Joseph Shamah, chairman of e.l.f. cosmetics, didn’t listen to conventional wisdom when it came to launching the beauty brand five years ago. In fact, the company broke most of the beauty marketing rules.

Many women believe they have to pay big bucks for lustrous colors and glamorous packaging. But Shamah, who founded the company (along with Scott Vincent Borba, who also has a successful line of nutraceuticals) shortly after graduating from college, believed he could get them to try products in simple packaging priced at only $1.00.

There is also a notion in the beauty business that women must actually try and experiment with colors – suggesting that the Internet would not be a popular choice for cosmetics shopping. That hasn’t been the case with e.l.f.: online orders account for 50 percent of sales. In fact, the company first gained traction via web sales before gaining the attention of retail store customers.

“We started out to make a line for dollar stores, but we found they were really only interested in pure value and not quality,” Shamah says. “We started selling on our web with a $5,000 investment. We were picked up by the website Daily Candy and that gave us a sense of how important the Internet is to consumers and [provided] that personal connection.”
                             
e.l.f. on the shelf
From there, e.l.f. (eyes, lips, face) secured distribution in chains such as Target, HEB, Kroger and Kmart. Getting a new product line, especially cosmetics, into stores isn’t an easy feat since big-box retailers want brands with big advertising budgets, well-known names and deep pockets to take back returns on what doesn’t sell.

The website has allowed e.l.f. the chance to grow without having to pay slotting allowances or offer guaranteed sales – two common practices in the mass market. It has also served as a test market for what consumers want — and don’t want.

The website has attracted loyal users by offering solutions to common problems as well as advice from expert make-up artists. The site has a place for blogs as well as a page to build a consumer profile. e.l.f. also directs visitors to local stores for purchase. The input from the web helps drive new items, and the firm recently expanded into bath and body products. The minerals, inspired by higher-end brands such as Bare Escentuals, have become a huge seller.

Because the company is small, it can be much more nimble than a giant like Estee Lauder or L’Oreal. Shamah is impressed with the true community that has been built via the e.l.f. site. “It is like the MySpace of beauty,” he says.

Just how does e.l.f. make the beauty items so cheaply? For one thing, Shamah has connections all over the world for manufacturing. The company also eschews some of the fluff in cosmetics packaging like cardboard boxes and extra plastic tools. (There are important value-added items, such as pencil sharpeners, however).

Without the need for major advertising, Shamah saves on marketing costs, and his firm has managed to grow at a time when beauty sales are flat and many new brands have faltered.

On the retail side, Shamah says fishbowl-style glass merchandisers and new items such as hand sanitizers are opening up opportunities for distribution in specialty stores, including apparel chains. Shamah says more apparel retailers are trying to boost impulse sales with beauty items. “They can match up items to an outfit,” he says.

Shamah also sees potential in foreign markets, including the U.K., Australia, India and the Philippines.

“Beauty is all about keeping it fresh and new,” he says. “With our combination of stores and our site, we are able to do a good job of bringing out new items, testing them and then taking them to retail.”