Subscription makeup e-retailer Birchbox fires 30

June 28, 2016 01:20 PM

(Bloomberg)—Thirty staff members were fired by online makeup retailer Birchbox Inc., just weeks after its co-founder expressed her hope both for an initial public offering and to invigorate online sales with a storefront presence.

Katia Beauchamp, who announced the 12% staff reduction on Tuesday morning, laid out her plans for the company in an interview with Bloomberg earlier this month. Known for its beauty sample subscription service, Birchbox has dedicated its efforts to selling full-size products online, helped in part by an actual store in New York's SoHo neighborhood. The company hopes to open more stores in the future, but it has no imminent plans to do so as Birchbox, No. 202 in the Internet Retailer 2016 Top 500 Guide, is currently focused on profitability. The retailer’s 2015 web sales were $144 million, according to estimates, up 50% from $96 million in 2014.

Birchbox already eliminated 50 positions this year in an effort to cut costs. This most recent round, which affected all departments and included severance packages, brings the total remaining staff to about 220."We thought we did that in January, but the cuts were not deep enough to get us where we need to go in the time frame we want," Beauchamp said in a statement. "I wish I had been less conservative."

Along with co-founder Hayley Barna, Beauchamp started Birchbox in 2010 looking to nab a piece of the $16 billion U.S. prestige beauty industry. Each month, Birchbox subscribers receive a box full of beauty samples, like tiny bottles of hairspray or pods of eye cream. The business model turns, in large part, on motivating shoppers to discover new brands and then head to the website to purchase full-size versions.

That model caught on a little too well. Copycats quickly popped up, and now there are subscription box services for everything from dog toys to tea leaves. Beauty competitors range from Ipsy (No. 198 in the Top 500), founded by a YouTube makeup-tutorial star, to retail giants Wal-Mart Stores Inc. (No. 4) and Sephora USA Inc. (No. 129).

Venture capitalists have injected more than $1.6 billion into subscription-based e-commerce since 2011, expanding such companies as fashion seller JustFab Inc. (No. 79), rental site Rent the Runway (No. 236), and food delivery service Blue Apron Inc. (No. 231). Most investors have yet to score big paydays. The only significant exit was men’s fashion-subscription service Trunk Club, which Nordstrom Inc. (No. 18) bought for $350 million in 2014.

Birchbox has raised $71.9 million in VC funding but hasn’t obtained any new outside cash since a $60 million round in 2014. Working toward profitability became paramount, Beauchamp has said."Expectations have been too high," said Sucharita Mulpuru, an analyst at Forrester Research, of this corner of the online retailer space. "We've seen this story before."




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