Amy Errett’s company,looing to Expand it’s product.

Amy Errett’s company,looing to Expand it’s product.

Amy Errett’s company, Madison Reed, sells women’s in-home hair coloring products. It may not sound like a glamorous business but, as it turns out, it’s a very durable one, done the right way. Not only has the seven-year-old outfit been slowly chipping away at the dominant personal care giants like L’Oreal that have long controlled what’s currently a $30 billion market, but during one of the most dramatic economic downturns of the past century, it has been attracting new customers.

In fact, Errett — who was previously a VC with Maveron and has a side hustle as a venture partner with True Ventures — says the 300-person company is seeing revenue in excess of $100 million per year and that it will be profitable in the second half of this year. Presumably, that makes it a likely candidate for an IPO in the not-too-distant future.

We asked Errett earlier this week for an update on the business, which has raised $125 million to date from investors, including True Ventures, Norwest Venture Partners, and Comcast Ventures. Our chat has been edited for length and clarity.

TC: Like a lot of direct-to-consumer brands, you more recently began opening real-world stores — color bars. How many did you have up and running before COVID-19 took hold?

AE: We had 12. We are reopening them now with 20 [because we had] eight that never got opened in March, April and May. We’ll end the year with 25.

TC: Are they just scattered around the U.S.?

AE: They’re in hubs that we have selected based on the demographics of the women that live in those hubs and what we know from our online business. So they are in Northern California, where we’re headquartered. They’re New York, Dallas, Houston, and the Washington D.C. area. And we’re reopening in Atlanta, adding more in Dallas and Houston, and by year end, we’ll be in Miami and Denver.

TC: Can you comment on the financial metrics of the company? At one point, we’d read the company was doing around $50 million annually with 78% gross margins.

AE: The product margin of the business is in excess of 80%, meaning the actual product; the gross margin of the business, meaning fully loaded, is 60%. The growth has been amazing. We have 300,000 subscribers now, and we’re ahead of 2x the financials [you stated]. We’re a private company, so I don’t disclose [specifics] but we will be profitable the second half of this year.

TC: Obviously, you’ve captured some new customers who couldn’t go to a salon during this national lockdown. What percentage of your overall business do those 300,000 subscribers represent?

AE: It moves from day to day. So 52% of women in the U.S. color exclusively at home; 48% go to salons, some to our color bars; then 25% are called duelists. They’re excessively gray, or they want to stretch out salon appointments, so they do their hair at home in between bookings.

Typically, 60% of the people that come to us that are salon goers, and 50% are home users. During the surge, the numbers did tip in the direction of 70% of the people that were coming to us were salon goers because they had no other place to go. The good news is that we are retaining an enormous amount of them. The average [subscriber] orders from us every six weeks, then we have people who buy a single box but there are serial one-timers who act like subscribers, so these are startlingly sustainable cohorts compared to typical D2C businesses.

TC: So you didn’t lay off anyone even as you were closing these color bars?

AE: I think seven employees decided they had kids at work and couldn’t even work on a distributed work basis, but we have not done any furloughing. We closed all of our color bars around March 15. . . and we moved all of our in store colorists to our call center. We had to buy and send headsets to everyone at home, teach them about all of the technology support in customer service, which is very different than the skills you’d use working in the store. And away we went.

[Everyone at our call center] was already a certified licensed colorist as our sale is a very technical sale. Every woman in the world has at least five bad hair stories, so we put what I call a belt and suspenders around the advice because the most important thing for a customer at Madison Reed is to get the color right. You get one shot.

TC: States are reopening. As colorists return to your stores, what precautions are you taking, and how uniform are your processes across different states?

ER: We are reopening stores, at first with retail only [where] we’ll get the bag and bring it out to you, and [over time] with sensible scheduling. We don’t know when we’ll go back to every chair.

37 Comments

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