The booming business of beauty boxes

Online companies are turning free cosmetics samples into big profits

A beautiful Plan
Reena Newman

It’s hard to dream up a better business model than convincing customers to pay hundreds of dollars a year for products they could otherwise get for free. That’s precisely the idea behind “beauty boxes,” a lucrative online business that has been exploding across Canada in recent months. Cosmetics firms, keen to get exposure to a wider audience, donate samples of lipstick, face creams and perfume to beauty box companies, who repackage four or five of the samples and sell them to subscribers for anywhere from $10 to $15 a month.

At least six such companies have started up in Canada in the past year, joining dozens more in the U.S., Europe and even India. Toronto-based Luxe Box and Montreal’s Glymm both launched subscription-based beauty sampling boxes last year. They’ve since been joined by U.K. import Glossybox, U.S.-based Beauty Box 5 and Julep, a box dedicated entirely to samples of nail polish. Topbox, another Canadian start-up, boasts a four-month wait-list for its samples.

In return for donating their samples—which they would normally give out for free at department stores—cosmetics companies are handed a goldmine of market research based on detailed “beauty profiles” filled out by subscribers when they sign up. Companies say that offers a better way for brands to track where their samples go, how well they’re received and whether they turn into sales.

“The days of going to a counter and asking for a sample are long over,” says Paul Fournier, a founder of Glymm, “and I think companies are taking a look at their alternatives and saying, where am I going to put my marketing dollars?”

Consumers, meanwhile, seem to find paying a monthly subscription preferable to trying to scrounge up free samples or trying out a tester of lipstick that has already passed over a dozen lips. “Basically they’re charging people for stuff you really can get for free at a Sephora or a Shoppers Drug Mart,” says Lisamarie Wilson, who runs the Canadian blog Beauty Crazed. “But if you’re a beauty junkie, the idea of stuff just showing up at your door is pretty appealing, especially if it’s high-end stuff or unusual brands that are harder to get.”

Mail-order cosmetics are not new, but beauty boxes have replaced the neighbourhood word-of-mouth of a Mary Kay or Avon (two companies that have both been struggling in the Internet age) with hundreds of dedicated bloggers who take to YouTube every month to post “unboxing” video reviews that amount to free advertising for cosmetics firms.

The boxes themselves have a decidedly personalized, luxury feel with packaging so exquisite it is subject to almost as much reverence among bloggers as the products themselves. Luxe Box, for instance, seals boxes with stickers imprinted with customers’ names. In March, the company included a product description card it said could be planted in the ground and would sprout wildflowers. “You can easily throw a bunch of samples in a Ziploc bag and send it out,” says Aditya Shah, co-founder of Loose Button, which puts out Luxe Box. “But if there’s one thing the Apples of the world have taught us, it’s that if you create the experience, people will subscribe to the experience more so than the product itself.”

The beauty box trend started in the U.S. with Birchbox, which was dubbed the “Netflix of beauty” for its monthly subscriptions. Launched in 2010 by two Harvard Business School grads, it now boasts 100,000 subscribers. The success of Birchbox inspired dozens of similar beauty start-ups and sparked a series of other themed subscription boxes containing samples of such things as gourmet food, eco-conscious bath products, children’s toys and even vegan gum. In Canada, Luxe Box has sent out samples of tea and coffee and both Shah and Fournier say their companies plan to expand beyond just beauty products.

Among the fastest growing subscription boxes are for men’s grooming products, which tap into the fragilities of the male ego by allowing guys to sample luxury shaving and anti-aging products without having to be seen in public trying products traditionally marketed to women. Both Birchbox in the U.S. and Glymm in Canada have launched men’s subscription boxes. Among Glymm’s products for men is a “tan-optimizing” body polish and a rose-hued “skin illuminator.”

The sample boxes are an outgrowth of a much larger trend in e-commerce that is working to revive the old mail-order subscription model. Vancouver’s Panty by Post, for instance, mails out pairs of women’s underwear starting at $18 a month. Wittlebee lets parents customize a monthly box of kids’ clothes online. For men, there’s Manpacks, a subscription service for socks, underwear and condoms co-founded by an Ottawa entrepreneur and Dollar Shave Club, a monthly subscription to razors.

The subscription sites naturally have a celebrity-endorsement offshoot, with actors and reality TV stars either designing products or simply endorsing the service. For $39.95 a month, subscribers to ShoeDazzle can buy a pair of shoes designed for Kim Kardashian. The e-commerce empire BeachMint, launched by MySpace co-founder Josh Berman, runs separate monthly subscription sites for jewellery designed by Kate Bosworth, T-shirts by the Olsen twins, shoes designed by Steve Madden and endorsed by Rachel Bilson and skin care by Jessica Simpson.

But unlike the old mail-order subscriptions such as Columbia House Records, which lured consumers with cheap starter deals and then locked them in to future purchases, the new subscription e-commerce requires significantly less commitment.

Most subscriptions run month-to-month. (Several have optional discounted yearly memberships.) Some, such as BeachMint, allow subscribers to return merchandise or opt out of paying the monthly fee if they don’t like any of the products on offer. They also purport to offer a more personalized service than mail-order subscriptions of the past, since subscribers usually fill out a detailed questionnaire about their personal style and are then sent a monthly email or Web link with products that match their profile. Many are also looking to usurp the role of fashion magazines by packaging their products with member-only content, such as online videos of Mary-Kate and Ashley Olsen discussing this spring’s T-shirt trends.

“It’s the polar opposite of the old book-of-the-month club,” says Peter Fader, a professor of marketing at the Wharton School of the University of Pennsylvania. “Customers are inherently polygamist when it comes to most products. This is a way for companies to take baby steps toward some degree of lock-in.”

For subscribers, Fader says such online services are driven by “pure convenience. The consumer has to be completely in control. You don’t want your customer to feel held hostage.” But that unfettered convenience might be the biggest hurdle to companies selling beauty boxes, which aim to apply subscription commerce not to celebrity fashion designs, but to samples that are often available elsewhere.

The industry is growing so fast that the competition to secure high-end products is already stiff. Most of the boxes target largely the same cosmetics brands, some of which say they have started demanding that companies cover the cost of producing the samples. Fickle consumers can easily cancel their subscription and pick another box if one doesn’t live up to its promise of luxury goods.

Neither Glymm nor Luxe Box would reveal their subscriber numbers, retention rates, or whether they are turning a profit. (Shah says Luxe Box has “tens of thousands” of subscribers and has mailed out 350,000 samples.)

Beauty boxes are also competing with retail giants like Sephora, which lets customers pick their own samples when they order products online. It’s a service known as “smart sampling” and one that some cosmetics firms say is a more accurate way to track customer’s preferences and buying behaviour since customers get to choose their own samples.

Subscribers, meanwhile, often complain that the novelty of samples by mail eventually wears off. “The appeal of it is you don’t know what you’re going to get. It’s like opening a new Christmas gift,” says Nancy Hogan, a Waterloo, Ont., blogger who pays around $70 a month for various beauty boxes. “At the same time, someone like me is getting sick of it and wants to pick out their own samples.”