30 minutes with Bluemercury's co-founder
The luxury beauty brand has expanded dramatically since it was acquired by Macy's. But growing a business from within a retail behemoth presents unique opportunities and challenges.
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Barry BeckCo-Founder and COO of Bluemercury
Barry Beck previously helped found contract services business Tower Systems (now known as U.S. Maintenance), which was acquired by Emcor Group. Beck founded Bluemercury with his wife Marla Beck in 1999 and co-founded M-61 Laboratories in 2006. The two sold Bluemercury to Macy's for $210 million in 2015.
Just ahead of the turn of the century, husband and wife duo Barry and Marla Beck launched a luxury beauty website aimed at disrupting the cosmetics counter of the department store. Now, nearly 20 years later, their company is owned by one of the most iconic retail names.
"Is the irony of selling to a tier 1 department store lost on me? No, no it's not," Barry Beck, co-founder and chief operating officer of Bluemercury, told Retail Dive in an expansive interview about the growth and future of the Macy's owned but independently operated business.
Before the acquisition in 2015, Beck had never considered Macy's as a potential buyer for the private company. In fact, he was courting Neiman Marcus. But, according to him, executives from the upscale department store retailer told him they feared Bluemercury may be a competitor one day. And so when an offer eventually came in from Macy's, Beck said it was an obvious choice. Macy's bought Bluemercury for $210 million.
"A $27 billion company tapped us to be their engine for innovation and growth," he said. "I mean it really was emotional for me, and I was really proud of that moment to team up with Terry Lundgren [former longtime CEO of Macy's], who was like Mr. American retail."
Becoming a respected household name is critically important to Beck. In the years since, Macy's has helped Bluemercury scale significantly, growing from 400 to 2,000 employees and expanding from 60 to 167 stores across the country (as of June 7). And in some ways, Bluemercury has offered the ailing department store the makeover it needs to compete in the beauty arena today.
On Macy's most recent earnings call, CEO Jeff Gennette applauded Bluemercury for a great quarter thanks to new, innovative products like its popular M-61 and Lune+Aster private label brands. He added that he anticipates opening another 25 freestanding Bluemercury stores, as well as more stores in Macy's locations, this year.
Just how well the company is doing financially is a bit of a mystery, considering Macy's does not break out sales for the banner and Beck could not provide sales figures. He did, however, acknowledge that Bluemercury comparable sales are growing in the double digits and that the month of March was the best month in company history.
Bluemercury is a powerful asset for Macy's, but Beck, a self-described "Buffetologist," has his own ambitious vision for the beauty chain too. He wants consumers to feel like they can't live without his products in the same way they can't live without Coca Cola.
"It still bothers me," he admits. "If I go to a party and I'm like, 'Hey where do you work? Well, I founded Bluemercury' and someone doesn't know the company, I'm like, eh I still have work to do."
From his perspective, Macy's has been an important — not to mention resourceful — partner that has also allowed the company to swim in its own lane as it works toward becoming "the world's best, largest and fastest growing luxury beauty products and retail and spa chain."
But growing a business from within a retail behemoth presents unique opportunities and challenges.
Bluemercury is far from Beck's first business.
He grew up in Philadelphia around wealthy families, although he says his family was not (his grandfather Joseph Kushner partnered with Rene Lacoste to build what would become the Lacoste clothing empire). When he was 10 years old he had contracts with everyone in his neighborhood to shovel their snow. By the time he was a senior in high school, he had started a successful landscaping and window washing business.
"I was making $2,000 a day and at one point I guess my parents said to me, 'Wow, you're making more than most of the doctors and lawyers we know.' I think that was it. I was hooked. I was a serial entrepreneur," he said. At Cornell University, where he earned his undergraduate degree, he and his brother participated in the founding of the company Tower Systems, which later became U.S. Maintenance and was acquired by Emcor Group.
"We knew that everything had been pulled out of the department store — kitchen goods by William Sonoma, furniture by Pottery Barn. So we said, well why not cosmetics?"
"I really learned about how hard it is to start a business and people ask me how to describe it. And the truth is, I say, it's like eating glass," he said, adding that the business nearly went bankrupt twice and at one point his parents loaned him and his brother $250,000. He's proud of the fact that that loan turned into a $9 million return.
"Business was going great. It was fabulously successful," he said. "[But] I was really unhappy and my brother kept saying to me, put your bank account statement under your pillow and through osmosis each night you'll get happier. You'll learn by all this money. It'll teach you to be happy."
But in reality, Beck wasn't happy. And so when the internet boomed, he set about selling his company. As happenstance would have it, the woman who tried to buy it later became his wife — and the CEO of Bluemercury.
With Barry's entrepreneurial spirit and Marla's expertise having graduated from Harvard Business School and worked at McKinsey & Company as a business analyst, the two hatched a plan to launch an e-commerce business. After careful deliberation over what sector to disrupt, they settled on luxury cosmetics and raised $1 million in two weeks to get the business off the ground.
"We knew that everything had been pulled out of the department store — kitchen goods by William Sonoma, furniture by Pottery Barn. So we said, well why not cosmetics?" he said. "I would say it was like a light bulb went off in my head, but that was like fireworks."
After acquiring a small cosmetics boutique, EFX, the first Bluemercury store opened in 1999 in Washington D.C's upscale Georgetown neighborhood. At the time, consumers weren't accustomed to buying makeup without testing it out, and so they tapped the brakes on the e-commerce business and pushed forward on store expansion, with the idea that they should be located where customers work and live, and not in malls. That's still true today.
Slowly, the company began adding stores in metro areas like Philadelphia, New York City and San Francisco. And around 2005, Bluemercury became Amazon Beauty's first partner, Beck said. The relationship continues to be lucrative today, despite it being Macy's biggest rival in the apparel space. The department store retailer continues to lose market share to Amazon and others as it shutters stores.
"I don't think Macy's loves our relationship with Amazon. But it's important for us because, for me, I need to reach more clients. That's my mission."
"I don't think Macy's loves our relationship with Amazon," Beck said when asked how he balances working with one of his parent company's biggest rivals.
"But it's important for us because, for me, I need to reach more clients. That's my mission. And as long as I'm reaching more clients and we're a wholly owned subsidiary of Macy's, I believe that it benefits Macy's and I think that they've come around to understand that more."
While many brands weigh the risks and benefits of selling on Amazon, Beck said Amazon hasn't had a negative impact at all on the business. "The one thing that Jeff [Bezos] always talks about is last mile delivery," he said. "But here's why I've already beat Amazon — I'm already in the last mile in your neighborhood."
Becoming a household name
In a nutshell, Beck's strategy for growth boils down to perfecting three things: people, product and place.
From the beginning, Beck has said the company focused on paying above industry average for associates in order to attract expert "beauty junkies." "They become sort of our human Google for beauty products," he said, adding that the culture still exists even in Macy's Bluemercury shops, which are staffed by Bluemercury associates.
The bigger Bluemercury gets, the smaller Beck thinks when it comes to product development. Constant newness is part of what has kept the company relevant, Beck said, adding that 20% of the business comes from new products. It also helps keep customers coming through the doors to see what's new.
As Beck sees it, every executive, including himself, wants a monopoly. But in reality, he's not too concerned about newer players entering the beauty space.
"Sense of place is more important than ever. And retail isn't going to die. It's just going to change probably more in the next three years then it has in the last 500 years."
"I wouldn't say that we're the old focus of the business because I think that we're continuing to innovate, but we are sort of the godfathers of this industry in the sense that we welcome the young brands that come along," he said. "We want to nurture these young brands for selfish reasons. It's good for us, it's symbiotic for us, but we really continue to dominate the industry."
Mainstay competitors like Sephora and Ulta, however, are winning center stage with consumers online.
According to digital marketing firm L2's 2017 digital IQ index on 102 U.S. specialty retailers, Sephora ranks No. 1, in part because of the way its website drives product discovery and in-store visits. For its part, Ulta is in the No. 3 spot thanks to its loyalty program, which is integrated into its mobile app. Bluemercury, however, falls into the "challenged" category, ranking 92. While having live chat specialists to provide beauty advice is a plus, the report states that the brand is failing to fully leverage a two-day free shipping offering.
But if you ask Beck, Bluemercury still has a "sustained competitive advantage," and a lot of that has to do with his third key priority: place. "Sense of place is more important than ever. And retail isn't going to die. It's just going to change probably more in the next three years then it has in the last 500 years," he said.
To stay ahead of the curve, Beck said he and Marla Beck rethink the business and stores on a nearly weekly basis. The company this year has remodeled three stores in the D.C. region, and all stores constructed last year were designed with the company's new look in mind. Apple was the inspiration — drawing on the company's symbolic white, airy, tech-enhanced spaces. In adopting mobile checkout, these new stores have even said goodbye to the cash wrap.
Courting the customer of the future
As Beck looks at the future of retail, he's eager to meet the needs of younger generations that prioritize social media and speed.
"What I see as the Bluemercury customer, I call it Bluemercury's golden thread to purchase, which is our clients go Instagram, Youtube, Facebook, Twitter and then walk into a Bluemercury and buy," he said.
When talking to customers two years ago, Beck said 75% used to say they were influenced by traditional advertising. But today, it's more like 25%. That's in part because of social media, but also because he sees stores today as becoming the media themselves.
"Human beings are social creatures. Shopping isn't just about getting stuff, or else you would just be sitting eating Ben and Jerry's in bed and shopping on Amazon."
"You need the physical world stores," he said. "Human beings are social creatures. Shopping isn't just about getting stuff, or else you would just be sitting eating Ben and Jerry's in bed and shopping on Amazon."
For Beck, retail has always been a family affair. And now he's passing on his entrepreneurial spirit to his three kids. His daughters have already started a lip gloss company, and all three have visited countless Bluemercury stores to unpack merchandise, clean the shelves and learn the family business.
"I've really never seen a separation between personal and professional," he said. "It's just our life."
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