- Beauty retailer Birchbox has pulled back its plans for growth as it struggles to raise additional funds, the Wall Street Journal reports.
- Birchbox, the startup that launched the subscription beauty trend, is seeing increased competition in the space, according to former employees interviewed by the Journal. Birchbox has stalled its expansion into overseas markets and has fired around 50 of its 300 employees, the report states.
- The Journal also reports that Birchbox hired bankers at J.P. Morgan Chase last year to search for new investors.
Birchbox hinted at trouble in February when it announced that it was reducing its staff by 15% and halting its expansion into Canada. Birchbox's CEO Katia Beauchamp acknowledged at that time that the funding environment has grown weaker as venture capitalists invest far less in U.S. subscription startups this year ($86 million through the end of May, compared to $500 million last year). Birchbox's last funding round closed in 2014, when it raised $60 million in Series B, valuing the company at $485 million.
Besides this less-than-enthusiastic funding climate, Birchbox is also facing a slew of competitors inspired by its original subscription model, where customers receive monthly boxes stocked with beauty samples ranging from face wash to lipstick.
YouTube beauty blogger Michelle Phan co-founded ipsy in 2011, a similar concept geared more towards makeup products; ipsy now boasts 1.5 million subscribers, compared to Birchbox's 1 million. In addition, beauty retail giant Sephora launched its own Play! subscription in August last year. According to the Journal, there are now at least 300 different subscription beauty services competing with Birchbox.
Birchbox has never envisioned itself as a pure-play subscription service, though, offering full-sized versions of its samples online and in its stores. Birchbox tapped a range of retail veterans last year to help realize its brick-and-mortar ambitions, including former execs from Sephora and Apple. But without the crucial funding it needs, Birchbox's continued expansion into physical retail is uncertain.
Positioning Birchbox as a beauty company rather than a subscription service is nevertheless smart, given the success beauty retailers have seen in an otherwise dim spending environment. In May, Ulta surprised Wall Street with a 23.7% sales increase in its first quarter compared to a year ago, while Sephora, owned by French luxury conglomerate LVMH Moet Hennessy Louis Vuitton, saw "exceptional progress" and "spectacular international succcess" last year, according to the company.