e.l.f. Beauty CEO: "It's Immoral To Charge You $38 For This"

Well, thank you for the most gracious introduction I think I've ever had. At least the most hyped up one. I'm digging it.

Well, you know, I work for someone at P&G who claimed his claim to fame was he says, you know how the shampoo bottle says lather and rinse, right? I'm like, yeah. He says, I'm the one who came up with repeat. And he says it doubled the volume. I think it got him promoted. He had a very successful career. And if I only knew business was that simple. I just have to come up with repeat.

No, I do. Actually, on this interview right now, I've got our poreless putty primer, our matte. I do a little tea here. I've got our camo concealer for these black eyes and our Well People pressed powder. That's why I look so fabulous.

I think it's essential and particularly with our skincare range, absolute favorites for me. As I said, I just use our primers, our concealers, our powders for interviews like this when I want to look my best. But I think more important even than using the products yourself is having a team that reflects the community you serve. So I'm really proud that our workforce is 74% women, 66% Gen Z and millennial, 44% diverse. Absolutely represent the community we serve and frankly are one of the best sources of insights I have. I do a product review every couple weeks. All I'm doing on that product review is looking at the chat field. I'll throw out open-ended questions like, 'Hey, tell me why is this thing so great?' And our team, they're so passionate, so into these categories and our consumers and making sure that we're delighting them. And that really makes my job a lot easier.

Well, you know, it goes all the way back to our roots. The founders of this company introduced the brand in 2004 selling cosmetics over the internet for $1. Everyone thought they're crazy. This is pre-iPhone. You couldn't sell cosmetics over the internet. And you certainly couldn't make money at a dollar, but they figured it out. And we've kept that spirit of disruption ever since. We take nothing more than joy of making the best of beauty accessible for every eye, lip, and face. We have a unique supply chain innovation model that allows us to really look at inspiration from the best products in prestige as well as our community, put our elf twist on it and introduce that incredible value and that's what we're really all about and have been for 21 years.

No. You know, we make money on every one of our items. And the key is we have a unique supply chain. It's a hybrid model. We use like-minded suppliers who believe in ELF, believe in our standards on quality, on lean manufacturing, and then a high degree of control. It's our quality people in those facilities. It's our lean manufacturing techniques. And we work very closely to really make sure we have that best combination of cost, quality, and speed. And again, it's an advantage we've honed particularly over the last 12 years, and has allowed us to weather the storm, whether it be the pandemic, the post-pandemic inflation, right now even tariffs. And we're committed to our suppliers. We believe in long-term partnership. And so we have done some diversification, but our favorite form of diversification is take one of our strategic suppliers and have them set up the exact same facility outside of China as well. So it gives us a great model and I'd say it has less to do with tariffs and more to do with we have a rapidly growing global business and making sure we have a robust global supply chain to meet the challenge.

Yeah sure. So if you take a look at tariffs on China goods, for the fiscal year at one point they're as high as 170%. For the year we're going to average about 60% tariffs on our goods. So I mean that's a real cost and it actually really means now our approach is we're always transparent with our community. So well before, 3 months before we took pricing, we announced to the community like hey we're facing these pressures we're going to raise our prices a dollar, we don't like doing it but this is what's going on. And the overwhelming response was really positive. People are like you know we love that you're always upfront with us. You're always clear and letting us know what's going on. And our consumers have stuck with us. We continue. This last quarter marked our 27th consecutive quarter of net sales market share gains. We've averaged over 20% sales growth every quarter for the last 27 quarters. And it's because consumers really trust us for the quality of the products we have and the value that we deliver. And we take that responsibility seriously. After all, two-thirds of Americans live paycheck to paycheck and we see it as our responsibility to make sure they have the best of beauty but at great prices.

Yeah, that's our approach. We've built trust with our community because we're always upfront with them. We have a two-way dialogue and they know that we're there to let them know what's going on, but also to listen and continue to drive superior value.

No, we took everything up a dollar. So, a $10 item went to $11. A $3 item went to $4. And we're known for the transparency of our pricing. You know, we have an everyday low price. We don't play games with the consumer. We don't have a high price and then put it on sale. Even when people display our products, we tell them, 'Do it at full retail because it's such a great value.' And so, taking a dollar as far as we went on any item, regardless of what the tariff was.

Well, I think our pricing actions covered a good portion of the tariffs. We continue to have a great program in cost savings. We continue to deliver great value. You know what I tell you on Wall Street is we're in it for the long run. So, we don't let any short-term volatility bother us. We're going to continue to deliver. We've delivered superior financial returns, the best in beauty over these last 27 quarters and we're going to keep doing that and over time people will see and they'll continue to see what we're able to deliver. We've more than tripled our market share just in the last few years. We're now the number one unit share brand in the US, the number two dollar share brand with clear line of sight of overall market leadership. So we feel good about what progress we're making and what we're delivering.

So our market share nationally is about a 13% share. Beauty is very fragmented. So there are a lot of brands. So that actually is a leading share.

Yeah. No, that's right. I mean there's 1,900 brands in cosmetics and skincare tracked by Nielsen. That's just what's scanning every week. Out of that, only 26 have 100 million in retail sales. Not even net sales, just retail sales. So, you know, I'm really proud that we have four brands that have over 100 million in retail sales. E.L.F. Color Cosmetics, E.L.F. Skin, Notorium, and Rhode. We're doing pretty well when it comes to our portfolio.

Well, you know, there are a lot of parallels between what Rhode was doing and what ELF was doing. There's a lot of mutual admiration in terms of how we disrupt, how we engage our community. But the way we look at acquisitions is we use our vision as a lens. Our vision is to build a different kind of beauty company. And we're going to do that by building brands that disrupt norms, shape culture, and connect communities through positivity, inclusivity, and accessibility. And Rhode did all of those things. I mean, Hailey and her team have built a brand like I've never seen. In less than 3 years, they went from zero to 212 million in net sales, DTC only, with just 10 products. How uncommon is that? I've never seen it. And beyond never seeing it, the thing I particularly loved about what Rhode has done is a love of consumer fervor the brand has. I've never seen a brand where people will be willing to wait out overnight for 14 hours for an event Hailey's not even at. They're buying into the entire product, the entire lifestyle. And it's just a phenomenal brand. You know, since we bought the brand, we closed in August. We've launched Rhode into all North American Sephora doors, Sephora in the UK and in both cases it was the biggest launch Sephora ever saw in their history. Something like three or four times bigger than their next biggest launch ever. So it tells you the specialness of the brand and how much it's resonating.

Well, I'd say it's a consistent strategy. So, E.L.F. is carried. We just entered last year Sephora Mexico. It was one of the best launches Sephora Mexico had ever seen. We just entered last month the Sephora in the GCC, the six countries in the GCC. So E.L.F. is in Sephora. What Rhode does is gives us a whole other platform to really go much broader with Sephora. And so I'd say Sephora is a key customer, but you know, all of our customers are important to us and they all have different roles.

So what we love about Rhode is how well they engage consumers and how well curated their product line is. And so we're learning things both ways all the time. I mean I think one of the things we're able to do and our acquisition approach is different. We don't do any synergy math. We don't think about over-integration. When we buy a brand we want the entire team. So Hailey Bieber, her co-founders, Nick Flos the CEO, the entire team came on board and our approach is you guys are killing it. Keep doing what you were doing and let us know how we can help. And right away, you know, they were about to enter Sephora, they didn't have a field sales support, we could hire an entire field sales team for them. We obviously have strength in marketing that we can share learnings back and forth. Our innovation, we have a real powerhouse innovation engine so all those areas we can help with without changing who they are, really supporting the founders' vision and making sure they're realizing it. We do the same thing with Notorium, our clinically effective biocompatible skincare brand we bought two years ago. You know, we bought the entire team, came on board, Susan Yara the founder, and our approach is always how can we help you? What can we do to accelerate your vision of what you want to do and that approach works great. We're able to benefit from the best of what that team does. Let them continue to thrive, enhance the team and put our capabilities in. It's been a winning formula for us.

Well, you know, it comes back to Hailey. I give her a lot of credit. Her vision from the very beginning is I want one of everything really good. And that's the approach she's taken. It's a very curated approach. She's absolutely involved in every aspect of developing product, making sure it fits her high standards. And you know, the brand continues to innovate. They continue to deliver new products, but they're very careful and very curated how they do that. And of course, that's really resulted in phenomenal sales for every one of their products.

She has never been more motivated. She is loving. She's not only the chief creative officer and the chief product officer of Rhode, but she's a strategic adviser to ELF Beauty as well. And I think that's one of the things that's really made this work is she's part of the ELF Beauty family. Very engaged. I don't know how she does it. The week we launched in Sephora for North America, did a massive event at Times Square. I think she probably had hair and makeup at 3:00 a.m. or 4:00 a.m. was there for the opening. The next day, we rang the bell on the New York Stock Exchange. That's a great... And it wasn't just Hailey. All of our founders came out. Susan Yara was there. Alicia Keys, who we developed Key Soulcare with, was there, the founders of Well People. It was a great celebration of our female powerhouse female founders and team and it was just a terrific time.

You know what I tell people is Hailey is a celebrity for sure but she's way more than a celebrity. She's one of the most thoughtful founders I've ever met and by that I mean she is absolutely involved in every aspect of the business from product to the marketing to how much she posts, the level of passion she has. This is her baby and she's all in. The same is true with Susan Yara at Notorium. Susan Yara was a skincare influencer. Has real vision for the quality of those products. She continues to educate people on why they need the skin regimens they do. And so that's one of the things we loved. Even the founders of Well People, plant-powered pioneering clean beauty brand. Shirley Pinkson actually runs education for all of ELF Beauty. Dr. Renee Snyder, a board-certified dermatologist, actually helps us on ELF Skin and the rest of our skincare portfolio. So having them fully involved and more importantly being able to pursue their passion is something that we're all about.

Well, I think it's our approach. Our vision is to support a founder's vision and to really support a founder and help them realize what they want. Hailey would be the first one. Susan Yara would be the first one to tell you ELF has done everything we said we'd do, which is continue to support their vision, continue to support whatever they need to be able to realize their vision. And that was the whole beauty of it. I think Hailey actually had a lot of admiration for ELF, how we engage consumers, how we develop community, what we stand for, and those things really mattered. I mean, I think on the first dinner we had during the courtship, I remember she left saying, you know, I kind of want to hang out with these guys. I really like them. And I think that's important. I think that chemistry and making sure that you're truly supporting them is I think the key. Versus, you know, buying something that's a celebrity and having a celebrity lend their name who may or may not be there. Our approach is very different. And we're also really choiceful. In our 21-year history, we've only made three acquisitions in that entire life. And part of it is we've got the great luxury of very strong organic growth with our existing portfolio of brands. So we never have to do another deal if we don't want. So they have to be quite special. We look at hundreds of brands and only I'd say in the last two years only Notorium and Rhode pass that bar. So, it's a pretty high bar that we have and we really make sure and I'd say the biggest thing that a lot of people miss, it's all about the culture and it's about the team and making sure that there's a shared ethos, a shared belief system, how you engage consumers, how do you really nurture a brand? Those things we spend a lot of time, I'd say we spend most amount of time on, hey, do we see the team as part of ELF Beauty? Do we see them living the same values that we believe in? And I think that's actually been the real secret to why our acquisitions, every one of them's worked.

I was at Funky in Beverly Hills. It was a fabulous dinner.

Oh, that's a miss on my part. I should... thanks. You know, we have earnings coming up in February. I'll make sure I mention her 62 times and Rhode zero times.

Well, I think it's a combination. Hailey's all-in, as I mentioned, this is her baby. So, we want Hailey absolutely fully engaged. But there are three things we agreed with Hailey when we did the acquisition. We said, 'Hey, we think we can help you build up a field sales support for Sephora.' She loved that. We said, 'We love the fact that this is your baby and the brand's so well associated with you, but we want to build a brand for the long term and we're known for our marketing engine. So, we actually want to invest more in marketing and really make sure Rhode stands by itself as well.' And she loved that, too. And the third thing we said is we have incredible innovation capability, particularly on R&D side. And I think she was the first one to say, 'Oh my god, I'd love that.' She goes, 'I'm not a scientist. Sometimes I think I am, but I'm not. And if you guys can give me that help.' So, we went in before we even did the acquisition fully aligned on where are areas that we could help, we could leverage the incredible capabilities we have and where could we let them continue to run and continue to nurture their vision and that's the approach. You want to do both. We're building this brand for the long term. It's already an incredible brand. I haven't seen another brand like this and we couldn't be more excited to help her continue to realize that vision.

Well, I mean that was the roots of the company. The first few years of the company, we were a DTC only and so we absolutely a digitally native brand. We absolutely knew and even today digital is such an important part of our entire model. It's how we engage consumers. What we... our strength with our own site, our Beauty Squad loyalty program has over 6 million members. The momentum we have at Amazon, on TikTok Shop, it's always going to be a key part. But the thing we realized back in 2018, the founders had a real passion for their own boutiques. And we had 27 boutiques. And as we looked at our strategy, we're like, 'Wait a minute, we're all about digital and powering digital. We now are with big national retailers, 1,800 Target doors, 5,000 Walmart doors, 1,400 Ulta doors. We're at drug, etc.' So we really made us look and say, 'All right, what's the role for 27 boutiques because we're never going to hit as many consumers as we can versus our national retailers or digitally.' And so it was both one of the most difficult and easiest decisions we made. The difficult part of that decision is we had about 250 associates associated with the stores. And so when we made the decision, the day we had earnings, February of 2019, I remember it like it's yesterday, we sent out 27 of our leaders to every one of our stores because we wanted to do in person, tell them why these stores weren't working. Most of them were in malls that were never going to see a better day. We paid three times severance to each of the associates. But that was the painful part. The easy part was it was the right strategic decision to kind of say, 'All right, what are we really going to focus on?' And we're really going to focus on our national retailers and our digital business. And we took the $16 million we're spending on our stores. And we doubled down on marketing and digital and we saw an immediate improvement of the entire business everywhere we're going. So it was one of those I mean I think every once in a while you got to take a look and say all right what are you doing? What's working? What's not? And then have the conviction to say, 'Hey, we got to make the tough right choice here and make sure we treat people with dignity and respect, but keep moving the business and keep pivoting to what consumers want.'

I'd say we are in the physical game. It's a question of do you want to do it yourself or do you want leading partners? Our strategy, as I mentioned, is the best of beauty made accessible. As we look at that, we want to be wherever consumers want to buy beauty and I feel great about our retailer portfolio. I mentioned Target, Walmart, Ulta Beauty, CVS, Walgreens, Amazon, TikTok Shop. Look, we're where consumers want to buy it. elfcosmetics.com. And so that's the strategic choice we made is we would rather partner with people who have amazing presence and reach. There's over 100 million Walmart shoppers every week. And so if we want to give them the best of beauty, let's make sure it's accessible to where they want to shop. And for us, that means it's not...

Necessary to have our own stores. We'd rather partner with leading retailers and be strong digitally to be able to meet their needs.

Yeah. So, you know, it's consistently worked. We don't actually use the word dupe because we don't do the dupe thing. What we do is we take inspiration from prestige as well as our community and we put an ELF twist on it and introduce it. I'll give you a great example. Christian Dior has these lip oils. They've been in the market more than a decade. They've been around for a long time, but for some reason the last couple years they took off virally. Our community will come to us and say, 'Hey, ELF, there are these lip oils out there. We love them, but we can't afford 38 bucks or whatever they cost. Help us out.' And we'll do it. We'll take a look at it and we'll say, 'Okay, what do they like about this product?' In this particular case, they love the glossy finish. They love the pigmentation, but then we'll also look and say, 'What don't they like?' And we found is for some consumers, those lip oils were drying out their lips. Others didn't like the fact the applicator was really small and lip oil is something you got to reapply throughout the day. So when we introduced ours, it was a completely different hydrating formula. Same glossy finish, same pigmentation, a much bigger applicator, we call a doe foot, but the key difference was not only was the product we thought even better, but instead of the 38 bucks, we introduced ours at $8, right? And then the next day, $8. And we never make direct comparisons. We don't have to because I got to tell you the next day there are a thousand TikTok videos that said like, 'I actually like the ELF lip oils even better.' It's probably the biggest launch we ever had.

Well, that's our entire model. We have a concept where we call it zero distance. Zero distance between the C-suite and our community. You know, I'll tell you a story. My CMO terrorizes me every few months. She comes and drags me on to TikTok Live. And you know, she'll just get up there and she's not even very nice about it. She'll just say, 'All right, you got the big boss. Tell them what you want.' And the chat field will just light up. It'll just go crazy. There was one last year where I got on and a bunch of people said, 'Hey, there's this prestige product. They make these bronzing drops. We love them, but I think they're 39 bucks. We can't afford 39 bucks. Help us out.' And I'm reading the chat field and I'm like, 'Yeah, okay. You want some bronzing drops?' And then there's like another 20 chats right after that, and they're like, 'No, no, boss man. We want them now.' I will literally leave that call a bit terrorized or traumatized. And the first thing I'll do is I'll call up my head of innovation. We have a three-year product pipeline. I'll say, 'Oh my god, please, for the love of God, tell me we have some bronzing drops.' And she's like, 'Yeah, we do.' I'm like, 'Great, great. When are they coming out?' And she's like, 'Oh, we got them slated for 18 months from now.' And I'm like, 'Oh, no, no, no, no. I cannot have our community yell at me. Move it up.' And we launch them within 6 months. And that's our entire model. It's like we look at our community, what do they want, where can we bring the best of beauty, put our ELF twist on, and bring it at an incredible value. And that's fueled the entire model. Particularly this day and age, our strength with our community, particularly on social, really makes that model work. Where we're not dependent on some celebrity or advertising or something else to be able to get the word out. Our community is our absolute best advocates.

Oh my god, they did.

I'd say it was a moral responsibility. I actually think it's immoral to charge a consumer 40, 50 bucks for something that we can clearly show you can make for less and actually have just as good or better quality. And you know, I mentioned earlier two-thirds of Americans live paycheck to paycheck. We think it's immoral to charge a lot of money to those people who are barely making it. So we take great pride in being to put our ELF twist on and be able to have the best of prestige at a fraction of the price.