We make the best of beauty accessible for every eye, lip, and face. It is inherently about inclusivity. The word every is really important. We're big believers that if your team reflects the communities you serve, it's a competitive advantage.
Tarang, thank you so much for being here. I've been looking forward to this conversation for a long time because you, over the course of 12 years, right? You've been in the job for 12 years. You have taken what was a pretty small, under a couple hundred million dollars in revenue, discount beauty brand, and you've turned it into a powerhouse. And you've done it in a very unique way, and I think that's what we want to spend some time exploring. But I'd love to hear from your point of view, how did you make it a success? What was the secret to getting e.l.f. to a multi-billion dollar brand?
Well, first of all, thank you for having me. I'm looking forward to this conversation as well. For those not familiar with e.l.f. Beauty, we've been in business for 22 years. It was founded by a father and son entrepreneurs who had this crazy idea in 2004 to sell cosmetics over the internet for $1. Everyone thought it was crazy. This is pre-iPhone. Couldn't sell cosmetics over the internet, and you certainly couldn't make money at $1 price points. But they figured it out. They were great entrepreneurs, incredibly frugal. They figured out this value proposition, and then the power of the internet and being a digitally native company, they had a couple of viral waves where there was a rumor that Bloomingdale's was going to buy this small little company called eye, lip, face and make it a house brand and take up all the prices, so you better buy it now. Instead of like 200 orders, they had 200,000 orders waiting for them. Another rumor a couple years later that Nordstrom was going to do the same thing. By the time I got involved, they were ready to sell the company. They'd taken the company from nothing to a hundred million dollars in sales, which doesn't sound like very much, but in beauty, which is highly fragmented, a hundred million dollars is actually an important mark. For perspective, there are 1,800 cosmetics and skin care brands in the US alone tracked by Nielsen, yet only 23 of them have more than a hundred million in sales.
Wow. So it looked pretty good to you.
Did you think you could build it into a multi-billion dollar brand?
Well, I don't know if we at the time we thought we could build it to a multi-billion dollar brand, but we knew it had tremendous potential. Part of what attracted me, I just sold my last company, Schiff Nutrition, to Reckitt Benckiser. It was a good outcome, and I've been in the consumer space for now 35 years. I'm always passionate about really great consumer brands.
But you had not been in the beauty space. I mean, you were selling paper towels, cat litter, vitamin supplements. You weren't selling beauty products.
If it's an everyday consumable product, I've been around the space at one point or another. Consumer brands is my passion, and I could definitely see there's a real brand here. Not only the sales, a hundred million dollars, but the passionate community that it was attracting—that this was their own beauty secret—and absolutely thought we could build it.
All right, I want to ask you something about that. If you walk up and down the Quai d'Orsay, what you see are luxury brands, and I can't tell you how many conversations I've had with CEOs who are in the midst of transformations trying to take their product upmarket. The really high-end, which is where a lot of the spending is happening right now. You had a very different vision. You've maintained this as a low-price brand. You may not use those words, but that's what you've done.
No, we take seriously our responsibility of delivering superior consumer value. The investment thesis 12 years ago when we bought the company was: e.l.f. is a terrific brand. It has these inexpensive products, a dollar, two dollars, three dollars. I think the average unit retail price was about two dollars. And the vision I had was, well, that's terrific, but what if you could actually get prestige-level quality, target prestige, and make it a better value because it gives you a bigger price umbrella, but still without the price, with our own twist on it.
Did people tell you you were crazy?
A lot of people thought I was crazy. But at the time, innovation is a passion area of mine, and we thought if we could change out the entire supply chain, integrate with our innovation model, we could create a real competitive moat in terms of this unique ability. And if you fast forward now 12 years, we have a unique ability of taking inspiration from our community or the best products in prestige and offering them at an incredible value with our e.l.f. twist. I'll give you a couple of examples. There was a prestige lip oil. One of the main prestige brands has been around for a decade. Went viral post-pandemic as everyone wanted to express themselves more from a color standpoint. Our community will come to us and say, "Hey, e.l.f., there's this prestige brand. We love it, but it's $36. I can't afford $36." We're the number one brand amongst Gen Z, Gen Alpha, and Millennials, and those consumers are not shy of letting us know. So what we'll do is we'll study the product and we'll basically say, "What do they like?" They love this glossy finish. They love the color that you get on it. But we'll also say, "What don't consumers like about it?" And that particular formula dried out a lot of consumers' lips, and the applicator is small, and lip oil is something you have to apply throughout the day. So when we introduced our lip oils, instead of $36, ours were priced at $8. But the real thing is it had a completely different hydrating formula, a much bigger doe foot, and they just went off virally. We never have to make that direct comparison.
So your innovation machine starts with the consumer.
Always. Always. And our community isn't shy. One of the things that's been actually a big evolution for me. I was always consumer-oriented or consumer-centric, goes back to my P&G days when I first started. But in this day and age, particularly for a brand like ours that's so socially active, the expectation now is I actually get on pretty regularly on TikTok live.
Personally. To take feedback from our community. In fact, sometimes my CMO will introduce me and she'll say, "All right, you got the big boss now. Tell them what you want." There'll literally be 12,000 people on this TikTok, and they're not shy. I'm looking at the chat box, and last year they'd gone on and they're like, "Hey, e.l.f., there's a prestige brand and they have these bronzing drops. They're terrific, but they're $39. I can't afford $39. Help us out." I'll look at the chat field and I'll say, "Okay, I see you guys want bronzing drops." There'll be another 20 chats right away that say, "No, no, boss man. We want them now." And I will literally leave that call a bit traumatized, call my head of R&D and say, "Oh my god, for the love of god, we have a three-year product pipeline. Tell me we have bronzing drops on our pipeline." And she'll say, "We do." I'm like, "Oh, thank god. When are they coming out?" And she says, "18 months." I'm like, "Oh, no, no, no. I am not getting yelled at by our community on these bronzing drops." And we introduced them four months later. So that's really the power of our community.
All right, the big question that everyone in this room wants to know is: when you go on TikTok, what e.l.f. products do you use?
Oh yeah, no. My routine usually is pretty straightforward. I start with e.l.f. Skin. We have an incredible hydrating moisturizer formula. My go-to product though is our Poreless Putty Primer. And of course, a lot of the guys don't know what a putty primer is. Think of it as if you're painting your face, you start with primer, and it really for this old skin smooths out my pores and stuff. It's amazing. Trust me, you guys should try it. And then I try our Hydrating Camo Concealer because these old eyes kind of need some concealer, and then finish off with one of our powders. Our Well People powder I particularly like, and so that's my go-to routine.
I absolutely do, at least for interviews. I am a big consumer of our skin care products. I'm a big consumer of—you know, our portfolio has grown over the years. With e.l.f. Color Cosmetics, we took into skin care with e.l.f. Skin under the same principle of taking prestige quality and making it accessible. We've done several acquisitions. Well People, which is a pioneering clean beauty brand—they were doing clean beauty well before it was fashionable. Naturium, which is a clinically effective biocompatible skin care brand.
I want to talk about Rhode. But we're here at Cannes, which is the festival of creativity. You had an amazing burst of creativity around the song that, as I understand it, you all commissioned with the words eyes, lips, face—the e.l.f. of e.l.f. And I went on TikTok myself and just searched eyes, lips, face, and it's viral. Everybody's doing it. An incredible success. One of the things that powered your valuation. Where did that come from?
The insights always come from our community. So our approach is we want to live where our community lives. So we go well outside normal beauty trends. We were one of the first beauty brands, I believe, on TikTok. And it came from this insight. My CMO came to me and said, "Hey, we have to be on TikTok because that's where Gen Z is." And I'm like, "Well, if that's where Gen Z is, absolutely. Now, what's TikTok?" That was a few years ago. And we approach each platform with a great deal of humility and curiosity. So when we looked at TikTok back then, we're like, "Wow, there's a lot of music on there, a lot of dancing." Somebody on our team—we have a young, diverse team that really represents our community—said, "Let's commission a song." A lot of companies would be like, "Wait, we're not in the music business, we're in the beauty business." And the answer is always, "Hey, that's a great idea. Let's commission a song." We did an eyes, lips, face challenge. And much to my surprise, because they had objectives to it, they said, "We think we can get a billion views." And I remember telling the group, "You know how many zeros are in a billion?" We ended up getting 9 billion views.
9 billion views. Yeah. And they're fun. Did you do one?
I had to do TikTok as well. It's not pretty, so please don't look it up. There aren't that many views, but you have to role model. Our whole process is experimentation, getting on. And we continue to pioneer on different platforms. We have our own channel on Twitch under the insight that 70% of our consumers are gamers who watch others play video games. We have the number one branded experience on Roblox—98% rating, I think, over 15 million plays. And so our whole approach is: where does our community live? How do they want to engage with us? And we think well outside of beauty.
Those are all things you couldn't possibly have imagined in 2014 when you took this job.
No way. And I'll guarantee you there's things we're going to do next year that I can't possibly imagine right now either, and that's what makes my job fun.
Well, you closed all your stores early on because—
Yeah, we had 26 retail stores. It was a passion of the founders of having retail boutiques. I almost considered it free marketing. And when we looked at the retail stores, many of them were in malls that were never going to see a better day. And our strategy—if we want to make the best of beauty accessible to every eye, lip, and face—is a very broad distribution strategy. So our first retail customer is Target, national retailer outside of our own online business. We're in Walmart, in Ulta Beauty, in drug, in dollar. So when we looked at the role of our retail stores in the face of 5,000 Walmart stores or 1,800 Target doors, it wasn't really clear what the strategy was there. So what we found was—but it takes investment. So what we did is we closed out all of our stores on the same day. We paid three times rents for our associates, but so it was still painful. But we took the 16 million we were investing in our stores and we doubled down on our digital business and our national retailer business and saw an immediate improvement. So for us, the fundamental strategy is we want to be accessible. So how do we become accessible?
We already talked about how you ran lots of different brands in your career before you got to e.l.f. Beauty, but not beauty. How are shampoo, paper towels, cat litter—how are those things different than a beauty brand? And how are they the same?
Well, I actually do consider hair care part of beauty. So I did start my career in beauty. I was part of the team in the early '90s at P&G that relaunched the Pantene brand, and then did something unusual. That was my baby for 8 years. I picked up their other hair care brands, but in that time, Pantene went from a $50 million US Western European hair care brand to a $2 billion market leader globally. And so Pantene was pretty formative in terms of my experience in beauty. But you're right. Since then I've worked everything from paper to food to pet to laundry, home care, healthcare. If it's an everyday consumable product, I've probably been around the space at one time or another. And I'll tell you, the unifying element between all these different categories is I'm absolutely passionate about building brands. There is a method to build a brand that is universal across categories. And the unifying element for me in every business I've ever had is you lead the innovation in the category. And being able to lead innovation is the best way to build brands. But probably the most important thing and the thing I take the greatest pride in is assembling these high-performance teams. I always brag that 35 years of being in the consumer space, I've never had a business we haven't grown multiples of the category, and I always attribute it back to the team and that culture that we create.
Yeah, really impressive. So, big acquisition a couple years ago with Rhode—Hailey Bieber's brand. I think the reports are you paid what? Over a billion dollars for it? I don't know what information is public.
Oh yeah, no, it's public. So we acquired—it's actually not even a year ago. In August of last year, we acquired Rhode Skin Care, a brand created by Hailey Bieber and her co-founders Michael and Lauren Ratner. And we paid a billion dollars: $600 million in cash, $200 million in e.l.f. equity, and $200 million in an earnout structured over 3 years. If you start seeing us pay the earnout, you know the acquisition is doing extremely well because pretty targets. And what we saw in the brand—in our approach, because we have such strong organic growth on the e.l.f. brand—we just finished our 29th consecutive quarter of net sales growth averaging over 20% growth a year—is we have a very high bar on M&A. And the number one thing we look for is: does it fit our vision? And our vision is to create a different kind of beauty company. One that builds brands that disrupt norms, shape culture, and connect communities. And Rhode absolutely did that. This is a brand that went from zero to $212 million in net sales. I gave you that $100 million number before. They did that in less than 2 years. And a lot of that, I think, the entire team. And that $212 million, by the way, is DTC only with 10 products. So it was unlike any other brand we'd ever seen in terms of the resonance. Rhode, one of the things that caught my attention is people would wait—their community would wait out in line 14 hours overnight for an activation event that Hailey wasn't even at. They bought absolutely into the products and the lifestyle, and they wanted to buy into it. And so it had such an incredible profile.
And is she still engaged?
Absolutely engaged. I think sometimes people mischaracterize Hailey. She's certainly a celebrity, so people say, "Oh, she's an influencer, she's a celebrity." She's actually one of the most thoughtful founders I've ever met. Her instincts are incredible, aesthetic is beautiful, and she's unbelievably meticulous on product. She has a vision of one of everything really good. So it's a highly curated line. The sales per each of the items are unlike anything I've ever seen because she goes through at least a dozen rounds of product formulation before she really settles on what she's going to do. She's 100% involved in every aspect of that business. And we have a phenomenal team with Michael and Lauren Ratner as co-founders, Nick Vlahos, CEO. Nick and I worked together at Clorox back in the days. Terrific CEO, terrific team. And we're very excited. In fact, since buying Rhode, we've started expanding distribution. We launched Rhode in Sephora in North America, in the UK, Mecca in Australia, New Zealand. In every case, Rhode was the biggest launch Sephora or Mecca had ever seen in their history. And I'm talking about like three times bigger than any other launch, and it's maintained the number one position.
Any chance Rhode will be—five years from now or 10 years from now—Rhode will be bigger than e.l.f.?
It can be. The great thing about our brand portfolio is all of them are growth brands. So Rhode—I will tell you, I've said this publicly—Rhode will definitely, I think, be one of the fastest brands to a billion dollars of net sales in beauty as ever seen. And we're very excited. This fall, we're going to be launching Rhode in 19 countries in Europe with Sephora.
So you've already told us that the secret to e.l.f.'s success is premium products but low prices. How do you keep the prices so low? You mentioned supply chain earlier. What's the secret to being able to do this?
So I would say we've spent 12 years honing this advantage in terms of how our innovation connects to our supply chain. We have a set of strategic suppliers that we're highly involved with—our quality people in their facilities, our lean manufacturing techniques, the level of collaboration that we have. It's a unique system which gives us the best combination of quality, cost, and speed in our industry, and we continue to hone that.
