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And now, the main event…

Only four years ago, Diarrha N’Diaye-Mbaye founded Ami Colé, a line that specialized in foundation and tints for “melanin-rich” skin. Alas, last week, N’Diaye-Mbaye announced she would be shutting it down. In a well-written and candid essay for The Cut, she laid out many of the challenges other founders are scared to address: She called out temperamental investors, and perhaps most saliently, explained the inequities involved in competing with corporate-backed brands for Sephora shelf space. (N’Diaye-Mbaye declined to comment for this piece.)

Upon hearing the news, someone asked me how it was possible that a venture-backed brand—particularly one that seemed to be doing fine, and had secured Sephora distribution—could have failed. But Ami Colé’s situation is not uncommon. In fact, many startups, even established ones in the beauty space, are in similarly precarious positions.

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At this point, it’s conventional wisdom that beauty lines that are stocked at Sephora—with perfectly coiffed founders who sit on panels and vamp about female empowerment, or post videos of themselves crying at in-store displays—have it made. But many struggle to hit their wholesale partner’s aggressive sales targets, which makes it harder to raise additional capital from investors. (Plus, many just can’t keep up with whatever beauty trend or product has gone viral that month.) The challenges, as Ami Colé’s fate demonstrated, are often insurmountable, even for a beloved brand that was early to the viral lip oil trend.

Indeed, N’Diaye-Mbaye talked a lot about fundraising, a painful process for founders of all brands and sizes. But it’s impossible to ignore the role that Sephora, her brand’s exclusive retailer, played in the alchemy of the collapse. Sephora, of course, has transformed plenty of indie labels into multi-hundred-million-dollar or even billion-dollar brands, and the retailer undeniably supports companies that are exclusive to their shelves. But it’s also true that the complexity and cost of doing Sephora well is significant. Over the years, I’ve talked to dozens of founders and executives who work with (and have worked for) the retailer, and for every Drunk Elephant, Kayali, or Summer Fridays, there are many more brands that never deliver for their investors, and whose founders end up feeling burned.

In some ways, selling via the world’s most powerful beauty retailer can be more of a curse than a blessing. There’s low margins, and lots of cash spent on marketing and imagery, and the inevitable loss of control over products. “You’re in hand-to-hand combat,” said a person close to Sephora, who also noted that, for vendors, the retailer is a “loss leader” until a brand is doing at least $5 million in wholesale, which is the equivalent of about $9 million at retail. Most brands, of course, never make it to that point.

I’ve heard varying accounts about how much Sephora controls product development, which has been described to me as a collaborative process that retailers refer to as being “in the kitchen.” (The results of this quiet process are easy to spot—e.g., there’s a reason so many brands launch similar products around the same time.) Some brands say they’ve been able to successfully push back against Sephora, and have managed to bring their preferred products to market. But it’s a tricky situation, and one that often pits what’s best for Sephora against what’s best for the brand. “They’re literally dictating your assortment,” the person close to Sephora said.

As time went on, I assume that Sephora expected N’Diaye-Mbaye to expand her line’s complexion offerings so it would appeal to a wider swath of Sephora’s shoppers. (I’m told by a number of sources that only a very small percentage of the retailer’s customers are women of color.) And yet, while expanding the purview of Ami Colé’s offerings might have introduced the brand to new customers, it also might have alienated the core customer. “The only thing Ami Colé could’ve done is make more shades,” a Sephora insider said. “But those shades wouldn’t have resonated with her customers––they would’ve been Sephora’s most high-performing shades.”

Complexion is the hardest, most expensive category in all of beauty, where product development, inventory, and marketing are each uniquely capital intensive. In order to do complexion right, a brand needs to stock a wide swath of shade offerings, no matter what’s selling at a given moment. Then there’s the issue of margins. While the most desirable brands might land a coveted 50/50 split, smaller lines often secure a range from about 40 to 45 percent. It all depends on the power dynamic. “I’m sure Rhode has a great margin,” said a person close to Sephora.

Another insider gave a more nuanced take, noting that Sephora usually suggests a generic 60 percent margin—which can be negotiated down—when they send an initial vendor agreement. But, counterintuitively, once a brand gains traction, and their purchase orders hit certain dollar thresholds, their margins could go up another point. Then when a brand decides to end their exclusivity with Sephora, margins could instantly soar up to 60 percent.

In short, everything is relative. When you look at the brands that do really well at Sephora, and I mean really well—like Rare Beauty, Milk Makeup, Summer Fridays, One/Size, and Makeup by Mario—the retailer is their whole universe. Their entire marketing machine is geared toward launching products at Sephora, where exclusivity is everything. “It should be a really big decision for a brand to decide to go into Sephora,” said one founder whose brand is currently sold there. “You have to ask, ‘Is this really what I want?’ Because once you position that way, you can’t un-position it. I decided I either needed to go big or go home, and I’d rather close the door to this business than not win at Sephora––so it was yes for me.”

Les Wexner, the recently reclusive, Epstein-linked former C.E.O. of Limited Brands and Victoria’s Secret, has bought Norman Foster’s Martha’s Vineyard estate, which was once occupied by the Obamas. [Curbed]

Obviously we are excited over here about the Sofia Coppola documentary about Marc Jacobs. Should we reroute to Venice for the premiere? [W]

Sydney Sweeney stars in American Eagle’s new denim campaign, styled by her own stylist, Molly Dickson. [People]

Will P.R.s who attend the closet sale of ex-Vogue writer Liana Satenstein discover items they once gifted to said writers? There’s only one way to find out! [Instagram]

Until tomorrow,
Lauren

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