Incorporated: 2004
NAIC: 325620 Toilet Preparation Manufacturing; 424210 Drugs and Druggist Sundries Merchant Wholesalers; 446120 Cosmetics, Beauty Supplies, and Perfume Stores
SIC: 2844 Toilet Preparations; 5122 Drugs, Proprietaries & Sundries
Bare Escentuals, Inc., is the worldwide leader in mineral-based cosmetics, utilizing only natural mineral ingredients in the products it markets for basic makeup applications and facial coloring. Ingredients include zinc oxide and titanium oxide, both natural sunscreens as well as natural tints, and ultramarine, which is made from lapis lazuli, a semiprecious stone. The minerals are ground into a fine powder without preservatives, alcohol, fragrance, talc, or chemical fillers and binders, all of which may cause allergies or otherwise irritate women's skin. Bare Escentuals products include the bareMinerals line of foundation products. The foundation provides a base for other mineral-derived cosmetics: all-over color makeup, blush, eye shadows, and brow liners. The RareMinerals brand offers a line of nighttime skin treatments in a mineral base. Other products include mascara, lip gloss, lipstick, application tools, and brushes. MD Formulations comprises the company's line of skin care products, including cleansers and moisturizers. Bath, body, and skin care products are also sold under the Bare Escentuals brand.
Bare Escentuals markets its products through home shopping network QVC; direct-response infomercials; prestige retail outlets, such as select locations of upscale department stores, including Macy's and Nordstrom; and in more than 300 Sephora and Ulta specialty cosmetic stores. MD Formulations and bareMinerals cosmetics are available in 900 spas and salons nationwide. Bare Escentuals owns and operates more than 33 retail boutiques.
Early Sales Success and Financial Struggle
Diane Richardson's inspiration for starting Bare Escentuals came from importing clay pots of mineral blush from India. Recognizing the business potential of bath, body, skin care, and cosmetics based on natural ingredients, Richardson began to develop her own line of lotions, creams, and cosmetics. In particular, the cosmetics contained none of the chemicals and preservatives that often irritated women's skin, ingredients such as alcohol, perfume, talc, binders, and fillers. Moreover, the products contained no animal products and were not tested on animals. Hence, when Richardson opened her first retail store in Los Gatos, near San Francisco, in 1976, Bare Escentuals attracted women concerned with healthy lifestyle choices. She offered custom color blending of mineral blush and custom scenting for body lotions and bath products from an array of aromatherapy essential oils. To build sales on the interests of health-oriented customers, Richardson added exercise clothing to the product offering. More importantly, she began to offer classes in the special techniques of mineral makeup application, something that became a significant aspect of the Bare Escentuals brand. As an early entrant in the natural cosmetics and body care industry, Bare Escentuals thrived by building a loyal customer base, leading Richardson to open a second store in Los Gatos.
Product and sales success did not result in profitability, so Richardson sought to strengthen the financial and conceptual foundations of the business. In 1985, hoping to avoid the collapse of Bare Escentuals, she teamed with Nicholas Frank, an executive from the high-tech industry, to handle financial issues. After having closed the second Los Gatos store, by 1989 Bare Escentuals recovered with the help of $500,000 in venture capital from Terranomics Venture. The company opened two new stores in San Jose and Cupertino, California, and franchised outlets opened in San Jose and Palo Alto, California, and Ocean City, New Jersey. In 1989 Richardson and Frank opened a fourth company-owned store in Walnut Creek with the intention of developing a cosmetics-only retail prototype. A new company logo and a staff of highly qualified retail managers supported this effort to cultivate and refine the brand and store concept. Bare Escentuals hoped to attract another $3 million in venture capital, in order to open 30 to 40 stores across the United States based on the Walnut Creek prototype, then an additional $4 million investment to open as many as 60 stores. Also, the company began in-house manufacturing, and hired a staff of chemists to develop new products. A partner at Terranomics sought venture funding for Bare Escentuals, but a decline in consumer spending and the overall state of the economy deterred investment.
Meanwhile, Richardson struggled to maintain a thriving business. To control costs, she reduced employee salaries by more than half. In addition, the closure of the Cupertino and Walnut Creek stores and relocation of a warehouse in 1990 reduced staff from 60 to 25 employees. As the company verged on bankruptcy, Richardson negotiated with creditors to pay $500,000 in loans. Other factors that stymied financial success included the attempt to extend into new markets too quickly, such as in health food stores and through a mail-order business. Insufficient organizational strength at the core operation hindered effective franchisee management. However, the product concept itself continued to attract new customers as interest in natural products grew. Also, Bare Escentuals obtained a new customer in the May Company, a department store chain which began to distribute the cosmetics in the fall of 1990.
A significant turning point in the company's history occurred in August 1990, when Richardson found new capital for sustaining Bare Escentuals through an investment group led by retail specialist John Hansen. The longevity of the product line, the quality of the store concept, and employee loyalty to the product attracted Hansen to the Bare Escentuals brand. Operating as Dolphin Acquisition Corporation, the investment group, acquired the assets and brand concept for the assumption of a promissory note, at less than $1 million. Richardson became vice-president and held responsibility for product development, but she left the company shortly after the change.
For his part, Hansen applied his retail knowledge to cultivate the company's strengths. For instance, he built on employee loyalty with extensive training on product ingredients, particularly as they differed from mainstream cosmetic brands. Product development involved introducing existing body care products in new fragrances and the addition of a men's line of toiletries under the Mesa for Men label. With confidence in the trend toward cosmetics specialty stores, Hansen reinitiated expansion of Bare Escentuals in 1991, opening stores in downtown San Francisco and San Mateo; a temporary store also became permanent in San Jose's Valley Fair. Other new locations included such prestige sites as the one inside Macy's Union Square. The first store to open outside of California was in Reno, Nevada. Hansen also reinstated the mail-order business, in October 1993. By the end of 1993, Bare Escentuals operated 14 stores which garnered approximately $6 million in revenues. Disappointed at these results, Hansen considered his own lack of experience in the cosmetics industry a factor in the company's limited success. Consequently, he withdrew from primary management as he was joined by cosmetics industry veteran Leslie Blodgett, who became president of Bare Escentuals and one of five company owners in 1994.
Blodgett Leads Company to Nationwide Success
Blodgett brought a passion for cosmetics to Bare Escentuals. A graduate of the Fashion Institute of Technology, her experience in the fine-cosmetics industry began as a sales associate at Bloomingdale's in New York. There she developed her sales approach: provide customers with good information about natural cosmetics, trusting that the products themselves would then hold high appeal. Returning customers, therefore, became the foundation for creating brand loyalty and repeat business. Employed in wholesale marketing and product development executive capacities at Max Factor and Neutrogena, Blodgett acquired experience in cosmetics, skin care, fragrances, and hair care. Though she had no experience in oversight of retail operations, her own experiences as a consumer influenced her marketing style.
Blodgett brought an unpretentious manner to developing and marketing Bare Escentuals' products. She joined Bare Escentuals just as the company began to redesign its product position. With the ordinary woman in mind, Bare Escentuals developed its first complete line of cosmetics, including eye shadow and lipstick as well as foundation and blush. Following Blodgett's lead, the company packaged and marketed the new products in a down-to-earth style to appeal to a broader range of women, particularly as compared to the snooty, glamour posture portrayed by the upscale department store brands. Bare Escentuals launched the cosmetics under the brand name bareMinerals in 1995.
Blodgett proved to be an apt representative when she appeared on the QVC home shopping network in 1997 to market Bare Escentuals products to a television audience of up to 65 million people. Women responded to Blodgett's vibrant, friendly personality and low-key informative style. In six minutes she sold more product than all retail stores sold in a week's time. Product inventory set aside for the show sold out, and a waiting list was started. Blodgett became a QVC regular and developed a loyal following of viewers. Many women wrote letters of praise for Blodgett and the bareMinerals product, and customer suggestions and feedback became the foundation for Blodgett's decisions as to new product development. Indeed, Blodgett preferred feedback from average customers nationwide for market research to focus groups in stylish cities, as used by the large cosmetics companies. She even named a product after a Florida customer, Aida. By 1999, 10 percent of $25 million in revenues were derived through QVC broadcasts and the balance from 20 Bare Escentuals retail stores.
The success with QVC made direct-response television broadcasts through infomercials a natural fit with Bare Escentuals. When the company decided to experiment with direct-response marketing through long-playing commercials, Blodgett asked customers if they would contribute their personal stories of solving skin problems, such as acne and rosacea (a red blotchiness on facial skin). Blodgett flew customers into San Francisco to give their testimonials on camera. During 2002 the first two infomercials began airing on major cable stations, such as Bravo, Oxygen, Lifetime, The Food Network, Style, and Women's Entertainment, as well as on smaller cable and local television networks. The infomercials provided another successful sales outlet for Bare Escentuals. Blodgett credited the team of employees who developed the product selection. Furthermore, by filming in a retail store, the infomercials attracted customers to Bare Escentuals retail locations.
Bare Escentuals supplemented its national television customer base with national retail expansion as the company opened several retail stores nationwide. Placement at cosmetic specialty stores Sephora and Ulta provided Bare Escentuals with more than 300 sales outlets. Store development involved midsize, major cities, such as Minneapolis, Denver, Atlanta, Orlando, and St. Louis. The company refined the store concept to focus on the cosmetics, rather than the bath and body care lines. Blodgett achieved this by creating the atmosphere of a boudoir, with a makeup bar in the center of the store to encourage customers to play and experiment with the range of products and colors. Also, customers could have a complete, professional makeup demonstration and makeover.
Further development of the focus on facial products involved the addition of a cosmeceutical skin care line to the brand concept. As such, Bare Escentuals acquired MD Formulations in November 2001. Operating as Bioceutix, MD Formulations produced proprietary facial cleansers and lotions, including antiaging products with a glycolic acid compound. MD Formulations offered its products primarily through spas and salons but also through physicians across the United States and in 17 countries. Bare Escentuals expected the combined company, MD Beauty, to gain from complementary market strengths, expanding exposure for the bareMinerals makeup and bath and body lines into spas and salons and MD Formulations cosmeceuticals to the Bare Escentuals retail stores and existing customer base. Toward that end, in May 2002 MD Beauty introduced the bareMinerals Foundation Kit, which included MD Formulations Facial Cleanser, two bareMinerals Foundations, bareMinerals Warmth, a blush, and Mineral Veil soft translucent powder, along with three makeup application brushes.
Bare Escentuals Meeting New Competition with Rapid Growth
The momentum of growth at Bare Escentuals occurred as the company entered new retail markets and faced new competition in mineral-based cosmetics. The company increased its retail expansion with new locations in major cities during 2004. Bare Escentuals initiated its first store openings in New York, beginning with a Manhattan location on Third Avenue in the spring. Despite the intense competition there, Bare Escentuals had a ready base of support from women in the New York City area through the company's successful infomercials, QVC broadcasts, and online and mail-order sales. Zip codes of existing customer bases directed the company to potential store locations, such as Garden City, on Long Island, where a store opened in the fall of 2004. A third New York location opened at Queens Center Mall. In 2005, the company opened three stores in the Chicago area, in Schaumburg, and Oakbrook, and at Chicago's Water Tower shopping center. Bare Escentuals opened a total of 12 stores in 2005 and 2006. Other locations included San Antonio and Dallas, Texas; Glendale, Wisconsin; McLean, Virginia; Bellevue, Washington; Cincinnati and Beachwood, Ohio; and Paramus, New Jersey. In addition, cosmetic counters opened at select Nordstrom stores beginning in 2005.
As natural, health-focused cosmetics became of greater interest to women, other cosmetic companies copied Bare Escentuals mineral makeup concept. These included L'Oréal, Neutrogena, and Jane & Co. Physicians Formula copied Blodgett's personal sales techniques by hiring a CEO as the public face of its mineral makeup brand. Seeing the situation as an affirmation of its success, Bare Escentuals continued to lead the competition by building on that success. Customer fans of both Blodgett and bareMinerals posed frequent questions about makeup application, so in 2004 Blodgett wrote and published a book, What Hollywood Can Learn from Us, to answer those questions. In early 2005, the company produced a third infomercial directed at younger women, in their 20s and 30s. With the slogan "Go Bare," Bare Escentuals played with an irreverent marketing style attractive to that age group. Also, the company entered the Japanese cosmetics market through QVC broadcasts.
The success at Bare Escentuals emerged in the company's financial statements. During 2005, Bare Escentuals recorded $186 million in revenues, which amounted to an 87.5 percent compound annual increase in net sales since 2001. The low cost of direct-response marketing helped to produce operating margins of 30 percent, which in turn made possible net earnings of $23.9 million in 2005. In 2006 sales increased 52 percent, to $394.5 million, while net income more than doubled to $50.2 million. Overall, new entries in the mineral cosmetics market faced a formidable competitor in Bare Escentuals. As Blodgett told WWD in November 2006, "We are the number-one mineral makeup brand in the U.S., the number-one beauty brand on QVC, the number-one brand at both Sephora and Ulta, and we have the number-one beauty infomercial on air."
Such financial success served to attract significant investment capital in October 2006, when Bare Escentuals debuted on the NASDAQ Global Select Market. The company initially considered a $16 share price, but raised the price to $22 per share; stock sold for as high as $29 per share before the first day of trading ended at $27.15. The offering of 16 million shares garnered $352 million in net proceeds, which the company used to pay debt and a management fee to early private investors Berkshire Partners and JH Partners.
Future Expansion in Domestic and International Markets
As a public company, Bare Escentuals prepared for both domestic and international expansion. In June 2007 Bare Escentuals acquired Cosmeceuticals Ltd., the European distributor of Bare Escentuals products. The purpose of the acquisition was to facilitate expansion in European countries. Based in the United Kingdom, Cosmeceuticals handled the wholesale business of the bareMinerals, MD Formulations, and MD Forte brands. Bare Escentuals planned selective location marketing through entry into premium sales and mass market outlets, as well as through infomercials and Internet and mail-order catalog sales. Bare Escentuals cosmetic counters opened in 16 Sephora stores in France in 2007, quickly becoming the third most popular brand in those stores. Moreover, Sephora planned to open as many as 150 stores in France.
Bare Escentuals anticipated dramatic growth to continue through domestic retail expansion. Market testing began at five JC Penney stores and four Macy's West stores. The company planned to open in 37 JC Penney, Macy's, and Nordstrom stores by August 2007 and anticipated another 67 department store counters to begin operations by the end of 2007. With approximately 60 Sephora stores expected to open in 2007, expansion at Sephora and Ulta would raise the number of outlets to 545 stores by the end of the year, a 45 percent increase from the end of 2006. Also, Bare Escentuals expected to open ten company-operated retail boutiques during 2007.
Principal Subsidiaries
Cosmeceuticals, Ltd.; MD Beauty; MD Formulations.
Principal Competitors
Elizabeth Arden, Inc.; Estée Lauder Cosmetics; Jane & Co.; L'Oréal SA; Neutrogena; Physicians Formula; Procter & Gamble; Walgreen's; Whole Foods.
Further Reading
Alexander, Antoinette, "Mineral Mania Continues with New Players, Products," Drug Store News, June 25, 2007, p. 106.
"Bare Escentuals Make-up Line Introduces Night-Time Skin Care Revival Treatment," Cosmetics International, April 7, 2006, p. 2.
"Bare Escentuals to Add Three Stores," San Francisco Business Times, July 26, 1991, p. 5.
Barry, David, "After Smelling Sweet Scent of Success, Cosmetics Store Barely Holding on to Life," Business Journal, May 14, 1990, p. 2.
------, "Bare Escentuals Starts Fresh with New Investor at Helm," Business Journal, May 14, 1990, p. 2.
Blitzer, Carol, "John Hansen: Bare Escentuals Targets Market, Opens New Store," San Francisco Business Times, March 6, 1992, p. 10.
Brookman, Faye, "Bare Escentuals Adds NYC," WWD, April 30, 2004, p. 9.
------, "Bare Escentuals Opens on Long Island," WWD, October 22, 2004, p. 9.
------, "Bare Escentuals Works the Night Shift," WWD, December 2, 2005, p. 7.
Cradle, Nancy, "The Whole Kit and Caboodle," Salon News, May 2002, p. 68.
Dang, Kim-Van, "From Clay-pots to $8 Million," WWD, May 13, 1994, p. S16.
Finn, Kristin, "Bare Escentuals, MD Formulations Merge," WWD, November 2, 2001, p. 9.
Ginsberg, Steve, "About Face," San Francisco Business Times, January 14, 2000, p. 26.
Haire, Thomas, "Building a 'Bare' Empire: How Did Bare Escentuals Become One of the Most Well Known Beauty Brands? Home Shopping and Direct Response, According to Leslie Blodgett, Who Turned This Small Beauty Retailer into a Worldwide Brand," Response, April 2005, p. 22.
"The Human Touch," Global Cosmetic Industry, March 2006, p. 72.
Naughton, Julie, and Molly Prior, "Mineral Makeup a Rock for Bare Escentuals in Quarter," WWD, March 1, 2007, p. 18.
Neff, Jack, "Is Mold-Busting Cosmetics Maker About to Go Bust Itself? Bare Escentuals Soared by Avoiding Biggest Channels, Now Its Stock Is Plunging," Advertising Age, August 6, 2007, p. 3.
"New Owner for Cosmeceuticals," Health & Beauty Salon, June 1, 2007.
Prior, Molly, "Bare Escentuals Sees Sales Rise 45 Percent," WWD, November 9, 2006, p. 12.
------, "Bare Escentuals Shares Open at $28," WWD, October 2, 2006, p. 28.
------, "Physicians Formula, Bare Escentuals Eye IPO," WWD, September 8, 2006, p. 14.
Valhouli, Christina, "Make-up, Excavated from a Mine," New York Times, August 24, 2006, p. G3.
Walker, Rob, "Earth Cover," New York Times Magazine, January 21, 2007, p. 24.
— Mary Tradii
