Cosmetics Case Study - Urban Decay: The Business
With its “break-the-rules ethos”, Urban Decay has been bringing prestige makeup with an edge to the market since 1996. After a series of owners, Urban Decay is now a subsidiary of the cosmetics giant L’Oreal. The brand is recognized for its digital strategy, which leverages off its social media following which stands at 9.1 million on Instagram. Its co-founder Wende Zomnir still leads the company as chief creative officer, and there is generally nothing but praise for the brand and its products, apart from some instances when “edgy” advertising campaigns overstepped the mark.
BUSINESS STRATEGY AND KEY MILESTONES
From the outset, Urban Decay has struck a balance between edgy and mainstream which has been central to the brand’s success. The California-based company was co-founded by self-confessed makeup addiction Wende Zomnir in 1996, who sought to bring a more interesting selection of quality color cosmetics than the ubiquitous and borderline boring pink, red and beige and “break down the doors of the mainstream beauty industry”. Zomnir claims the brand statement she launched the company with was, "Urban Decay is makeup for self-expression. It’s for girls and boys who want to rattle the notion of what beauty is".
As an upstart, indie brand Urban Decay turned traditional cosmetics on its head by adding an “audacious touch”. Their first cult hit was their eyeshadow Midnight Cowboy, launched in 1998, a basic beige eyeshadow “shot...through with pieces of glitter” to make it anything but basic. The product serves as a perfect example of how Urban Decay has been able to "bridge the gap between being a niche brand and being a brand with a broader appeal". Urban Decay products stand out with their quirky names to go with their unusual shades, with the initial offerings “named things like Roach, Smog, Bruise, and Frostbite”, and over 20 years later this quirky approach is still used as the company maintains a “name library” where potential product names are categorized into “sex names or drug names”.
The company was acquired by the luxury-goods conglomerate LVMH in 2000, for an undisclosed amount. LVMH then sold the company along with similarly edgy US cosmetics brand Hard Candy to the Falic Group two years later. Again, the details of the transaction were not disclosed however LVMH declared a combined EUR 55 million capital gain (equivalent to over $67 million at today's exchange rate) “from the disposal of Pommery, Hard Candy and Urban Decay ”. Urban Decay remained in the hands of the Falic Group until 2009 when the private-equity firm Castanea Partners acquired it, again for an undisclosed amount. Urban Decay is currently owned by the L’Oreal group. The sale by Castanea Partners took place in 2012, and although the amount was not disclosed, analysts were of the opinion that it was around the “$300 to $400 million” mark. Castanea Partners claimed that the company’s revenue had tripled during the time they held it, up to almost $140 million in 2011.
The brand’s range is available to purchase on their website and via retailers, both online and in-store, that fit Urban Decay’s high-end position. The brand is stocked by beauty specialist stores Sephora and Ulta Beauty, but maintains some exclusivity by not retailing via Amazon. As well as financial success and growth, Urban Decay, now the “second-largest makeup brand in the US” has been recognized by high-profile industry awards. In 2016, Urban Decay was named “Prestige Brand of the Year” by Women’s Wear Daily (WWD), which praised the brand for “ maintaining its edge in a rapidly changing world”. Then in 2017, WWD honored co-founder and chief creative director Zomnir personally, with the first-ever Impact Award.
When the company was started in 1996, Zomnir took care of marketing in a very grass-roots way. She claims she won their first wholesale account with Nordstrom by copying “a list of buyer contacts...a friend...left lying on her kitchen table”. In order to gain publicity for the brand, Zomnir would cold call magazine editors and attempt to pitch the range as well as giving freebies to “New York’s “It” girls”, to try to create some buzz.
Zomnir would pursue edgy female celebrities like “Shirley Manson and Gwen Stefani” at music festivals, attempting to given them Urban Decay makeup to try. This approach actually had some success, and Gwen Stefani, known for her striking red lipstick and quirky style, became an early fan and later collaborated on a collection with them. Other famous faces that fit the quirky-cool image of Urban Decay have been used in advertising campaigns over the years. In 2016, the short-haired, tattooed actress Ruby Rose, best known for her role on Orange is the New Black, was the face of Urban Decay when she launched their Vice lipstick. The current face is Nicole Richie who was brought on to launch their range of colored mascaras called Troublemaker. She claims to share “very similar views & ideas about embracing self-expression and individuality” with the brand.
As well as musicians and actresses, in recent years Urban Decay has used social-media star “beauty influencers” to engage with their customers. Christen Dominique, a YouTube star with 3 million subscribers, has partnered with the brand and Kristen Leanne, am influencer with “mermaid hair and copious tattoos” has become the first social media influencer to launch a collaboration with the brand.
The brand has placed importance on a strong social media strategy for the past decade, as an article published in 2009 details how the company would dedicate “one full time person...to social networking strategies” and respond to any mention of Urban Decay on Twitter. In 2015, the digital think tank L2 placed Urban Decay at the top of its rankings as “most digitally astute beauty brand” due to how they managed to link between content on their social media accounts, to “shoppable content on its site.” An example of this is their platform “UD On You” which allows customers to share their selfies showing off looks using Urban Decay products, promotes sales as “all of the photos in the stream can be browsed for products, which leads to a checkout page" In 2017, Urban Decay was no longer number one, but still made it into the top 3 brands. This was based on their ability to leverage the launch of their cult favorite, Naked Heat palette, to create a social media buzz among beauty influencers, makeup enthusiasts, and online editorial media, along with their website optimized for mobile commerce “with single-page checkout, swipeable content, and ubiquitous Add to Cart buttons.”
In January 2016, Urban Decay’s Instagram account had 4.1 million followers . In the past two years this has more than doubled and as of March 2018, Urban Decay has 9.5m on Instagram, 1.21m on Twitter, 4m on Facebook and over 121k on YouTube.
DRIVERS OF SUCCESS
Urban Decay is riding the wave of growth of the beauty industry in general, which experts consider is being driven by the use of social media and selfies. According to the VP of brand marketing at Urban Decay stockist Ulta, “Social media is shaping consumer behavior...[c]onsumers go to Instagram for beauty inspiration". The company launched at just the right time, not long before the specialist beauty retailer Sephora went global, which was instrumental in the launch of many indie beauty brands, and later capitalizing on Ulta’s move into premium beauty products.
In 2015, Urban Decay created a global website which they started actively starting driving more traffic to, as they found that much of the customer engagement with the brand was happening on Facebook and Instagram, and by bringing it “back to [their] site [they could] consolidate and curate some of the excitement”. This included content to keep makeup enthusiasts up-to-date with new product releases and trends.
The stand-out hero product range which has a loyal fan base are the “cult-favorite family of Naked palettes”. The first Naked eyeshadow palette was launched in 2010 and was an immediate success, along with its subsequent incarnations. The success of the Naked palettes was supposedly pivotal in L’Oreal choosing to acquire the brand, and it really seems like consumers can’t get enough of them: the discontinued Naked palettes resell on eBay for hundreds of dollars and during 2015, a Naked palette was reportedly sold “every six seconds”.
OWNERSHIP AND LEADERS
The co-founder still actively involved with the business is Wende Zomnir – the other main co-founder Sandy Lerner, who previously co-founded Cisco Systems is something of a serial entrepreneur and has since moved onto agriculture. Zomnir continues to hold the position of chief creative officer. The Urban Decay site still lists Tim Warner as the CEO, however after 12 years with the company he recently moved onto a newer premium skin care brand with explosive growth, Drunk Elephant. The executive team listing on Urban Decay’s Bloomberg profile only shows Zomnir, which suggests they are yet to fill the vacant CEO position.
Reports on Urban Decay’s performance and products is overwhelmingly positive, however their edgy style has sometimes been too close to the edge and resulted in some controversy. In 2016, an advertisement used the of a forearm covered in makeup swatches that resembled the cuts one would make to slit ones wrists, a comparison which couldn’t be denied when combined with the tagline "Ready for some Razor Sharp Swatches, UDers?" Hundreds of consumers complained that the image was "in bad taste”. Similarly, consumers objected to the name of an eyeshadow called “Druggie”, which, given the opioid epidemic in the US, again seemed to be in questionable taste. Another advertising campaign drew negative press when a range in the artist Basquiat’s honor was released, but rather than take the opportunity to use a black model, the brand continued to use Ruby Rose which commentators found “tone-deaf”.
An award-winning, cult-favorite brand, Urban Decay manages to give prestige cosmetics an edgy appeal to those looking to express themselves through makeup. By managing their channels to maintain exclusivity and a consistently outstanding digital strategy, the company looks set to continue performing well for its current parent company L'Oreal.