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Inclusive & Disruptive Beauty for the Next Generation | e.l.f. Beauty CEO, Tarang Amin & CMO, Kory Marchisotto

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In this episode of TD Cowen’s Retail Visionaries Podcast Series, Tarang Amin, Chairman & CEO of e.l.f. Beauty & Kory Marchisotto, CMO of e.l.f. Beauty & President of Keys Soulcare speak with Oliver Chen, Cowen’s Retail & Luxury Goods Analyst.

They discuss how e.l.f. navigated the COVID-19 pandemic by leveraging their digital strength. They also speak about e.l.f.’s focus on clean beauty & sustainability through Project Unicorn, which has reduce over 650,000 pounds of packaging waste, and their adherence to EU cosmetic standards, which bans over 1,300 ingredients. Lastly, they highlight how sustainability, diversity & inclusion continue to drive success with Gen Z consumers and how they continue to seek new audiences. Press play to listen to the podcast.


Speaker 1:                       Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas, shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Oliver Chen:                    This is the visionary podcast series about visionary ideas and people. My name is Oliver Chen. I’m Cowen’s new platforms, retail, and luxury analyst. This is our fifth episode of our retail and luxury visionary podcast series. And we’ll delve into the topic of beauty, sustainability, diversity, and the younger customer today with e.l.f. I’m thrilled today to be hosting Tarang Amin, Chairman and CEO of e.l.f Beauty and Kory Marchisotto, CMO of e.l.f and President of Keys Soulcare. e.l.f Beauty has three distinctive brands, e.l.f Cosmetics, Well People and Keys Soulcare. It’s committed to inclusivity, accessibility, and cruelty-free beauty. To kick it off first for you, Tarang, what do you attribute your success to? And what do you think about the positioning in a post COVID environment?

Tarang Amin:                  Well, first of all, Oliver, thank you for having us. I would say in terms of our performance, I’m really proud of the e.l.f Beauty team and how well the teams navigated a extremely difficult environment with the pandemic. We were strong going into the pandemic. I think we just now posted our eighth consecutive quarter of net sales growth. And so we’ve continued to execute extremely well even through the pandemic and what I attribute that to is execution against our five strategic imperatives, our overall value equation, as well as digital strengths. And we still have quite a bit of runway ahead of us in every one of our core strategic imperatives. And we also now have a better, more robust kind of diversified brand portfolio coming out of the pandemic. So I’m actually quite optimistic of the future as well as we’ve done.

Oliver Chen:                    Tarang, what about beauty trends that you’re seeing during the pandemic and also been a platform really focused on offering great value as well? What would you highlight as what’s happening in beauty now amidst the pandemic and post pandemic?

Tarang Amin:                  Sure, so, during the pandemic, obviously color cosmetics was quite challenged. The categories down 15% as everyone was constrained and not be able to go out in their normal routine. We have seen skincare perform better. I’m quite optimistic on the color category coming out of the pandemic as restrictions get lifted, as people get vaccinated and can go about their normal lives. I think there’s quite a bit of pent up demand in terms of the category and the ability of consumers to express themselves. So I’m actually quite optimistic on both those categories, even though we have seen skincare, [inaudible] strength in color. And then in terms of e.l.f, I feel like we’re particularly well positioned. So our overall value equation, digital strength certainly saw us have great momentum during the pandemic, but in many respects, we’re even stronger coming out with our brand portfolio.

Oliver Chen:                    What are the major tenants behind your brand portfolio and platform and more broadly, some big topics include clean beauty, health and wellness. You’ve done a really innovative job addressing that as well.

Tarang Amin:                  Yeah, so, I think it goes for us all the way back to our core mission, which is making the best of beauty accessible to every eye, lip and face. So inherently we’ve always had a very strong and broad appeal to consumers, our inclusivity, our diversity, and this ability of bringing the best of beauty at these extraordinary value is I think one of the things that really separates us from a lot of the rest of the category.

                                         And things like our core values of being vegan, a hundred percent cruelty-free, and increasingly as you take a look at clean beauty, our consumers increasingly care about the ingredients that are in their products. So whether it be Well People in our brand portfolio, which is a pioneer in clean beauty and really at the gold standard of clean with over 40 EWG verified products, Keys Soulcare, which came out the gates as a clean beauty brand and even e.l.f. There’s over 1600 ingredients that we do not formulate with and you take a look at our overall. So it’s ability of giving the consumer the opportunity to have the best of beauty wit these accessible price points that I think really sets us apart.

Oliver Chen:                    Kory, you’ve done a great job promoting diversity inclusivity, and you’ve also been focused on these very important topics of clean beauty and sustainability. What do you see happening going forward and how have you had so much success amongst these attributes?

Kory Marchisott…:          I think if we start with diversity, e.l.f put a stake in the ground a long time ago that e.l.f is for every lip and face, and that is fundamentally inclusive and it is absolutely critical for us across every touch point that we are an inclusive brand and our consumer base responds incredibly well to that. On the sustainability and clean front, Oliver what I would say is clean beauty is table stakes for the beauty industry, but like anything unregulated on a national scale is also the wild wild west. In the absence of US regulation on this topic, brands and retailers alike are creating their own standards and their own definitions of clean and that’s becoming incredibly confusing for consumers to understand what is clean? What does that actually mean? Is clean natural? Is clean organic? Is it non-toxic? So what I would say for e.l.f is since we operate our brands in the European Union, we have a much more rigorous starting point.

                                         The US bans eight ingredients, eight, that’s it. Eight ingredients from a creator’s palette, the EU bans over 1600. So at e.l.f we’re fully committed to this idea of inclusive, clean, cruelty-free beauty. And that includes for us operating with a no list of 1600 ingredients for all three of our brands. And as Tarang said, the acquisition of Well People truly propelled our momentum in this space. Well people was the clean beauty pioneer. They were clean before clean was cool, before it was a marketing buzzword. They set the foundation for clean by debunking this myth that clean beauty doesn’t work by creating clean and high performance beauty. And they were the first brand to be able to do that. And now that we have over 35 EWG verified products under our umbrella, we couple that with over a decade of clean beauty research and a board certified dermatologist in our e.l.f family and we’re well, well positioned in what clean is and what clean means to e.l.f Beauty overall.

                                         And what I think is most important with clean beauty is it’s an evolution. Product development is science, it’s chemistry, and like all good science, it evolves as new information becomes available. So we’re constantly evolving our formulas and we’re going to continue to do so as more research is available and the standards and the expectations evolve. And I know you also asked about sustainability and I would say here, this is also a journey. We’re at the starting block on our sustainability journey. And we’re going to continue to push to reduce our overall packaging footprint. We kicked it off with a big bang. I know you hear us talk about unicorns all the time. And project unicorn was an endeavor for us to reduce over 650,000 pounds of packaging waste. So you can expect to hear more from us on this front as we continue to learn and evolve and be more environmentally responsible

Oliver Chen:                    Kory, for those on the podcast who never even heard of clean beauty, how do you define it to somebody?

Kory Marchisott…:          So clean beauty is a creator’s palette innovators approach to what ingredients they do and do not include in the formulas. And I would encourage everybody to dive deeper into each brand because as I said before, for some people clean means natural, for others it doesn’t. So the way we define it at e.l.f is keeping our formulas free of harmful, potentially toxic materials and following the ultimate standard of clean beauty that comes out of the EU, which is way more highly regulated than the US.

Oliver Chen:                    Tarang, Kory brought up project unicorn, what are some highlights of that? And what does it mean more broadly for the beauty industry and what you’re doing there?

Tarang Amin:                  So on project unicorn, it was our initiative to fundamentally change our presentation in store and it involved everything from packaging to assortment to the way the shelves were organized. And we saw great results on project unicorn, not only the waste reduction that Kory just talked about, but also improving our productivity at shelf, which ultimately, if you take a look at e.l.f, we’re the most productive brand a Target or Walmart will carry in their entire color cosmetics department. And so we have a real area of strength there in terms of overall productivity.

                                         What we saw was even better results is we’re able to reduce that secondary packaging really be able to have the quality of our products really shine through with a unique system, which we went out the door with unicorn. I think we have three different design patents on unicorn and our ability. So we’ve loved every phase of unicorn of continuing to improve our game. Our latest phase really talks about the better visual merchandising that we have and presentation at shelf. And we continue to see really strong results, particularly in the backdrop of a category that’s been challenged. I think our ability to pick up significant market share, I can direct relate to project unicorn as well as our other initiatives.

Oliver Chen:                    Tarang, its earlier innings in sustainability, but Cowen views this as such an important topic, what’s on your roadmap more generally? And what do you think investors should care or think about?

Tarang Amin:                  What’s on our roadmap always starts with what our consumers want to see. So we have an incredible following amongst gen Z and real strength with our core consumer set. So we’re always looking at our consumers of what’s important to them. And we talked a little bit earlier in terms of clean being really important to them. Sustainability is increasingly becoming important to them and what they really care about is not only what ingredients are in my product, but what is the impact and the environmental footprint of the products that I’m using? And so first for us, the roadmap starts with waste reduction. So you’ll see kind of reduction in packaging materials, other things where we take a look at our overall supply chain that will lessen the impact from an environmental standpoint. And then over time, you can also expect to see things like recycled plastics, other ingredients, biodegradable ingredients, a number of different things that you’ll see as part of our roadmap as we go through. And it really is about being true to what’s important to our consumers, which is their consciousness of reducing the impact of the products that they use.

Kory Marchisott…:          And Oliver, I would just add to that specifically on Keys Soulcare, which is a brand that we created from scratch. If you look at the footprint there we’re utilizing recycled glass bottles, which are going to have a refill component, we’re using FSC certified paper. So we’re already moving forward on the creation of new brands by utilizing a new way. And then there’s other things that we’re looking at, like de-metalization of certain items and also different types of finishes that now that we have information, that there are safer ways to do that, we’re going to change those as well. So we’re really looking at every aspect of the creation process to ensure that we’re having less impact on the environment and the planet.

Oliver Chen:                    Kory, I’m really excited about Keys Soulcare. So how would you articulate what Key’s Soulcare is and how it fits into your broader beauty platform?

Kory Marchisott…:          Sure. So Keys Soulcare is really what I would call the modern creation of a brand where you really carve a new trail and create a new category. So with Keys Soulcare, we created this idea of soul care. In the beauty space, there’s a lot of talk about skin care and nail care and hair care, but nobody really talks about beauty from the inside out and truly, what does that mean? How do you care holistically for the whole self? And this is something that is absolutely fundamental to the core of who Alicia Keys is.

                                         So when we created Keys Soulcare, we really created it around this idea of how do you carve out space for yourself? How do you create time to really give yourself a moment and light a candle, wash your face, put on a mask, recite an affirmation in the mirror, and really set an intention for yourself to be on a positive path of holistic wellness. And it’s really been an extraordinary journey to work with somebody like Alicia Keys who really radiates this power of meaningful words, and this ability to really be a soul lifting human being who wants to take that soul lifting capability and utilize it in Keys Soulcare to help rise other people up.

Oliver Chen:                    Tarang, what are your thoughts in terms of e.l.f as the platform and what synergies you may bring to the table across these different innovative brands and how you think about M&A versus organic?

Tarang Amin:                  Sure. So we have a strong platform and that platform goes back to our original days is as e.l.f Cosmetics and being a digital disruptor in our space 16 years ago selling cosmetics over the internet for initially $1 price points. People thought we were crazy that you couldn’t sell cosmetics over the internet. You certainly could make money at it. So that original kind of in our DNA as being a disruptor I think is very much core to our platform. And you’ve seen that evolve over time. So while we’ve gone to other price points where we’ve gone into national retailers, you continue to see us disrupt the market in terms of how we engage consumers and build our community. And in the process, we developed a set of competitive advantages. If I take a look at our supply chain, for example, we, the best combination of cost, quality and speed in our industry.

                                         We also have real strength when it comes to our digital leech, not only as, the number one mass e-commerce site in color cosmetics, but all of the investments we’ve made in our digital platform, including how we engage consumers are just a couple of the examples. We talked earlier about our strength in with national retailers as being the most productive brand. All of these capabilities can be applied to other brands. So a big part of our thesis when we acquired Well People was not only bringing a pioneer of clean beauty into the company and further strengthening our overall innovation and operations, but our ability to leverage that platform against Well People were seeing the same thing with Keys Soulcare, and we’re doing this with really three complimentary brands, e.l.f Cosmetics, that’s this original color cosmetics brand, and now into skincare, best of beauty at these really accessible, extraordinary price points with the average unit retail of $5.

                                         If I look at Well People as a pioneer of clean beauty at an average about $20 price points, and then Keys Soulcare, which is retailing, really between 20 and $40, entry-level prestige as a lifestyle beauty brand. All three brands compliment each other, but can leverage the power of the platform that we’ve created. And then in terms of organic versus M&A, I think we’re open to both. We’ve obviously incubated from scratch Keys Soulcare and we’re really proud of that brand. We acquired Well People, and I’d say the criteria we look at are what is the growth profile of that business? How does it compliment the overall brand portfolio that we have? And I think we’re open to both M&A as well as continuing to incubate additional brands.

Oliver Chen:                    Thanks, Tarang, and one of the core competencies is really staying on top of beauty trends. Kory, how do you do that? How do you also blend data and innovation? I’m a member of beauty squad and your website gets better and better.

Kory Marchisott…:          I love this question and I could talk about data all day long. So you definitely just tickled my fancy. What I would say at e.l.f is everything we do is driven by data and insights. Our advantage versus other companies is turning data into insight and insight into action at what we call e.l.f speed. So in a lot of other companies, you have insight departments that sit inside centers of excellence, and they have incredible insights that basically sit and collect dust. At e.l.f, our insights are put into action every single day. So it’s that speed of moving insight into action that I would say gives us a distinct advantage. So let me give you two different examples of how this works.

                                         So the first thing we do is we look for signals and I’ll use TikTok as an example. On TikTok, the main signal that we received was that e.l.f Cosmetics had a hashtag that had three and a half million engagements that we had nothing to do with. So what that told us was there’s an interest and a demand for our brand on that platform. So we decided to test the waters by adding TikTok to our e.l.fing amazing brand recharge campaign. And what we saw right away was the campaign broke TikTok benchmark performance averages, and that was our green light to lean in to the platform. And on TikTok specifically, the rest I would say is e.l.fing history. We also use data and insights, I’ll give you a different way in which we bring that to light through product creation. So when we launched our original camo concealer, it took off like a rocket. We combed tens of thousands of comments, ratings, reviews, all of the information that was available to us.

                                         And what we were finding was that our older consumers loved the coverage of the 16 hour camo, but found that maybe it’s settled into their fine lines and wrinkles. And they were basically wishing for the same coverage, but with hydrating benefits. And that’s how hydrating camo concealer was born. It was born of a consumer insight. So when we spend time with consumers, we gain more of an understanding of who they are, what they want from us, and most importantly, how they’re feeling. And I personally pride myself as a CMO in reading thousands of comments every week. It’s how I keep my finger on the pulse to ensure that the consumer has a seat at every single table. And that is my commitment to our consumer universe and our community, is being completely in touch with who they are, how they feel and what they want to see from us and having the number one mass cosmetics e-commerce site, having millions of loyalty members in beauty squad also allows us to have great first party data that makes our media dollars overall far more efficient and effective.

Oliver Chen:                    Yeah. One big key themes are conversations and community and building that loyalty and trust and using it as a feedback loop and also surprising and delighting. So Kory, along the lines of marketing, what have been strategies to appeal to the younger demographic, and you’ve been a pioneer as a company with emerging social media platforms. I love TikTok and I can’t get enough and I love Chipotle and I’m also love your fridge. So what’s happening there and how have you been on the cutting edge?

Kory Marchisott…:          So I would say the last two years have been tremendous for e.l.f Beauty on this front. So to illustrate that, let me start by giving a taste of what we accomplished. Since you brought up Chipotle, I’ll use the word taste and then I’ll unpack the ingredients and how we did it. So, as I mentioned before, we have the number one mass cosmetics e-commerce site. We also raised our digital IQ by six ranks on the Gartner L2 index. We expanded our digital ecosystem to new and exciting platforms, not only TikTok, but also Triller and Twitch. And we now have accelerated our social followers and community to over 10 million. We’ve risen to the number two gen Z, favorite up from number 8, two years ago. And we continue to innovate number one superstar products, while maintaining our core leadership in several categories. And I would be remiss if I didn’t mention that we were the first beauty brand to drop an album, top the Triller billboard charts and have our own Eyes Chips Face bowl on the Chipotle menu.

                                         So Oliver, if you have not had the Eyes Chips Face bowl, I highly recommend it. It’s a vegan bowl specifically created based on our partnership. So how do you unlock those results? How does that happen? How do you make that magic happen? I would say the first thing goes back to watering our roots. As Tarang mentioned, e.l.f was born to disrupt and shake up industry norms. So we revived that trailblazing spirit of our founders and really awoke this idea that anything is e.l.fing possible. The second thing is I always say in any business, you really only have one or two choices, evolve or die. And we choose to evolve with an ear to the ground and a relentless focus on consumers needs, wants, and desires. The third part is digital leadership. We keep our digital roots at the forefront. Our website is the nucleus and powers our broader ecosystem.

                                         And that digital ecosystem continues to expand with what I call the T words, TikTok, Twitch, Triller. The fourth part is innovating icons. So we keep doing what we do best, which is bringing joy to consumers by creating products that people want. And then the last part, and perhaps one of the most fundamental to the innovation side is conquering new frontiers. So we move far beyond beauty boundaries. I see e.l.f more as an entertainment company. When you have 10 million people coming to you every day, you have to have a broader vision that transcends products.

                                         So we act like an entertainment company. We wrote our own language, the e.l.fisms or


as I like to call them. We became a global music sensation with an original music track. We dropped a music album, music videos. We launched the first ever TikTok reality show with Eyes, Lips, Famous. We created unexpected partnerships with like-minded disruptors like Chipotle and Lufu, who’s the world’s second biggest female gamer. And we create digitally immersive events like Beautyscape and the Keys Soulcare lounge, which I hope you had a chance to join. So overall, if I sum it up, Oliver, I would say, you can expect us to continue to activate new super powers, reach new audiences, seek new frontiers and explore new capabilities. And that’s how we keep ourselves very fresh, very relevant and very in tune with a younger audience.

Oliver Chen:                    I want to go to the e.l.f hotel and eat and drink your e.l.f wine. So I’m excited for that. Retail is content. Retail is media. Media is retail. Rethinking content is really part of the future of retail and creating content is a core competency for any great brand across media and products. So that’s really exciting. Tarang as we think about distribution channels, what do you see as innovation there? How do you think about your current shelf space and the roadmap for how you’re thinking about modernizing distribution?

Tarang Amin:                  Sure, so I think it first starts with all the investments we’re making on our digital platform because that really enables everything else. So we talked about our digital business is up during the pandemic, triple digit. We’re well positioned, as I said before the pandemic, and really a lot of those investments, particularly in the areas of data and personalization we’ve really seen great results off of. And not only for us, but also our retail partners. So when I look at, at, even in Amazon, we’re well positioned to continue to take advantage of consumers migrating more online. So everything starts digitally for us. And then in terms of actual national retailers for brick and mortar, we’ve always had a really good track record. If I look at the last five years, five years ago, I think we had probably in the US had about 11,000 linear feet of shelf space.

                                         We’re now over 110,000 linear feet of shelf space. So we continue to get rewarded more and more by retailers with more space. And that it really stems from our overall productivity, the consumers that we attract, with more innovation than any of our other competitors. So the things that retail is continuing to look for, we have a winning formula for in the future. And I’d say we have an opportunity at very single retailer we’re at. Target’s our longest standing national retail partner. This last year, we just passed L’Oreal for the number two position in their color cosmetics department. And we’re doing that in a footprint that’s significantly smaller than a Maybelline or L’Oreal or any of the other core legacy brands that are there. So we have further room to grow within Target. Walmart and Ulta Beauty. We entered after we entered Target. Both of them have been rewarding to brand with more space.

                                         Walmart took a space up in a subset of their doors in the fall, Ulta did not only in the fall, but also in this past spring. And then I’d say across channels within the US we still have a major opportunity in the drug channel to increase our space and presentation. And then internationally, we have quite a bit of white space. The UK is our most established market. And I think in this past year really entered kind of the top 10 where I think number 8, position in the UK and the only brand in the top 10 that actually grew during that period. So we have a long way to go in the UK, all of Western Europe for that matter and are quite excited about our digital prospects, both in China and India. In terms of signs of what’s to come. I’d say you continue to see space expansion on e.l.f. We’re quite bullish, given the proposition we have, and then breaking rules in terms of retail.

                                         So I think the best example of that is right now, if you go into an Ulta Beauty store and you see the presentation on Keys Soulcare in the front of the store. They’re doing things they’ve never done for another brand before. Taken over the entire store. All of their signage, the very front of the store is all about Keys Soulcare. The cash registers, the reps, how they are getting behind the brand and how we’re working together, both digitally as well as in store, I think is a great example of our highest vision of what we can accomplish. And we mentioned that on our last call that we’ll be entering [inaudible] soon with Keys Soulcare. And I think you’ll see a similarly disruptive presentation and what we can do with our existing customers.

Oliver Chen:                    Thanks for that. So Tarang and Corey, as we close out the podcast, what do you see next and what excites you most for the future of e.l.f and key milestones and any closing remarks you may have?

Tarang Amin:                  So I’ll start. We’ve been in business for 16 years and our roots as a digital disruptor. So I think you’re going to continue to see us disrupt. And at the same time, the core fundamentals of the business are really strong. And we are very much in the early innings of growth. I mentioned our opportunity from a space standpoint, from the ability of bringing more consumers in. It’s one of the reasons why we put out a three-year economic model in terms of that would say on the top line basis, mid to high single digits of growth from a [inaudible] standpoint over that three years and adjusted EBITDA growing even faster, reflecting the leverage that we have potential within our business as we go forward. So I’m quite optimistic, not only on the category, but especially on e.l.f Beauty and our brand portfolio.

Kory Marchisott…:          I’m most excited about e.l.f’s core fundamental DNA, which is to Tarang’s point the spirit of disruption. e.l.f was born to shake up industry norms. We’ve done it with our namesake brand e.l.f Cosmetics, we did it with the acquisition of Well People, which was a pioneer in clean beauty. And we carved a completely new path with Keys Soulcare by creating this soul care category and redefining what beauty means and beauty is power to truly uplift. So when I think about a year ago, we had one brand, now we have three we’ve tripled the brands in our portfolio. We’ve propelled ourselves into spaces we were never in before, whether it’s at the intersection of food and beauty or music and beauty. So I would say what I’m most excited about are the things haven’t seen yet, and the things that are unknown, and this idea that e.l.f really has permission to conquer new territories and to, as you mentioned before, Oliver, surprise and delight, which we will continue to do.

Oliver Chen:                    Well, Tarang and Kory, we’re thrilled to see what’s next and also experience this whole immersive lifestyle around what you’re creating. And also I’m really undertaken and seeing what’s ahead for each of your brands and their portfolio. And the future of distribution is very interesting as well. And marketing is constantly changing with technology and generation Z. So thanks for sharing with us all the insightful and fun ideas around sustainability, diversity, and inclusion, and what you’re doing to really stay ahead of the curve with innovation and being connected to the customer at all times.

Speaker 1:                       Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

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