Obsessive Compulsive Cosmetics: What happened? Did Sephora kill OCC?

Wednesday, April 04, 2018

By now everyone knows it appears that Obsessive Compulsive Cosmetics has gone out of business without saying a word. What happened? While we'll never know for sure here's my own thoughts on the rise and fall of OCC Makeup.

What caused a popular company and a popular product to fall? Honestly, I think there were many factors and these are just my thoughts and opinions on what happened. We'll probably never know for sure since David deleted all of his social media accounts for OCC by April 4 starting with the deleting of the Instagram, Twitter, and YouTube accounts on April 2 and the Facebook page by this morning. While the website is still up, for now, the fact is it may not be a temporary thing. Temporary would mean their social media accounts would still be up with some kind of official statement on the matter; this feels permanent. What I do think had a huge hand in the downfall was the 2015 lawsuit against Sephora. Let me go back a bit before getting into the lawsuit.

Obsessive Compulsive Cosmetics was created and launched in 2004 by David Klasfeld-Whitten who had created "Tarred" and "Feathered" lip balms in his kitchen. By 2006 he launched OCC Skin, one of the first airbrush formulas made specifically for high definition cameras. In 2006 he launched his nail polish line and in 2007 the Loose Concentrates. From the get-go, OCC was a popular brand found in many professional makeup artists kits. It was in 2009 when David released what became his most famous product - a product that launched many copycats - the Lip Tars. The original Lip Tars quickly became a favorite among professional makeup artists and was used on sets around the world from fashional editorial spreads to movie sets.

By late 2011 or early 2012, OCC had caught the eye of Sephora and it was announced that OCC would be sold in stores and online by September 17, 2012. Unfortunately, for OCC, consumers didn't care for the original Lip Tars and found it to be confusing so most likely at Sephora's requests OCC got rid of the original Lip Tars (squeeze tubes, 0.33 oz, $14) in favor of the Ready-To-Wear line (hard tube with a wand, 0.14 oz, $17). Considering it takes time to reformulate a product, package it, get it manufactured and shipped, Sephora  decided to end their agreement with OCC in April 2015 on the grounds that OCC was failing to deliver new product.

According to the New York Law Journal, Sephora ordered $590,000 in new product from OCC and subsequently canceled all open orders and refused to pay their half for fixtures as verbally promised so, in 2015, OCC sued Sephora over breach of contract. In the legal documents I found, Sephora appears to have been a huge factor in why OCC eventually went under. From the legal documents:

Sephora reiterated that, upon termination of the vendor agreement, OCC is responsible for accepting return of all remaining product inventory in Sephora's possession and reimbursing Sephora at full cost value for the remaining inventory. To this, Sephora demanded that OCC accept return of all remaining inventory and deposit $832,700 in a third party escrow account or through the posting of an irrevocable letter of credit pending receipt of the inventory from Sephora, or else Sephora would liquidate OCC's products at whatever price, as Sephora determined in its sole discretion, to be necessary (Id.).

So if that did indeed take place then not only was OCC out the $590,000 in new product (which must have been the Ready To Wear [RTW] Lip Tars that launched that August on OCC and Beautylish) but Sephora wanted another $832,700 in escrow for the product they were to return to OCC. (This probably also explains why OCC began to have so many sales in 2017.) OCC also alleged in the legal documents that:

According to OCC, Sephora is purposefully seeking to mark down its products before they are sold in order to drive OCC out of business.

The judge appeared to have sided with Sephora and ended up ordering "that the temporary restraining order staying defendant from marking down the remaining inventory is hereby lifted, and plaintiffs' motion for a preliminary injunction is denied." This was on September 15, 2015.

We know that by the end of 2015 Sephora no longer carried OCC online or in stores and that by 2017 OCC brought back the original Lip Tars and was having frequent sales. By early 2018 OCC increased the pro discount to 60% off retail price but it was too late because as of April 2, 2018 OCC's storefront was closed and they removed all their social media pages and shut down the website.

So is this the end for OCC? Possibly. I don't know how much debt David has (directly or indirectly) due to Sephora's terminating their contact, how much product he actually had due to their canceled orders, or how much product he had left when he had the last Flash Sale in mid-March. Couple that with other business expenses, we just don't know all that went into why OCC appears to have gone under but between legal fees, loss of revenue from Sephora, and a loss of interest from both pros and consumers I'm sure that he had a lot of debt that needs to be paid before OCC can come back. Let's not forget the other nail in OCC's coffin was the fact that he now had numerous popular competitors from Jeffree Star, Kylie Jenner, Colourpop, Melt, Sugarpill, LimeCrime and so many other brands. It's hard to compete these days when brands rely heavily on social media influencers, their own popularity, or drama to stay afloat.

One thing is for sure, Sephora will eat small indie brands for breakfast if the brand doesn't play with Sephora. This is probably also why so many non-LVMH brands have opted to go with ULTA rather than do business with Sephora. Granted, this is all my speculation but I really do believe that Sephora terminating the contract was the beginning of the end for OCC.

What are your thoughts?


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