Yellow Box Beauty Inc.

Founded: 2006
Core Business: Cosmetic subscription sales
Employees in 2007: 1, plus 11 contractors
Employees in 2006: 1
Goal: To establish the firm as a cosmetic staple for customers
Driving Force: The desire of busy women with little time to buy top line beauty products

About 18 months ago, Nicole Jaffe decided she'd had it with Hollywood. She'd spent five years working in entertainment marketing and several years before that with a talent agency. She didn't want to work for anyone, either, so the obvious choice was to start a business.

After months of brainstorming, she decided to start a beauty product of the month club in late 2005. She had no professional background in the field, but that didn't deter her.

"That was the one that stuck," she said. "Everyone I talked about it with said, why didn't I think of that?"

So with $10,000 from her credit cards and savings, Jaffe hired Web designers to build her a site, with a logo that she designed herself. The rest of the cash went toward purchasing the cosmetics and boxes for her first mailing. In February of last year, Tarzana-based Yellow Box Beauty Inc. was born.

Jaffe doesn't advertise, so her business has grown through word of mouth and networking with other female entrepreneurs.

"I'm a big fan," said Amy Swift, who leads the Los Angeles and Orange County incubators for the networking organization Ladies Who Launch. "It's ideal because subscriptions are so much fun. You forget about them and then every month you get some fantastic product you never would have picked out for yourself."

Swift has found some must-have beauty supplies in her monthly yellow boxes, and some she has passed on as gifts. Above all, Swift praises Jaffe's taste in choosing unknown products from myriad options.

"She's a great filter," Swift said.

Jaffe claims her customers are "99.9 percent satisfied," with her selections. Some of her best clients are men, who purchase subscriptions at $34.95 a month, for wives or girlfriends.

"That way the gifts keep coming, but they can forget about it," she said.

Jaffe was profitable before the end of her first year doing business. She declined to disclose revenues or her subscription base, but said it's grown significantly since her first mailing 16 months ago.

For now, she's the company's only employee, but she signs on between four and 11 part-timers to help her pack the monthly shipments.

"Holidays are huge for us," she said. During the 2006 holidays, her business was about twice the normal volume.

Subscriptions can be purchased for three-, six- and 12-month intervals. The monthly price goes down $3 for level every commitment level. The three-month version is $34.95 for each installment, while the annual package goes for $29.95 per month.

Jaffe said that she realizes she'll have to adjust as her company grows and the number of subscribers becomes more likely to surpass the supply capacity of some of the emerging brands she typically works with. The younger companies are her bread and butter, since they are willing to provide discounted products to gain exposure.

"That's one of things we're constantly looking at: how to sustain as we grow," she said. "The amount of product is going to get larger and that's hard to sustain for some companies."

Another challenge will be continuing to send boxes with retail values higher than the amount her customers pay.

"As far as pricing structure goes for us, our customer are getting at least retail value and usually a lot more," she said, adding that one of her boxes had a retail value of nearly $75. The June shipment's retail value was $60.

Jackie Fernandez, a consumer business partner at Deloitte & Touche LLP said that one of the biggest hurdles for Jaffe would be establishing her credibility without an advertising campaign or a partnership with a well-established company.

"There is consumer hesitation when you don't know the company or the background of the people buying the products," she said. "It's not inexpensive to join this club and that will provide other challenges until they can prove their products and that the customers really like what's in the box."

Fernandez thinks that Yellow Box is a good idea, but said that another hurdle would be that beauty product selection is a personal choice for most women and therefore some customers may not like what arrives every month. While Jaffe selects many universal products clear lip gloss, for example Fernandez said many women want to see beauty products in the store before buying them.

"So much of buying cosmetics is the consumer wanting to see it first," she said. The monthly shipments "could certainly be a component of cosmetic buying, but I don't think it would be the only thing they do."

Fernandez said that's why it's a good thing Jaffe allows memberships subscriptions as short as three months.

"I think women really want to go to the store and see the new product offerings that are out there instead of banking on the yellow box to do everything for them," she said.

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