers;
- Disruptive and innovative brands will eventually be acquired by a large corporation or engage in M&A transactions with PE investment funds before being listed on the stock exchange (IPO).
Does Vietnam have D2C cosmetics brands?
In the past few years there have been many new local brands, mostly founded by famous beauty bloggers and singers.Ofélia by Changmakeup.
Not D2C, but still have a strong presence in the local market: traditional companies (Sao Thai Duong, Thorakao, Phan Nu Hoang Cung), organic products (Karose, Tu tay Lam Het), and countless online shops with unknown origins (a.k.a “kem trộn” – or mixed cream).
A case study
Among the Vietnamese companies mentioned above, I understand Happy Skin best, having monitored the company for a long period of time. Happy Skin focuses on skincare products with a desire to build a reputable, fashionable, high-quality Vietnamese brand at a price affordable to everyone.Emmié by Happy Skin is well positioned to become a Vietnam’s success story.
To that end, in 2017 Happy Skin successfully raised capital from VIC Partners. Since then, Happy Skin has built an ecosystem based on four pillars: the core idea is to distribute beauty and skin care products directly to customers, with support from other pillars including spa, e-commerce, and media/community building (product reviews, beauty tips).
Spas (1-2 signature spas located in big cities) help Happy Skin understand the urgent needs of customers, build trust and personal relationships with customers, and become a direct sales channel of Emmie by Happy Skin products.
E-commerce helps distribute genuine products to young customers who prefer to buy online. Media helps build a highly-engaged community, a loyal customer base, and a high level of trust; thereby reducing advertising costs to attract new customers, increasing the retention rate, and increasing customer lifetime values.
In 2019, Happy Skin achieved nearly $1 million in sales and reinvested all profits to continue launching new products and build another Happy Skin Medical Spa in Ho Chi Minh City.
In 2020, despite the covid-19 pandemic affecting the spa business, Happy Skin has had a great success from the launch of their FDA-certified face cleansing brush, competing with Halio from Lixibox.
In early May 2020, after just one week of product launch, Emmie by Happy Skin has recorded more than 4000 orders for their face cleansing brush.
According to internal sources, at the end of this year, Sociolla, an Indonesian startup that owns a large beauty ecosystem and raised $40 million from prestigious investment funds Temasek and EV Growth, will enter the Vietnam market to compete with existing big brands as well as local D2C startups. As big international players enter our market, it will become more challenging yet exciting.
Get in touch with VIC Partners to share your thoughts on the chances of success for Vietnamese beauty and cosmetics brands.