‘A lot of brands aren’t profitable with retailers’ – Glossy
Farsali, an Instagram-famous brand known for its makeup-prepping skin-care products, like its Unicorn Essence primer, has decided to pull out of nearly all of its current retail partners across 35 markets at the end of 2020. This includes Sephora.
Farsali is a Sephora-exclusive brand in the U.S., sold in more than 2,500 Sephora stores both in the U.S. and internationally and on Sephora.com. Nearly 80% of its sales come through retail partners. The 6-year-old brand became a hit on Instagram shortly after its launch, thanks to influencers; WWD reported in 2018 that the brand expected to earn $35 million to $45 million in sales that year.
In an Instagram video posted on the brand’s account on Aug. 5, Sal Ali, Farsali founder and CEO, sat with his wife, Farah Dhukai, and said that personal reasons related to Dhukai’s infertility, combined with Covid-19 business impacts, made him decide to scale back the business to focus on family. Farsali will continue to work with its third-part distributor in the U.K., where it is sold in Selfridges and Cult Beauty, as well as with its India-based retailer Nykaa, as the partnership just began this year. Otherwise, Farsali will only be available DTC through Farsali.com.
Below is a slightly edited and condensed discussion with Ali about how Covid-19 has impacted the Farsali business, why brick-and-mortar retail is tough on small brands and why he wishes he took on investors earlier.
What business issues influenced your decision to become DTC-only?
Personal reasons outweighed the business reasons, but both led to the decision [to scale back the brand]. From the business side, it’s challenging to run a full retail operation as a privately-owned company with no investors. It requires a lot of capital, and with Covid-19, stores were closed, retailers canceled orders, launches were postponed and commitments were made and then not [honored], when we had already committed on our end and produced products [for retailers]. I was in a territory that I had no business being in, and that became clearer to me. My intuition told me that with Covid-19 and the resulting economy, nothing is going to go back to the way it was anytime soon, and that I was playing a very dangerous game right now and needed to bring in investors. But investors aren’t a guarantee — you have to take time to talk to them and, all the while, I have to keep playing this dangerous retail game. In hindsight, I should have brought in an investor around 2018, so I wouldn’t have gone down this path, because I would have had funding and that extra cushion.
What was Sephora’s reaction when you said you were leaving?
Sephora was really surprised, because they have a Next Big Thing [in-store and online] animation, which we are part of and Farsali is the second best-selling brand there, despite Covid-19. Sephora suggested we stay as is and said that, if we don’t launch something for the next year, they would understand. But I also don’t know what this journey means to me, personally. I don’t want to stay in Sephora and not be part of the conversation and instead just be in the background.
Could you not have stepped back from your role as CEO of Farsali?
Initially, I had thought perhaps I could just do Sephora.com, because dot-com is easier to manage. But that’s where the personal reasons came into it. You need someone to manage all those accounts. You won’t get a CEO that comes in and does everything that the founder was doing. They need the resources to build a team, like a vp of marketing and vp of operations. It’s really hard to replace a founder CEO with just a hired CEO, because the founders work ungodly hours and constantly put out fires, while a hired CEO is using their experience to build structured processes and manage people. Whenever I’m ready for that level of scale again, I wouldn’t want to [be CEO], because that’s a whole different job on its own and isn’t the best value I can provide.
How has Covid-19 impacted the business?
We will definitely not grow this year. I haven’t done the math projection because for the rest of this year we’re still in retail. Makeup sales have been slower, but we are a borderline makeup-and-skin-care brand, so we’re not as impacted as products like foundation or lipstick. Some products, like our Rose Gold Elixir and Volcanic Elixir, have been doing really well because they’re moisturizing oils.
But retail is something that needs to change with Covid-19, because working with a retailer is very expensive, and a lot of brands aren’t even profitable with retailers because of the overhead. There’s the cost of a field team, sampling, gratis to sales associates, in-store testers and the cost of returns. Typically margins are 60% in retail. Amazon is a big threat to retailers because brands can sell through Amazon worldwide, but at a much lower cost to operate.
What will the future of Farsali look like?
Farsali is going through a fundamental shift right now. I want to build a 2.0 brand, but I am trying to figure out those pieces. Once I do that, and when it’s in the position to grow distribution again, I will do it slower than the first time around. I will try to prove it out in North America and then start talking to investors. I’ll show them how this 2.0 brand is doing and what it could look like internationally, and use their support to build that distribution. I’d rather have experts help me in the return [of the brand]. I also think [Farsali sub-brand] Privé becomes a bigger conversation, but I am figuring out how to position it. Do I try to rebrand it in a way where it’s a little bit more recognizable as part of Farsali? It is a Farsali.com exclusive, but now that [all products] will be Farsali.com exclusives, I’m trying to strategize how the two brands will fit together.
Has this experience changed how you view the beauty industry?
The beauty industry has changed a lot has changed since our launch in 2014. This is the time to really sit down and reflect, and think about strategy and what the future could look like. What’s happening in the industry, and how is it shifting? How do products need to be marketed? What is the right way to do that? Because before, it was always about using influencers, but that has changed because influencers have their own brands, and there’s been drama which affects the general trust of their audience. I think every brand needs to have a face of the brand, and that person has to be an influencer for the brand. They have to put their life out there and speak out about what their values are and what they stand for, so people will connect with that person behind the brand. It’s no longer going to be about [outside] influencer endorsements, because the impact of that means a lot less now.
