Customer loyalty has been on the decline. Ask the beauty experts and they’ll tell you that the sector is particularly susceptible because of the volume of new products, trends and information that consumers are bombarded with. And as younger generations embrace the excitement of trying the latest products, few shop entirely from one brand.
Yet Los Angeles-based Merit Beauty has beaten the odds. On the “get ready with me” videos that flood TikTok, customers are loyal to Merit, only using products from the brand, with several gushing about its creamy textures and blendable formulas.
It’s not just the kids online either. Over dinner recently, a forty-something friend enthused that Merit’s easy application, affordability (prices range from £22 for an eyeshadow brush to £321 for a full set of 12 products) and chic packaging were sufficient reason not to use anything else. Merit is among a wave of beauty brands, including Glossier, Kosas, Glow Recipe and Summer Fridays, that preach self-love and advocate for a more natural, “no make-up” make-up look.
While Merit is younger than its peers, which have also been identified as hot targets for acquisition, it boasts impressive numbers: it reached $100mn in retail sales in 2023 and is on track to do “well over” $100mn in revenue in 2024, says founder Katherine Power, whose long-term ambition is for Merit to be a billion-dollar brand.
That was the impetus for hiring former global president of Mac Cosmetics, Philippe Pinatel, as chief executive in February, explains Power, via video call from Los Angeles. “My formula is to build a business to a certain size and then bring in a CEO who has scaled a business to multiple hundred million of dollars. That’s something that Philippe is specifically skilled at; he came from a brand that was over $2bn in sales. He also ran the international business, which is a big focus for us over the next five years.”
Power, who launched Merit Beauty in January 2021, is a serial entrepreneur who has seamlessly fused content and commerce with each of her ventures. She co-founded fashion and lifestyle platform Who What Wear with Hillary Kerr back in 2006, eventually expanding it to Clique Brands, a media and consumer company, in 2012. She’s also the brains behind Versed, the skincare brand that launched in 2018, and co-founded an organic wine company with Hollywood star Cameron Diaz in 2020.
Power got Merit off the ground with seed capital from investors she had worked with in the past. Within a year of launch, it had raised $20mn in a Series A funding round led by L Catterton, the private equity firm backed by LVMH. Last year, Merit Beauty, which had only been available in North America, began selling online in the UK. It also released its first fashion collaboration — a small bag for carrying make-up or other essentials — with Proenza Schouler.
Now, Merit Beauty is on the verge of another milestone: in March, Power tapped investment bank Goldman Sachs to explore deal options (she declines to comment on progress or a timeline for the sale). This month, Merit will unveil its second fashion collaboration, this time with London-based contemporary brand Tove. The collaboration — a limited-edition evening bag — will be accompanied by a pop-up in London’s Mayfair, which will allow UK shoppers to try Merit Beauty products in person for the first time.
From the outset, Power has prioritised an omnichannel strategy, leaving behind a decade in which many start-ups, encouraged to prioritise direct-to-consumer (DTC) routes, held out from wholesale for as long as possible but later faced difficulties with scaling because of high costs resulting from inflation and supply chain disruption. Power recognised the continuing significance of bricks-and-mortar retail and struck a deal with beauty chain Sephora even before Merit had launched.
“It was always important for me to get a retailer to buy in from day one, even before we greenlit and funded [Merit],” she reflects. “We learnt a lot from DTC 1.0 and watching those companies grow at all costs and focus on lifetime value instead of being profitable on the first purchase — which Merit makes the point of doing.”
Merit Beauty has a “very diversified funnel”, with no channel making up more than 20 per cent of customer spend, according to Power. She adds that the brand has “a very high [average purchase] order that’s above $100”.
Power also saw an opportunity to cater to consumers over 40. Merit is unusual in that it has multigenerational appeal with a fan base that spans Gen Z to older millennials, as well as the generations that preceded them. In May, it teamed up with Grace Coddington to promote a new shade of lipstick, Ginger, that matched the fiery hair of the 83-year-old former model and Vogue creative director at large.
Power notes that Merit’s older customers, who have long been underserved in beauty, have been core to its success. “I have been consistent in targeting this woman because she is more brand loyal, has a higher household income and is influencing multiple generations.”
Customer retention varies by region: in the US, 40 per cent of customers acquired in the first year continue to purchase from Merit. In the UK, the rate is around 38 per cent.
The success of minimalist brands goes beyond embracing a natural look to the idea of living well, says Rosalia Di Gesu, associate director of beauty and personal care at market research group Mintel. “It aligns with the ongoing focus on health. When it comes to make-up, you want to show off your skin health, rather than cover it up with heavy products.” Recent empowerment trends — for example, celebrities such as Pamela Anderson attending fashion week make-up free — have coincided with the shift, she adds.
But therein lies the challenge: some observers have questioned whether minimalist beauty products, which typically offer little coverage, are only suitable for consumers with no skin concerns. Merit’s concealer stick, for example, glides smoothly across my face as I have relatively clear skin. It could yield different results for someone with textured skin. (Judging by Merit’s reviews online, the product offers just enough coverage to create a fresh look that doesn’t appear cakey. “I have some acne scarring and like to cover up. [It] blends well and doesn’t cause breakouts,” wrote one user.)
By offering a pared-back range in a sector that can get products to market faster than ever, the brand is able to focus on ensuring quality and service, says Pinatel. He declined to share annual sales growth but says business is growing “at a very fast pace year on year”.
The company is also eyeing categories beyond make-up: following the success of its serum (Power says it’s a top seller at Sephora — “pretty unusual for a brand that started in colour cosmetics”), its next launch will be a moisturiser, marking an unexpected push into skincare.
Despite this, Power asserts that “Merit is really an anti-trend brand”. She says: “We’re not creating trendy products and that’s one of the reasons our core business has continued to grow. I created Merit [because] I didn’t connect emotionally to any of the beauty brands out there in the way that I had with legacy brands of the past. We retain our customer because she trusts us.”
Looking ahead, the priority for Merit is to deepen its relationship with existing partners and expand across North America. Pinatel also sees Australia, China and Latin America as attractive locations, but stresses the need to understand the nuance of each region.
“The brand is in high demand. There is not a week without receiving an email from a retailer somewhere in the world asking us to open in a new market,” he says. “What’s important is that we do it right. You cannot rush the process.”
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