The $570 billion beauty industry has always been fertile ground for disruption. Much like fast fashion, trends move quickly and the power of social media compounds its popularity.
Beauty Trends Change Fast, At A Cost
The cosmetics industry is unique because small startup brands experience rises to popularity much quicker than they might in other sectors. Sure, there are still major players that have been around for years, think Estee Lauder (EL) - Get Free Report, LVMH-owned (LVMHF) Sephora, Coty (COTY) - Get Free Report, Ulta Beauty (ULTA) - Get Free Report, and L'Oreal (LRLCF) . But new pop up brands take the market by storm. And when they do, they are either quickly acquired, become giants in their own right, or are squashed like tiny cockroaches with contour.
Unfortunately, the cockroach case is most fitting when it comes to the tale of Morphe Cosmetics, owned by parent company Forma Brands.
Morphe, which made its name through partnerships with big name celebrities and influencers like Jaclyn Hill, Jeffree Star, Charlie D'Amelio and Emma Chamberlain, seemed to have it all figured out. The more popular its partners got, the more popular it got. And since most cosmetics are relatively cheap to produce (and even cheaper to promote), the business model seemed airtight.
That is, of course, until trends shifted again. Morphe, which was once a beacon of cutting-edge trendiness and creativity, now owes $868 million in debt and interest obligations. So it is reportedly in talks to sell itself to lenders, including Jefferies Finance (JEF) - Get Free Report.
Morphe Will Set Itself to Lenders and Shutter Stores
According to court documents, Forma is struggling with "liquidity and operational issues a result of the COVID-19 pandemic, widespread changes to consumers’ beauty habits and their need to terminate partnerships with certain influencers."
Morphe will hand over all of its operations, websites and wholesalers to lenders in exchange for $33 million in debtor-in-possession financing. It plans to continue paying employees and making good on benefits.
""We are excited to reinforce our focus on the opportunities we see ahead for our brands and continue bringing our thoughtfully selected beauty products to consumers through our individual online brand platforms, retail partners and Morphe stores outside the U.S.," CEO Simon Cowell said in a press release.