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The Korean beauty industry has had incredible growth in both awareness and sales in the US, and the inclusion of Korean-made products in stores like Target and Nordstrom signal that it’s only becoming more mainstream. American indie sites that sell Korean products, like Soko Glam, Peach & Lily, and Glow Recipe, have helped as well, but no start-up has received as much attention (or funding) as Memebox.
In a letter sent out to customers this week by founder and CEO Dino Ha, the site, which has carried hundreds of brands as well as four private-label house brands, announced that “many of the products on our site will be sold and shipped to you by our partner retailers rather than by Memebox directly. As part of this change, all Memepoints and loyalty program statuses will expire on April 30, 2017, and we will honor all Memepoint redemptions on our site until then.” A new site to be revealed on May 1st will also include more educational content.
There are several red flags there, especially for customers who use Memebox for one-stop K-beauty shopping. (Memebox denied a request for an interview.) What “partner retailers” seems to mean is affiliate links (like this) that send customers to Amazon and possibly other sites to buy a product that Memebox no longer carries. This would mean that if you order multiple products that Memebox can’t fulfill, you’re stuck with a multiple checkout situation, which sort of defeats the purpose of going to one site to buy products. Affiliate links pay a small percentage of that sale to the site that links, meaning that Memebox will make money from sending people elsewhere to shop.
Several customers in the Asian Beauty subreddit pointed out that it would be easier and cheaper to just go to Amazon directly. This may be true, but people also trusted that Memebox was a reputable company, which gets murkier when you order beauty products from Amazon directly, where sellers are unknown entities and the risk of counterfeits is higher. All signs point to this being a big switch in Memebox’s strategy from being an e-commerce retailer to becoming a standalone beauty brand, a stated goal of the company even back in 2014.
But to understand how distressing this all is for Memebox’s US customers, a look back at its history and an understanding of K-beauty enthusiasts is in order. There is a small but exceptionally dedicated group of bloggers and K-beauty fans who obsessively document, review, scrutinize, pH-test, and translate labeling to English, and they’ve been doing this long before K-beauty became more readily available in the US. They seem pleased to have more options for purchasing in the US, but also annoyed that the availability of more products here has meant price hikes or uneven pricing on products. A single Tony Moly sheet mask is a good example: it costs $3.75 at Ulta, $3 at Urban Outfitters, and from $1.40 to $4.90 on Amazon.
Ha launched Memebox in 2012 in South Korea before bringing the concept stateside in 2014. It was the first Korean company to be accepted into Y Combinator. Since its graduation from the prestigious start-up incubator, the company has raised over $160 million in funding as of December 2016. The potential for making money from selling K-beauty is huge. Ha told Forbes in 2015, “We have customers in the US that spend more than $10,000 in six months.” Memebox even opened a pop-up shop in San Francisco, where it is currently headquartered.
Memebox has never really had a stable and consistent business model. It started as a sample subscription box company, which quickly turned into non-subscription, limited-edition boxes containing full-size products. Memebox still offers value boxes, but they were phased out in favor of selling individual products. Arnold Hur, Memebox USA president, told Fortune in August 2016 that the boxes only account for 1 to 2 percent of sales.
Memebox’s first big customer uproar occurred in early 2015, when it announced it would no longer ship internationally. As one commenter on that Facebook announcement wrote, “I kind of saw this coming with all the changes (for the worse) lately. Price rises for boxes, reduction in box releases and discount codes, value sets not offering anywhere near as much value as they used to, orders being cancelled, customers being deceived, etc.”
Memebox has since focused on its business in the US and in Asia, where it has several retail stores in Hong Kong and Korea. Ha told Recode in December 2016 that just 15 percent of its sales come from the US. In July 2016, though, customers noted some disruption in Memebox’s previously fast shipping and good customer service, ostensibly related to a change in warehouses. As of October 2016, it still hadn’t improved much, according to the denizens of the Asian Beauty subreddit. Memebox also offered a pretty generous and popular loyalty program in July 2016, which is now dead as of the end of April, causing customers with lots of points banked to scramble to find things to buy in a dwindling product assortment.
During all of this, after a successful series of collaborations with Korean beauty guru Pony, Memebox started slowly launching its house brands, which picked up steam throughout 2016. It now has four: Bonvivant, Nooni, Pony Effect, and I’m Meme. It even sells its Bonvivant masks at Opening Ceremony now. The Korean beauty industry is also known for its fast innovation, so Memebox surely hopes to capitalize on this by bringing a lot of new products to the market quickly.
So was this all a bait-and-switch to bring in loyal customers and then sell only Meme brands? Probably not intentionally, but that’s how it looks to some hardcore fans. Joy Lee has been a customer for about two years, and she calls it her “gateway” into K-beauty. She appreciated the return policy and the English-language reviews and ingredient lists, despite the fact that Memebox marked its products up a bit. But it has now lost her as a customer.
“The changes they recently announced squandered any goodwill they had with me. Under this new model, they want to present themselves more as a resource for information and focus on their in-house brands,” she wrote in an email. “Sorry, but if you get your education from the same place you get your skincare, chances are you're getting taken advantage of. I'm not here for a retailer disguised as a blog that wants to peddle their house brands and rack up affiliate revenue from Amazon.”
Like a lot of K-beauty companies now, Memebox is likely focused on the newbie K-beauty consumer with its new educational initiatives and its own products. The challenge of K-beauty brands and the retailers who sell them has always been to help western consumers understand the categories and ingredients. It makes sense that for growth, Memebox would want to focus on the much larger world of the new-to-skincare crowd rather than a comparatively much smaller group of skincare obsessives. Margins are also better when you sell your own product than when you’re a third party vendor.
“Ever since they got loads of [venture capital] from outside investors, the pressure on them to grow fast has caused copious problems for customers: improperly packed orders, massive shipping delays, and increasingly inattentive customer service response,” says Lee. “They are now canceling their customer loyalty program, return policy, and raising the free shipping threshold to $40. With Amazon, Jolse, eBay, et al, why put up with that?”
Customers have put up with a lot from Memebox so far because the products have always been compelling and Memebox's discounts, sales, and loyalty program made it comparatively cheap, so it will be interesting to see if it can attract the new customers it needs in its new iteration.