e.l.f.’s Strategy for Staying on Top
If you have noticed that e.l.f. cosmetics is taking up more and more space in your makeup bag you are not alone. The beauty brand which was ranked as the number one cosmetic brand with teens ahead of Rare Beauty and Maybelline is on a tear. In e.l.f.’s 2023 fiscal year sales were up 48% to reach $579 million. So is the hype justified? It is. e.l.f.’s cheap products which are nontoxic and cruelty free are resonating with consumers. If you are curious about e.l.f.’s secret to success then consider these five elements of its strategy.
1. Value for money. One of the main trends playing out in the retail sector is that consumers are struggling to make ends meet with over 60% of Americans living paycheck to paycheck. “Americans are cash-strapped and their everyday spending continues to outpace their income, which is impacting their ability to save and plan,” said Anuj Nayar, LendingClub’s former financial health officer.
e.l.f. caught onto this trend early when it launched back in 2004 and sold lipstick for only a dollar online. "e.l.f. was founded by father-son duo Joey and Alan Shamah," said Achelle Richards, e.l.f.'s former global artistic director. "Joey's wife came home one day with five new makeup products and the bill was something like $200. Joey thought that was ridiculous and wanted to find another solution."
Its low priced value proposition caught on and in e.l.f.’s first year in business it made $1.5 million in sales. Now two decades later e.l.f.’s products are still cheap, often retailing for about $3. That has helped e.l.f. to push its way to the top of the cosmetics leaderboard. In 2022 e.l.f. became the fourth largest mass retailer of beauty products in the United States pushing Revlon out of the fourth spot. The only brands in the mass makeup segment that are larger than e.l.f. are: Maybelline New York, L’Oréal Paris and Cover Girl. “We continue to be the fastest-growing top-five brand by a wide margin,” said e.l.f. CEO Tarang Amin.
e.l.f.'s low priced cosmetics are a natural fit for its target market of Gen Z consumers who don’t have a lot of disposable income. To lure those customers in e.l.f. often creates dupes of higher priced items. “A few years ago, a prestige brand introduced a new primer format at a $52 price point that quickly became a top primer in prestige,” said Amin. “We took inspiration from this item, added our own unique e.l.f. twist and launched Putty Primer.” “Our price point of $8 invited a much wider range of consumers into the space, significantly expanding the entire Putty Primer category.” “In fact, looking at data over the last year, we've sold over nine times the units of the Prestige primer.” “Our value proposition, that ability of having prestige quality, extraordinary prices — I don’t think it’s never been more relevant,” said Amin.
e.l.f’s strategy is not lost on the analysts covering the beauty sector with Olivia Tong, managing director and senior consumer staples analyst at Raymond James saying that “we think…[e.l.f.] is one of the best positioned in beauty because they have relatively manageable price points and still a lot of market share opportunity to gain."
2. Digital strength. e.l.f has distinguished itself by moving faster than other brands to embrace new social media platforms. In 2019 when most brands were wondering if TikTok was a fad e.l.f. launched a branded hashtag campaign on TikTok called #Eyeslipsface. e.l.f even created a custom song to go along with the challenge which was so good it ended up on the Billboard music charts. At the time it was the first time a brand created their own song to be featured in a campaign on TikTok. e.l.f used a few TikTokers to promote the challenge and then celebrities like Lizzo, Reese Witherspoon and Ellen joined in.
#Eyeslipsface has over seven billion views on TikTok and the campaign resulted in a double digit sales increase. “From the beginning we set out on a mission to unleash the brand’s innate renegade spirit,” said Kory Marchisotto, e.l.f.’s chief marketing officer. “A ground-breaking TikTok campaign, a viral chart topping song, and now the release of a music video in partnership with Republic Records is an illustration of our ability to break the rules of beauty.”
“If you want to serve your community you have to be part of it. It sounds simple. It’s not,” said Marchisotto who scans e.l.f.’s social platforms daily. “I read thousands of comments weekly. I stay tuned in with their wants, their desire. We don’t wait for reports, decks, proposals.”
With so much competition in the beauty sector from the likes of Maybelline and Fenty Beauty e.l.f. sees the importance of marketing. “Over the past four years, we’ve taken our marketing investment from 7% of net sales up to the high end of our target range of 19%,” said e.l.f.’s CFO Mandy Fields.
Being nimble has also helped the brand to come from behind and overtake more established competitors. “One of the hallmarks of Tarang and e.l.f. is speed,” said Oliver Chen, managing director at Cowen. “They aren’t afraid to test, read and react. They’ve been early pioneers in rethinking social and the evolution of the new customer. They execute quickly — both in product innovation and marketing engagement — and the speed helps them increase their relevance with consumers.”
3. Effective distribution channels. e.l.f. started out selling its products online but in 2007 it landed an account with Target which the brand called a “pivotal” moment in its history. Since then it has acquired wholesale accounts with many retailers with Target and Walmart representing about 50% of e.l.f.’s sales.
In 2013 e.l.f opened its first brick and mortar store in New York. By 2019 e.l.f. had 27 stores. It’s not unusual for a digitally native brand to open stores as is the case with Warby Parker, Casper and Everlane. But in 2019 e.l.f. decided to shut all of those stores down. “We had 27 of our own boutiques. As good as those stores were, many of them are in malls — places we weren't gonna be able to change traffic patterns. So we shut them all down on the same day,” said Amin. At the time e.l.f. was spending $16 million on its stores and it was able to shift that spend to building awareness for the brand.
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4. Leading collaborations. Everyone loves a good collaboration don’t they? From McDonald’s collaboration with BTS to SKIMS’ collaboration with Fendi a good collaboration can create a lot of buzz encouraging new and existing customers to buy more of a brand’s products.
e.l.f. is not afraid of pushing the boundaries with collaborations which at first may not make sense. In 2021 e.l.f. partnered with Chipotle to release a limited collection of makeup that was inspired by the ingredients Chipotle uses in its menu. Consumers loved the collaboration and all of the merchandise sold out in 72 hours. “The avocado makeup sponge was sold out in two minutes,” said Marchisotto. “My mind every day is thinking about what’s next. We’re always looking to partner with like-minded disruptors.”
Then in 2022 year e.l.f. partnered with Dunkin’ to launch a “wake up and makeup” collection based on Dunkin’s donuts and coffee. “e.l.f. and Dunkin’ run on a shared mission to delight our communities, serve up excitement and help you be your best (s)e.l.f.” said Marchisotto. “This collab is all about your morning must-haves. There’s no better way to start your day than making a Dunkin’ run wearing your favorite e.l.f. makeup.”
5. Socially conscious. e.l.f is also capitalizing on two trends that are popular with young consumers, one is fair trade and the other is clean beauty. e.l.f is the first beauty brand to have its factories certified by Fair Trade USA. "Consumers love e.l.f. because of our superpowers. We bring premium quality products at an extraordinary value that are cruelty free, vegan and clean, and now we are adding one more superpower: achieving a Fair Trade Certification," said Amin.
e.l.f also claims its products are non-toxic by ensuring that 1,600 unsafe or questionable ingredients are not contained in its products. “This certainly matters to our customers,” said Amin. “But I also think it matters to our workers,” since e.l.f.’s factory workers have to handle those ingredients.