Unsold Beauty Inventory Has Become a Market of Its Own

What is the signal?

Highstock is a business-to-business marketplace that brokers the sale of unsold inventory from beauty brands to vetted business buyers. It has now raised a USD 30 million Series A led by a16z, with participation from Greylock, Abstract VC and Daybreak Fund. Olivia Moore, an AI partner at a16z, joins the board, and Jeff Jordan participates as an adviser.

The figures the company gave are these. In a little over a year, more than USD 1 billion of inventory has been listed on the platform, and it works with over 100 major brands. Laura Geller, Bliss and Versed were named among the brands it has worked with, and the company says more than 10 million pounds of product has been kept out of landfill. Founder Camille van Horne led product at Instacart and says she started the company after seeing warehouses of sellable goods bound for destruction.

There is also research that shows the scale of the inventory problem. According to research by the materials science company Avery Dennison, more than 10% of beauty products — an estimated USD 4.8 billion worth — are wasted inside brands' supply chains. The largest cause was overproduction and excess inventory, accounting for 6.2% of discarded goods. Beauty's 6.2% rate of lost inventory was the highest when set against apparel at 3.9%, pharmaceuticals at 3%, food at 2.9% and automotive at 1.1%.

The source and nature of the numbers need separating. Highstock's transaction volume and its landfill-diversion figure are company-provided and not third-party verified. The waste research is based on a survey that included more than 60 beauty and personal care businesses across the United States, the United Kingdom, China, France and Japan, so it gathers respondents' perceptions and estimates rather than the industry's accounts. What to read here, then, is not a precise size but a direction. That there is enough of a market in clearing inventory to attract investment is itself the signal.

1. Surplus comes out of structure, not accident

Leftover inventory is usually discussed as the result of a misjudgement: demand was read wrong, the marketing did not turn as expected, the timing was missed. Yet the list of causes set out in this coverage sits upstream of any individual judgement.

Three things were named. Purchase orders are written with penalties for slow response, retailers demand buffer stock, and social media creates unpredictable swings in demand. All three work in the same direction. They make having too much feel safer than having too little.

The difference between recognizing that structure and not recognizing it does not show up in forecast accuracy. Once you know there is a force inside the system tilting toward surplus, setting an order quantity stops being only 'how much will sell' and starts including 'what do we do if it does not'. It is the order that skipped the second question that pays later.

2. There are three ways out, and each charges differently

When inventory piles up, the options brands actually choose among sort into three: running a sample sale or donating the product, discounting heavily through value retailers such as TJ Maxx or Ross, and destroying it.

Where the three differ is not in the amount. Clearing through discount retail brings cash back but carries the risk of diluting brand equity. When the same product sits on shelves at full price and at half price at once, it is not hard to guess which price the full-price customer will treat as the reference on their next purchase.

Destruction avoids that risk at the cost of losing everything. The space Highstock has moved into is between the two. A route that transfers stock to business buyers while controlling brand exposure adds one more option between the price exposure of discount retail and the loss of destruction. The company says the platform handles automated catalogue generation, matching between sellers and buyers, pricing, and customs and regulatory paperwork.

• Sample sales and donation: little cash recovered, exposure controllable
• Value-retail discounting: cash returns, but price perception may shift
• Destruction: no risk, and no recovery either
• B2B brokerage: transfer to business buyers with exposure controlled

3. Beauty loses more inventory than other industries

What stands out in the research is less the absolute figure than the comparison across industries. Beauty's 6.2% rate of lost inventory ran higher than apparel at 3.9%, pharmaceuticals at 3%, food at 2.9% and automotive at 1.1%. That it exceeds apparel — the sector most often compared with beauty for trend sensitivity — is notable.

One more item sits alongside it. The research put inventory wasted through perishing, spoiling or damage at 4%. Cosmetics carry both a shelf life and a period-after-opening, and some formulas change state with temperature and humidity. Sitting in a warehouse for a long time does not only shrink the chance of selling; it can also end the state in which the product is sellable.

The research held that this waste could cost brands up to 2.8% of annual profit. That the figure is stated against profit rather than revenue matters. Inventory is scattered in places on the income statement where it is easy to miss, and then appears all at once at the moment of write-off.

4. Inventory you cannot see does not get managed

In the same research, 77% of respondents said they track supply chain waste. Yet 18% named a lack of visibility and transparency across trading partners as their biggest challenge. The hard part is less counting inventory than seeing the inventory that sits outside your own warehouse.

For a brand that outsources production, the problem is more direct. Finished goods may be in your warehouse, but the remaining containers and raw materials ordered to make them can be sitting in a manufacturer's or partner's storage. If that remainder is invisible when the next product is planned, materials that could have been used get ordered again from scratch.

So the first stage of inventory management is not reducing but seeing. It is better to start by confirming whether your own stock, your distributors' stock and the materials left at your manufacturer can be placed in the same table. If the formats differ so they cannot be combined, making them combinable comes before any reduction plan.

• Whether finished-goods inventory can be seen weekly or monthly
• Whether quantities held by distributors and platforms can be obtained
• Whether there is a route to check leftover containers, labels and materials at the manufacturer
• Whether the three figures come in a form that can be combined into one table

5. The opening order quantity is design, not marketing

The practical way to read news of a growing market in inventory clearance is not 'one more exit route exists' but 'look again at how order quantities are set'. Clearance always carries a price, and the cheapest clearance is making less in the first place.

Ordering less unconditionally is not the answer either. Push the opening run too low and the unit cost rises, and when a response does come the shelf empties before the reorder arrives. So what to look at is not the order quantity alone but the order quantity and the reorder lead time held in one picture. Where a reorder can come back quickly there is room to set the opening run low; where it cannot, the opening run has to carry it.

And this judgement cannot be made by the brand alone. The minimum production quantity and the time a reorder actually takes are matters agreed with the manufacturer, and they change with the product and container specification. An order quantity set without confirming those two numbers at the planning stage is a guess, not a forecast.

• Whether the minimum production quantity per product and container has been confirmed
• The real time from reorder to goods received
• How much the unit cost rises if the opening run is lowered
• Whether a route for clearing surplus was decided before the order was placed

The first question for the brief

Rather than stopping at 'we will make this many units for the opening run', try one sentence: if this quantity does not sell as expected, what do we do? Then add one more line beneath it. How many units of inventory do we hold right now, and how many days does it take to find out?