The Rise of Drunk Elephant and its $845 Million Dollar Buy-out

If you follow consumer trends online and elsewhere, you know that the cosmetics industry is undergoing a major boom. Perhaps unexpectedly, however, the trend is moving away from household name brands that have shaped the industry for decades, and toward smaller, boutique brands offering all-natural or specialized products. Social media has played no small part in this renaissance, as regular consumers have used venues like YouTube to become overnight media sensations, influencers, and — in some cases — highly successful cosmetics moguls. Although a few people have found massive success on this path, perhaps one stands out more than the others — Tiffany Masterson. In 2012, Ms. Masterson was a stay-at-home mom teaching herself the ins and outs of the business world. During that time, she started a cosmetics brand called Drunk Elephant from her living room floor while simultaneously taking care of her four children.

 

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Fast-forward seven years, and Ms. Materson’s Drunk Elephant products were placed on Sephora shelves world-wide. Perhaps most impressively, Drunk Elephant was acquired by Shiseido Group in late 2019 for a cool $845 million. Ms. Masterson achieved this phenomenal success through hard work, belief in her product, and -- in no small part -- strategic partnering that kept the wolves within popular sales and distribution channels at bay.

The driving force behind Drunk Elephant

Ms. Masterson’s motivations for starting the Drunk Elephant line were pure. As she explained to Lifestyle Asia recently, the original idea for her products came from her own skin troubles. “I had Sensitive Skin and found removing six suspicious ingredients helped my skin, and probably would help others.”

Thus, when she set out to design her own products, she omitted essential oils, drying alcohols, silicones, chemical sunscreens, fragrances/dyes, and sodium lauryl sulfate. Wanting to avoid the same old taglines used by other cosmetics companies -- non-toxic and all-natural among them -- Ms. Masterson referred to her products as “clean.” Consumers responded to the change. The rest, as they say, was history.

Smart partnering

By 2016, larger brands and online retailers alike were clamoring to share in Drunk Elephant’s success. This must have been a very tempting situation for Ms. Masterson, as cosmetics products are exceptionally popular in online venues. She didn’t take the bait.

Instead, Ms. Masterson initially offered Drunk Elephant products for sale in two exclusive online venues: (1) the company’s own direct-to-consumer website; and (2) through the website of cosmetics stalwart, Sephora. Drunk Elephant products quickly became that company’s top sellers.

Nonetheless, as creators of any popular product already know, Amazon is a hotbed for unauthorized sales of any product with high consumer demand. This is because over half of the sales made via the online marketplace come from third-party retailers (“TPRs”). And, while many TPRs are legitimate sellers, just as many are not. Unfortunately, those illicit sellers go out of their way to obtain popular products through surreptitious channels (like distributor leakage or even cargo theft) and them sell them without manufacturer authorization on Amazon.

The risks of such sales are particularly high in the cosmetics industry, where products may come with expiration dates or require specific storage conditions to maintain efficacy. Unauthorized TPRs don’t care about these details. They’re only out to capitalize on the popularity of someone else’s hard work.

Wisely, Ms. Masterson set out to avoid these problems from the get-go. Early on, she also partnered with a company called Quivver, which specializes in controlling unauthorized sales in online marketplaces like Amazon. Over time, that partnership resulted in Drunk Elephant experiencing just four unauthorized sellers on Amazon -- an infinitesimal number by any standards.

More smart partnering

Quivver, for its part, also knows when it needs to enlist the help of expert partners. The company did a masterful job in controlling the Buy Box (aka, the “Add to Cart” button) for Drunk Elephant on Amazon. Notwithstanding their best efforts, an occasional unauthorized TPR would offer a rock-bottom price that allowed it win consumer sales of Drunk Elephant products ahead of legitimate sales. As that began to occur, Quivver called in eCommerce enforcement specialist, eEnforce.

eEforce not only provides continuous, worldwide monitoring for illicit online sales, but once it finds an unauthorized seller, it deploys ever-escalating enforcement efforts to get those sales to stop. It does this by, among other things, using investigation tactics to identify the real people who hide behind fictitious storefront names in venues like Amazon (Amazon offers no help in making these identifications, much to the dismay of frustrated brands).

Once it identifies those people, eEnforce works with the brand to launch legal measures that stop unauthorized sellers in their tracks. The company also leverages the brand’s superior legal position to get those individual sellers to reveal where they are sourcing unauthorized products. Very quickly, these strategies dry up even the worst of unauthorized seller problems on Amazon.

Although people outside the eCommerce industry may view Drunk Elephant’s efforts to control unauthorized Amazon sellers as excessive, they are missing the mark. Even sportswear giant Nike found it couldn’t compete with unauthorized TPRs when it did a 2-year test-run of direct sales via Amazon. In late 2019, the company ceased direct sales on Amazon all together.

By recognizing the dangers of unauthorized sales early in her company’s history (and by taking control of them from the get go), Ms. Masterson avoided many of the pitfalls that come with those sales -- namely, price erosion, damage to brand reputation, and harmed relationships with authorized retailers. Ultimately, the great care she took to protect her brand may have been one of the driving forces in her company’s $845 million buy-out.

Since 2012, eEnforce has become the only online protection and enforcement firm that maintains the legal licensure and capabilities to identify unauthorized sellers down to their EIN or social security number and then legally enforce compliance with a brands trademark. Their proven process and cost efficiency has allowed eEnforce to work with over two-hundred brands that range from Global Fortune 100 brands, to smaller brands expanding their online sales to help them protect their brand from unauthorized online sellers and the consumers they serve.  You can learn more at www.e-enforce.com or contact [email protected].