In this Q&A, we decided to put the spotlight on Maribel Dominguez, CEO and founder of Círculo de Belleza, to learn more about the enormous opportunity to disrupt the professional beauty market that the company is addressing.
Q: What is the solution offered by Circulo de Belleza and how did you come up with the idea?
The idea came from being in communication with brands and independent beauty salons where there really was no efficient distribution model for either party in the industry. The big brands were very tied to their established salons/distributors that could buy large minimum amounts. While, on the other hand, the small, independent salons couldn’t meet all these restrictions that the brands were asking for. The opportunity arose from assessing the size of the market: there are 190,000 salons nationwide (only in Mexico) and the big brands only serve around 3,000 clients. So nobody was taking care of this indirect market.
In the beauty salon industry, there are many small salons, which we identify as long-tail distributors. So, there was no one who was supplying these long-tail distributors. Yes, the brands are interested in supplying them, but currently, they do not have a distribution model to do so, which is why we created a digital platform that allows us to supply both the independent, small, long-tail distributors and also the big clients.
Most of our clients use products from different brands, so for them having six different suppliers means having six different commercial agreements. With Círculo de Belleza, they can buy products from different brands without any type of commercial agreement: this month they can buy one hundred pieces, the next month zero, and the third month they can buy again.
Usually, this is not possible to do with the big brands. If you stop buying from them, they no longer assign you a seller and you can no longer place orders. With us, you can find many brands, many categories, all with a single supplier.
We created our business model from the start thinking that we were targeting a profile that is not digitized at all. So, from the very beginning, we offered things like Cash On Delivery, that their purchases do not have to be invoiced if they do not want to, and that they can place orders through WhatsApp, not only from the website.
As of today, 50% of the orders are made through WhatsApp, and 80% of the payments are done cash on delivery. What we see is that our clients are not necessarily unbanked, but they are afraid to use their credit cards to make the payments, so they just feel more comfortable paying when they receive the package. So, we incorporated these two changes into a very traditional ecommerce model:
1) to order by WhatsApp and online, and 2) to pay online or on delivery. This helped us a lot because from the very beginning we knew our clients very well: we already knew that most of them would not want to pay online.
I have been working with L’oréal for a long time, which is the industry leader in both beauty, luxury, perfumery, and also in professional services. When we got L’oréal as the first supplier of Círculo de Belleza, it was much easier to convince the other brands to become our suppliers. This is what they call “network effects” on the supply side, through which we increasingly are able to have more brands. Today, we have the top 35% of brands in the market on the Circulo de Belleza platform. We’re also looking to include more brands, add categories, have more nail products, makeup, etc., and simply to be able to offer more affordable products.
Q: How has the COVID-19 pandemic affected Circulo de Belleza?
It’s been very interesting because our launch took place right at the onset of COVID-19. The soft launch was in October 2019 during the Expo Beauty Show, and from then on we were really in bootstrapping mode until March 2020 when we raised our friends and family round, and by May 1st our first collaborators joined the team. So literally, our launch was on par with the pandemic.
When the pandemic began, most of our competitors (which are the brands that have their sales force and the distributors) were completely closed. But we never stopped working. In the warehouse we were never closed: the pandemic accelerated the adoption of online purchases in this business, which were previously completely unknown. The pandemic not only came to accelerate the adoption of ecommerce in Latam, but it also came to change people’s perspective and to question the status quo. Just because you’ve been doing things one way, it doesn’t mean that you cannot start doing them differently.
That was our main challenge: what to do to be the best option for our customers. Instead of going – as they have always done – downtown to get supplies for their beauty salon, or calling their trusted salesperson. As much as you sell them the idea of the convenience of buying online, changing people’s minds is very difficult, and with the pandemic, this was easier. Customers got our message: Buying online makes sense for all products, even when it comes to buying supplies for your business.
Q: And speaking of ecommerce, how do you think ecommerce will continue to grow in the future? What are some challenges and opportunities that you foresee?
I believe that ecommerce will continue to be adopted more and more, also thanks to the increase in banked individuals. In general, digitization is reaching the world of B2B: online trade shows are happening online, networking is taking place online and customers are buying online. The way we see it, the future of Circulo de Belleza is to be able to open a gap in these other sectors. We launched with ecommerce, but as a good vertical marketplace, we want to open other verticals, all through digital methods that can be scalable and profitable.
Q: And tell me more about Circulo de Belleza, what would you say is your differentiator, in addition to selling online?
Something we wanted to do from the beginning was to have extraordinary customer service. What we noticed is that other suppliers carried the relationship in a very transactional way with their clients, they saw them as a number. So we developed a very basic but very personalized process: we thank them for their purchase, once the order has arrived, we communicate with them to find out if everything arrived well or if they have any questions. And our clients are very happy with our communication and our service.
With little effort, we can have a great differentiator in service and especially with our small clients. We emphasize that it doesn’t matter what their minimum purchases are. For us, all clients are important, we want to help them grow, we are here to help them and it does not matter if they are going to buy one product or a hundred, they can be our clients. So, our business model is also allowing us to democratize the purchase of professional products. That is our great differentiator.
On the other hand, our focus is to sell 100% to professionals, so we are exclusively B2B. Due to the pandemic, the brands themselves reinvented themselves and have opened B2C on their online channels. So now they have a channel conflict with their B2B customers since they are now selling to the end consumer and at the same prices.
Our promise is just that: to provide profitable, high-quality products to the entire beauty sector in Mexico and soon all over Latin America. That is the differentiator: our service, and that we are focused on a B2B strategy. We want to be established in the long term as a B2B vertical.
Q: So, right now you operate in Mexico, but what are your plans for the future? Are you planning to expand to other countries?
The same opportunity and market size exists in literally every developing country. We have spoken with people in the Philippines, in India… and they say there are also thousands of salons there, and people all over the world dye and cut their hair. Also, one of our founding members, Natalia Uribe, is Colombian, and Colombia is one of the countries that we find most akin to Mexico, so Colombia would be one of our first choices to expand.
We also have our eyes set on Brazil, which is a beast, but Brazil for many reasons is an incredible country for the business model we are proposing because 1) there is no direct competitor – there is no online B2B, there is no Circulo de Belleza. So, how do stylists shop there? They have an agreement with MercadoLibre where they have stylist Mondays and they put everything at a 20% discount. That is the B2B strategy of Brazil. So, there are many things we can do. There are a million stylists, there are 600 thousand salons, customers are highly digitized and although there are obviously very complicated issues such as taxes and that several distribution centers are needed due to the size of the country, their adoption of ecommerce is so large that we see Brazil as a great opportunity.
In addition, Brazil is one of the countries that spends the most per capita on beauty products, so everything lines up (check-check-check!) to open there, but always keeping in mind that it is very difficult to do business in Brazil and that we need to find the right partner. We want to consolidate our business model in Mexico and then go to the next country.
So, yes, our vision is to expand our business model to all of Latin America, probably starting with Colombia.
Q: Tell us a little bit about your team Maribel, how many people are working at Circulo de Belleza? How many are women?
There are many women on the team. As of today, we are eleven: nine women and two men. But we just hired two more men who are going to join the team pretty soon. I try to ensure equity and I want women to have a stronger role in society and in the business world. I believe gender does not define what you can do or how you should act. So, being a woman should not be a barrier. I would like to see more opportunities for women and obviously to be the first, if I have the possibility of hiring people, to be able to hire amazing women and offer them a career path.
Q: I love your perspective on the role of women in business, Maribel… and in terms of clients, what is the profile of Circulo de Belleza’s clients?
It is very interesting because 80 percent of our clients are women. The brands would say that their client profile is 50-50, but for some reason, the value proposition of Circulo de Belleza at this point has been more attractive to women. I do not know if it is because they tend to be a little more pragmatic or because they look for easier solutions, taking into account that they can buy via WhatsApp and that we deliver them to their home or business. But it is probably also because in the long-tail there are more women.
The average age is 35 years old. But overall, they are women who are at the forefront of technology, fans of social media, really like to share their work… and we also find that our clients have a strong sense of community. We launched a group on Facebook called Estilistas de México that already has 118,000 members and it is impressive how active they all are. This group is precisely for them so that they can interact with each other. So that’s our client profile, and they are very creative.
Another very interesting thing is that they are passionate about their work. Taking a whole day to go downtown to get their supplies is the worst thing that can happen to them. The thought that they have to do a cash cut at the end of the day and figure out how much they have to pay the manicurist depending on how many services she did gives them a headache. What they like is being behind the chair doing their job. So, in that sense, it has also been our brand promise, to be able to tell them: we take care of you so that you can enjoy your work and your customers.
We want to be a company where our promise is closely aligned –not only selling to them because they are not just a number for us–because they are people and we want everyone to be able to flourish.
Q: Before we go, tell us about the seed round. Who invested?
The lead investor was Magma Partners, and we had a follow-on from 500 Startups Latam and from the original friends and family who likewise decided to exercise their right to follow-on now that Circulo de Belleza has traction.
Basically, the new investor was Magma, with the idea that they will also join us in future rounds and we hope to start raising again in the upcoming months. Our pre-seed round was with friends and family, and 500 Startups.
Q: What are the future plans with this investment round?
We want to expand and build a more solid team. It has really been a small miracle what we have achieved so far with so few people on board. Of course, we have many intermediaries who are underground, the people who are filling orders and operating, but in key areas, we want to hire pioneers, people who have great experience and a sense of entrepreneurship.
We also want to be able to strengthen the operation and to have all the technological tools that will allow us to automate our entire supply process. And of course, we would like to launch in a second country by 2022. So people and technology are our main focus.
Q: Anything else you want to add?
I don’t come from the world of professional beauty products. Sometimes coming from the outside allows you to see things much clearer and to create something that is functional. Sometimes not having any experience at all within a particular industry allows you to offer a new perspective. It allows you to question everything in order to improve it.
Learn more about Maribel Dominguez’s story in this episode of the Crossing Borders podcast.
This post is also available in: Español (Spanish)