Is the bubble about to burst for the slew of on-demand and concierge apps that hit the beauty space several years ago?
Some venture capitalists believe it is, despite market leader Glamsquad's ambitious expansion plans and NBCUniversal Cable Entertainment's unexpected union with Priv last May, which saw the cable network acquire a majority stake in the service provider.
Others aren't ready to call the number of challenges facing mobile-first beauty solutions the beginning of the end just yet – but the venture community agrees on one thing: A sectorwide fatigue is hindering future investments, which is going to force existing players to rethink their paths to profit.
"People thought this industry would shift completely online and you would have this incredible on-demand labor force, but in reality, there's a small segment that will go for that level of convenience where it's not an experience. For most people, a blowout is a luxury — it's a treat and not a regular occurrence, so the idea of adding convenience to it isn't a huge appeal," said Clara Sieg, partner at Revolution Ventures, which has no investments in the category.
Early on, venture capitalists jumped on a handful of native-to-mobile on-demand beauty start-ups that allowed for a range of services to be performed in a client's home at the push of a button. "Low overhead" and "services in the comfort of your home" were among the terms thrown around at the onset of the craze — perceived upsides of a beauty service provider living solely online. This is similar to the direct-to-consumer boom, which saw every category under the sun angling to become "the Warby Parker" of something, following the eyewear brand's mission to disrupt a category run by a handful of global manufacturing giants. From underwear to activewear to jewelry to sneakers, start-ups popped up all over the Internet with a promise of building brands that didn't require a physical manifestation ("low overhead" also became a keyword here, as well as "cutting out the middle man"). But companies from Bonobos to Bauble Bar soon found that obstacles — brand awareness and customer acquisition costs, among them — made an off-line presence necessary, if not mandatory.
While the caveats for direct-to-consumer brands differ from those of concierge beauty — there's no "cutting out the middle man" for the latter, but the lack of a physical salon space sometimes means trekking all over a city to get from one appointment to the next, ultimately limiting the number of appointments one can take in a day — the key learning has been that online or mobile-first doesn't always equate to building a seamless business. Or profitability — which no one has yet to crack the code on.
Sieg has a theory, though, and it involves a pricing paradox that presents challenges for players offering services at all price ranges.
The dynamics of on-demand have led to services that were priced, in many cases, higher than a salon's, she explained. This excludes market leader Glamsquad, which charges a flat fee of $50 a blowout, including tax and tip — 10 percent less than Drybar's $45 blowout plus the suggested $10 tip. In other words, Vênsette's $100 blowouts were too expensive for most customers — but Glamsquad undercutting brick-and-mortar competitor prices to build a customer base isn't sustainable either.
"That pricing doesn't make sense at scale once you're trying to be profitable. Especially when you think about the quality of labor you need — because they're touching you and in your home — as well as how long it takes both for the service time and how long it takes to get to and from the client's home," Sieg said, pointing out that in order to attract and retain best-in-class service providers, "pricing needs to be higher or the platforms' take rates need to decrease in favor of the service providers. If neither are done, quality may begin to erode as talent feels undercompensated, and that leads to decay in the brand promise."
An industry source in the tech space agreed that undercutting brick-and-mortar competitors isn't a viable business strategy in the long term. Once Glamsquad scales and builds more of a national presence, they said, it's inevitable that rates for services will increase. But even to reach a scale where an on-demand beauty app would thrive, these factors must occur in unison: adoption in a geographically dense market with high socio-economics, and high repeat rates.
Not to mention a competitive landscape, which Sieg called essential to ensure one's services aren't "completely commoditized," a situation not dissimilar to Uber and Lyft's interchangeability in the minds of consumers who price-hunt for the best deal. The difference, though, is that users don't care who their Uber driver is; they do, however, care about who is styling their hair or applying their makeup.
"It's a very personal relationship … and if there's a desire to repeat with a specific service provider, should you like them, you can't. With a Glamsquad, you don't understand who you're getting [to style your hair], and if you like the person it's really easy to establish a relationship and offer to pay them off platform," Sieg said.
Glamsquad remains the leader in the space, armed with $25 million in venture funding from leading firms like New Enterprise Associates and SoftBank Capital, but others don't appear to be faring as well.
Two sources who preferred to remain anonymous described Priv as "being on its last leg," despite the recent partnership with NBCUniversal Cable Entertainment. A spokeswoman for Vive said "it's still early into our acquisition to provide an official statement," but in an e-mail said Priv's transactional growth is on an upward trajectory and services have expanded from three to eight cities in just under one year.
Alanna Gregory, founder and ceo of Vive, said in a previous interview that the mobile app helps clients book last-minute blowout appointments in New York, the Hamptons, Chicago and Los Angeles for a flat fee of $40. There is no in-home aspect, she said at the time, but she contended her mobile solution fills open appointments at salons that would have otherwise never been filled.
Vive's Instagram page hasn't been updated in over a year and a search on the app store revealed that the Vive app is no longer available in the U.S. The company couldn't be reached for comment.
No one has heard much about Lauren Remington Platt's on-demand venture Vênsette either, a beauty app she founded in 2011 to target a more affluent customer. The business has pivoted to a B2B model, according to Remington Platt, since it's "the place with the least competition, biggest margin, largest volume and also lowest customer acquisition cost." She counts corporate partners such as Cartier, Bulgari, Ferragamo, Michael Kors and Clea de Peau as some of the concierge service's "longest standing and highest repeat clients." In an interview in 2016 when B2C was the primary focus, Remington Platt said the app's regular blowout offering, priced at a flat fee of $100, also had a VIP blowout counterpart for $150. She maintained a more "elevated experience," inclusive of a lengthier stylist session, justified the price.
Apparently, customers didn't think so.
Debra Shigley, founder of Atlanta-based Colour, an in-home hairstyling service for textured hair, is finding it hard to convince investors of proof of concept — despite positive unit economics, a growing business and demand at an all-time high. She's bootstrapped the company since its launch almost two years ago.
While Colour's app works similarly to others in the sector, it's an outlier in the space. Shigley insisted that the hair services she provides are a need and not a "nice to have," which is the case with competitors. Her stylists are highly trained to work with a range of textured hair types.
"We have customers from all backgrounds … [but] if you can do black hair you can do any hair. We have customers who are white, Persian and Jewish but there's a distinct difference between my women of color — the majority of clients are women of color — and they book very differently. It's a planned activity — it's not on-demand. There is no black woman that gets up and says, 'I want to get my hair done in an hour,'" Shigley said. "I get white customers who call and say, 'Oh, just wondering if there was anyone in the area who could do my hair, I'm about to jump in the shower. If not, no big deal; I can do it myself.' No black woman says that ever. They do not say that."
Services start at $65, and Shigley said many clients have standing appointments. She detailed a typical scenario: a corporate professional will request a stylist for a Sunday afternoon for herself and her two daughters because this is a "chore in her life that is a non-negotiable to-do."
"It's certainly very clear that as a black woman-led business in what's considered a 'niche' market but really isn't, we're an underdog. The black hair discussion is so complex, we're still so many leaps and bounds away for many investors understanding it," she said. "This is something that's a chore in women of color's lives and a problem that's existed for centuries and it's not going away. There's frankly been no innovation here whatsoever."
Shigley maintained that she's started the fund-raising process and has had "a lot of conversations" that have resulted in candid feedback about the category with investors who are forthcoming about fatigue with in-home beauty services.
"They say there's no way it's going to work unless businesses grow big enough to have a product line. There's a lot of different ways to say no," Shigley said, pointing to Drybar's range of product, as well as any traditional salon's reliance on retail, to subsidize revenues.
"There's a bit of disappointment among investors about the customer lifetime value [or CLV] ratio versus expectations," said Marta Plana Cros, founder of The Ritualist, an in-home facial service.
She blamed a host of "wrong assumptions" as the reason for inflated CLV expectations, led by on-demand companies thinking they would "radically change" consumer behavior, meaning that once a client used an in-home service they would never go back to their brick-and-mortar salon or spa.
"That's not the case. On-demand services are complementary to traditional treatments. On-demand is usually better in terms of convenience — you're at home, relaxed — while traditional locations deliver a more sophisticated experience," Plana Cros said.
She noted that at a salon or spa, someone washes your hair, and there are options for additional treatments or add-ons such as access for facials and even access to a sauna before a massage. She contended that many of The Ritualist's clients get regular in-home facials and "love the pampering experience," but also supplement with Skin Laundry visits to get 30-minute laser treatments that would be pretty difficult to provide in-home.
Like Shigley, Plana Cros agreed that segueing into retail brands that sell product — whether their own or third-party brands — is the only way investors see on-demand beauty-services providers coming out on top.
The Ritualist has already jumped in on this opportunity with in-house skin-care line APTO. Initially launched to perform treatments in-home, the range is now sold to clients through theritualist.com and select retailers.
"On-demand beauty should be a new retail channel. The one way to make up for the CLV shortage is not through offering more treatments or more upgrades — it's through selling products. In my opinion, it doesn't make much sense for an on-demand provider to become a retail stockist — it's a huge investment and [requires] different skills. The way to do it is through partnerships with retailers and brands," said Plana Cros, who presented this concept at the Sephora Accelerate Demo Day in San Francisco last October.
Amy Shecter, who joined Glamsquad as chief executive officer in June 2016, said she never approached the business with a goal of being just an on-demand beauty company. She maintained that the plan was always to offer a "new channel for services and ultimately a new retail channel for customers."
"We still feel very comfortable in our ability to raise capital and grow the business," added Dave Goldweitz, cofounder and chief strategy officer at Glamsquad. "We don't consider ourselves an on-demand business per se; we consider ourselves part of the beauty industry. We've never seen a more exciting time….We're not concerned about the fund-raising climate."
Shecter said that clients will be able to purchase the products that stylists use on their hair, makeup or nails through Glamsquad's technology platform by the end of this year.
"Customers want luxury experiences that are personalized and curated especially for them, and the other thing is that they want it now," Shecter said. "We're certainly in a moment where expediency is critical. We are uniquely positioned in the center of all of this."
In tandem with a rollout strategy that will see Glamsquad opening a handful of new markets throughout the year (as well as expanding its presence in existing regions), services will be added.
But another set of issues pop up surrounding these beauty players becoming "retailers." Who keeps the inventory? Do the stylists have to cart product around with them? Do stylists get a commission for products they sell in addition to the cut the service provider (i.e. Glamsquad) gets?
"That's on every single pitch deck of every single service company we see. 'We're going to start selling product because it's so easy,'" said David Goldberg, a general partner at Corigin Ventures, a firm that's invested in Zeel Massage On Demand and Stylisted, a platform focused on building the networks of freelance beauty contractors in New York City, L.A., Chicago and Washington, D.C.
Instead of going the retail route, Goldberg offered up an alternative opportunity for concierge beauty players: leverage your technology and labor force to provide supply to the traditional salons or spas.
"Think about a salon or a spa; you have your fixed cost and physical space and you have stylists sitting there all day. You have capacity where you either don't have enough stylists where clients book days in advance or stylists sitting around doing nothing. Think about how this on-demand model can work for on-demand labor supply," Goldberg said. "Imagine you have 10 chairs in the salon and you have two to three full-time employees, but as people come in and book you can flex in and book by leveraging a platform like Stylisted or Glamsquad."
He maintained that Zeel has already adopted this approach and now powers the labor force at dozens of traditional spas. Gurney's Montauk in Montauk, N.Y., for instance, which didn't have enough labor in high-demand times or too much labor in low-demand times, now employs two to three masseuses full time and when needed the resort can "hit a button" and have Zeel masseuses come in for the labor they need.
Overall, Goldberg thinks that many of the on-demand services available — and beauty is one of those categories — doesn't really need to be on-demand. Instead of adding more benefits, these ventures are often logistical headaches that see high turnover (for companies and stylists) and are more expensive, in some cases, for clients. None of this replaces the usage of a Drybar, for instance, where a client may go two to four times a month.
For him, winning in this space comes down to labor supply because that's what trickles down to the end consumer.
"You need to pay them well and make sure they're properly trained and make sure they have the benefits they need, whether it's health or tools to run their freelance businesses. Glamsquad is the commodity route — you don't really know who they [stylists] are or what they specialize in. We prefer to support the micro-entrepreneur," Goldberg said.
He explained that users can open up Stylisted and find a stylist who specializes in their hair type, length or style — and this will always trump having someone who could be at your home in one hour. He acknowledged that onboarding independent stylists on the platform at scale could be more difficult, but in the end he claimed it helps build more sustainable businesses and entrepreneurial spirit.
Dayna Grayson, a partner at NEA, is more optimistic about the future of on-demand than many of her peers.
She said NEA has invested in a handful of vertically integrated brands, including "very few" on-demand businesses such as Glamsquad.
"We believe next-generation brands in beauty brands, in particular, must lead with services for consumers whose appetite today is as much for a great experience as it is for a great beauty product. Glamsquad is innovating in both categories and is the only company turning their consistent, high quality experience in beauty into awesome products," Grayson said.