Walgreens, trying hard to build its beauty business, is buying a minority stake in Birchbox. As part of the deal, the drugstore chain intends to start with offering Birchbox in 11 pilot locations, as well as a Birchbox shop on its website.
The shops-within-shops will include the Birchbox name and a product assortment featuring 40 different brands, including full-sized hair, skin and makeup products. Birchbox-trained associates will offer guidance, and it also plans to sell “Build Your Own Birchbox” selections, letting Walgreens shoppers sign up for monthly delivery of personalized samples.
Birchbox, launched back in 2010, was a pioneer in the subscription business, offering boxes of beauty products for $10 a month, eventually opening physical stores in New York and Paris. It currently has 2.5 million subscribers, offering boxes that include more than 500 brands, and was once valued at as much as $500 million. But as growth slowed, the company has struggled, reportedly unable to interest companies like Walmart and QVC in a sale. (Back in May, Recode reported that venture fund Viking got a majority stake for $15 million.)
Other subscription start-ups, including Stitch Fix and Blue Apron, have also struggled.
“Our customers want to shop the most sought-after brands in a welcoming and accessible environment, and the addition of Birchbox to our growing beauty offering is a big step in delivering on our promise to differentiate and elevate the beauty experience at Walgreens,” says Richard Ashworth, president of operations, in its release.
Walgreens also says the deal is especially good news for casual beauty consumers who want to explore products by category rather than brand names. Birchbox says such customers represent about 70% of beauty consumers.
For Walgreens, the deal may be a way to distinguish itself from competitors, including CVS, that are also stepping up beauty offerings, eager to find new ways to boost non-pharmacy, also known as “front of store” sales. Besides remodels to showcase products, chains are adding beauty-specific loyalty programs and specially trained store consultants.
But beefing up those front-end sales isn’t easy, and puts Walgreens in competition with the many other places consumers can find cosmetics, from Ulta, Sephora and department stores to websites -- and, increasingly, even supermarkets.
“Walgreens has yet to report an improvement in same-store comparable results for front-end products, as it tries to counter a more pressured retail pharmacy operating environment with cosmetic, grocery, household, and convenience goods," writes Morningstar analyst Vishnu Lekraj, in a recent report. "This strategy will also put the firm in even more direct competition with a vast array of retailers.”
Last week, Walgreens also announced an experimental partnership with grocery giant Kroger, piloting a new format combining Kroger’s groceries with Walgreens pharmacy, health and beauty, in 13 Walgreens stores in Northern Kentucky.