Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
Reflect.com perfects the art of mass customization.
It’s said beauty is a tough business, and as the fates of early Internet players such as Eve.com and BeautyJungle.com show, this peach-colored and perfumed space is fraught with potential danger for Internet retailers.
The cosmetics customer can be famously fussy - loyal to preferred and long-entrenched brands, or constantly hopping to the Next Great Thing in search of the perfect product. Either way, it makes it tough for new products and brands to gain a lasting foothold, let alone scale. Make the Internet the primary sales channel, and new cosmetics brands face an additional problem: the customer’s inability to try before she buys.
As a result, many early beauty stand-alones faded online and most of those selling cosmetics on the web today are firmly anchored elsewhere. Established cosmetics manufacturers that banded together under Gloss.com, for example, are using the Internet to leverage the hundreds of millions they’ve already sunk into offline brand-building. Sephora.com is tied to a chain of branded stores.
Side-stepping the blowout
San Francisco-based cosmetics manufacturer and retailer Reflect.com, though, has gone a different route. It is nearing profitability without a decade of marketing investment under its belt and without a major store presence. Instead, it’s riding a rising consumer trend: mass customization. Reflect manufacturers and delivers cosmetics ranging from lipstick to shampoo in batches of one to a customer’s unique specifications, based on information she’s supplied online. Though he won’t disclose numbers, COO Alex Zelikovksy says Reflect, founded in 1999 as an independent company, but with majority ownership held by CPG giant The Procter & Gamble Co., is meeting its goals and is close to profitability.
As with Lands’ End and its high-profile online custom apparel business, Reflect.com’s use of the web in customer-facing and marketing as well as in manufacturing and distribution makes the production and sale of one-offs vs. lots of hundreds or thousands economically feasible. The notion of a truly custom product at a price they can afford is intriguing to consumers and brings something new to the cosmetics arena.
But Reflect faces an extra challenge: unlike Land’s End, it launched online without an established name. That seems to fly in the face of the traditional marketing of cosmetics, which has been much tied up in brand and image. But Reflect isn’t a traditional cosmetics company. “It’s a different approach,” says Zelikovsky of the custom operation. “It’s not about some brand name. We felt the brand should really be you.”
Indeed, not only are Reflect products formulated according to a customer’s individual specifications, but the packaging and the labeling of each container are individualized as well. “The product doesn’t exist until the consumer creates it,” says Zelikovsky. “Our mission is to provide a delightful experience for the consumer.”
That’s the core of Reflect’s market positioning, which is supported by a guarantee that the custom order will arrive in 10 days or less - a goal Reflect says it meets on 99.9% of orders. That means that behind the scenes and beyond fashion or image, Reflect wins or loses in part based on how efficiently it delivers on that promise by solving the same supply logistics and production problems that face most manufacturers, but on a much different scale.
Logistics is familiar territory to Zelikovsky, who was previously the director of logistics at Amazon.com Inc. and chief architect of Amazon’s global distribution network. And majority stakeholder Procter & Gamble, particularly early on, contributed its consumer learnings and marketing and product development expertise. “We took the information they gave us and then innovated it further to the point of custom product,” says Zelikovsky.
It’s an evolution and a business model not possible without the web. Reflect has a web-based front end that integrates with its manufacturing and distribution systems and facilities to cost-effectively downsize mass-production and delivery to custom units of one. It starts with an interactive system developed by Reflect, built on a neural network that profiles a customer based on her responses to an online questionnaire. Those answers assign the customer’s order to a base formulation. Reflect has a standing supply of several in each product category that it produces and documents in accordance with required Food and Drug Administration good manufacturing practices.
Answers to additional questions on customer preferences such as texture or scent, for example, further refine product specs on the order. Then, the addition, based on customer preference, of active ingredients with extra moisturizing or astringent properties, for example, builds in another degree of customization.
The information travels down the line from the online neural network profiling to inform order entering, order management, manufacturing, distribution, customer service and customer relationship management functions, all of which share an integrated database. The end-to-end, integrated system, which spans Reflect’s San Francisco headquarter office, its New York manufacturing plant and its Ohio distribution center, is largely of Reflect’s own creation, with the addition of several off-the-shelf applications.
Get this, get that
The distribution center where individual product packaging is completed prior to shipment, for example, uses Optum Inc.’s warehouse management software. Among other tasks, the software manages the workflow by distributing directions to workers on what to add to each individual container of custom product, including labels, type of bottle stopper or lid, directions to the consumer on product use, and more, from a series of radio frequency-controlled terminals on the distribution center floor.
“It’s ‘get this, get that, put it together this way,’’’ says Optum co-founder John Davies. “The system directs workers on how to pull it together and it synchronizes those activities in real time.”
The software has helped Reflect’s efforts to scale its business by doubling productivity since its implementation, Zelikovsky says. Reflect also uses IBM Corp.’s WebSphere as the commerce engine for its shopping cart and E.Piphany Inc. for customer relationships management, among other packaged applications, “as well as a lot of proprietary ones we developed and were able to integrate into a turnkey solution,” he adds.