A $21,000 Cosmetology School Debt, and a $9-an-Hour Job. Part 2

In 2016, Glenda Martin wasn’t aware of any trouble brewing between La’ James and the federal government, or that the school had spent the previous two years in a legal dispute with the Iowa attorney general’s office.

All she knew was that cosmetology was in her blood, as she likes to say. Her mother was a cosmetologist, and started teaching her how to style hair when she was a preteen. There was never any doubt about what career Ms. Martin would pursue. The only question was where to enroll. The way she saw it, she had only for-profit options: PCI Academy, an hour away in Ames, or La’ James International College in Fort Dodge, where she lived. (One community college campus offers a cosmetology degree, but it’s in a sparsely populated corner of the state, three hours from Fort Dodge.) She had heard that PCI students were pressured to push a certain number of products before they could get their own kits.

“I would have enjoyed another choice here in town,” she said. “I would have definitely checked it out.” Unknown to Ms. Martin, there could have been another option, just a few miles down the road: Iowa Central Community College. In the fall of 2004, the college submitted an application to the state cosmetology board to open a program. But in early 2005, the Iowa Cosmetology School Association and La’ James sued Iowa Central and got a temporary injunction that prevented it from moving forward with the program.

The lawsuit argued that the state code prohibits public entities from competing with private ones. If Iowa Central opened a cheaper program, the suit contended, La’ James would be “irreparably harmed by the loss of employees, members, clients, students, potential employees, potential clients, potential students” and other factors. Mr. Becher said the company had sued to “protect the students” from a subpar education. Ms. Wood Becher added, “It’s kind of a quality control thing.” The two sides ultimately compromised; students could earn associate degrees by completing cosmetology certificates at La’ James and taking six business classes at Iowa Central. La’ James lost nothing in the deal, but students lost the option of paying significantly less.

The Iowa Cosmetology School Association said its members’ prices are “consistent with the cost of all postsecondary education today” — particularly considering that they do not receive state subsidies. The average annual in-state cost of attendance at Iowa’s community colleges is $4,697. The University of Iowa, the state’s most expensive public four-year institution, costs $9,492 per year for in-state students. This year, Iowa Lakes Community College, about three hours northwest of Des Moines, announced plans to offer a cosmetics degree. The college’s president, Valerie Newhouse, said one cosmetology school had already threatened litigation. In 2016, Ms. Martin went for a short tour of the La’ James campus in Fort Dodge. The school’s storefront was airy and glamorous. Hair products lined the walls under enlarged photographs of well-coiffed women. Makeup displays were fronted by placards advertising the services available in the student-staffed salon. Students dressed in black shirts and pants.  Before her visit was over, Ms. Martin filled out her enrollment and financial aid paperwork. She took out $23,000 in loans. Ms. Martin liked La’ James at first, she said, but quickly discovered problems. She found the classes boring and repetitive. Some instructors had students read aloud from textbooks and watch instructional videos. Ms. Martin said that she supported Iowa’s 2,100-hour requirement in theory — as did several of the women we spoke with — but that in practice, many of those hours were wasted, particularly once she got to the salon floor. Although Fridays and Saturdays would be busy, the rest of the week generally dragged. She’d be itching to practice what she had been learning in class. But some days there were so few customers that she’d sit and wait for hours.

One day, she braved a snowstorm to get to the salon. The school had stayed open, requiring students to come in. Ms. Martin was the only one who did. She left at the end of the day without having seen a single customer — but those hours still counted toward the 2,100. She would shake her head when she saw other students, sick of the boredom, go home early. “That only works against you,” she said. “You have to stay here and do absolutely nothing or you go home and lose the hours.” The Iowa Cosmetology School Association said the state’s system “provides the right amount of training time to practice on actual people.” It also said that if some students waste hours sitting around, “it is unfortunate for both the student and the school.” In interviews, more than 20 former students at schools represented by the association described experiences like Ms. Martin’s. One former La’ James student, Michelle Wipperman, said foot traffic in the salon at the Cedar Rapids school was so low, some students asked administrators if they could advertise more. She recalls being told that it would be too expensive.

“I would say probably 60 percent of our time was sitting around waiting for people,” Ms. Wipperman said. “There were times where I personally had met all my goals that I needed to meet. I was literally just waiting. I had to finish my clock hours.” Despite these experiences, when Ms. Martin finished her cosmetology certificate, she re-enrolled for further training in esthetics. She thought the extra skills would help her someday in her own salon. Ms. Martin passed both her exams. But the school will not release her transcripts, so she can get her licenses, until she pays the several hundred dollars it says she owes. She disputes the debt and says she can’t afford to pay.

In the last five years, legislators in at least 11 states have introduced bills to lower the number of hours required for a cosmetology certificate. These efforts are driven by a mix of anti-regulatory libertarians, national salon chains that are having trouble hiring enough qualified stylists and the national association for cosmetologists, which wants its members to be able to carry their licenses across state lines. While aggressive lobbying by schools has managed to stall or defeat legislation in several states, at least eight have reduced the number of hours in their regulations. In recent years, required hours were lowered to 1,500 in South Dakota and Montana. And Nebraska legislators, after a long battle with the schools, trimmed their mandate to 1,800 hours. Administrators from schools in those states disagreed with the reductions, but said they were still able to cover the same material as before. Iowa, with its 2,100-hour standard, remains “an embarrassment,” said Dawn Pettengill, a Republican state representative who will retire next month. Hoping to lower the profession’s barrier to entry, Ms. Pettengill this year introduced legislation that would drop the hours to 1,500. Republicans in the Senate proposed a similar bill. Schools and their lobbyists mounted a fierce push-back. The schools “were livid,” said State Senator Jason Schultz, a Republican subcommittee chairman. “I didn’t expect the amount of opposition.” The school association’s political action committee had given more than $20,000 to Iowa candidates since 2014. It also had three lobbyists registered with the state; for the last session, the organization paid the lobbyists’ company $12,500.

While the dollar amounts weren’t huge, a little goes a long way in Des Moines. Hearings weren’t publicized, or even required, giving an advantage to the well-organized group. The schools argued that maintaining 2,100 hours was crucial to ensuring that students were able to learn everything needed to run salons in rural parts of the state, including nails, esthetics, business and state law, not just hair-styling. Their courses, they said, provide more depth than those in other states. A review of cosmetology curriculum’s nationally, however, shows that most states teach subjects beyond hair-styling. More than half explicitly mandate instruction in law or business topics. The Iowa school association also maintained that important differences in regulations complicated comparisons of schools across state lines. In Massachusetts, for example, a recent graduate must work under supervision for two years.

“We do not feel it is necessary to lower the standards of Iowa’s education just because other states have done so,” the association said. “It doesn’t make sense to us to produce graduates that come out of our programs with less skills, less confidence and who are less likely to succeed.” At a subcommittee hearing on the Senate bill, only one person testified in favor of fewer hours. Senator Schultz said that he had wanted the bill to move forward, but that since “only one side showed up,” he couldn’t justify it. Both bills died in committee. It’s not clear how much money the schools would lose if they no longer had students working on salon floors for so many hours. In Nebraska, schools argued at hearings that they would have to raise their tuition to make up for lost revenue if the state reduced the hours. La’ James supported, but did not testify in favor of, Iowa’s legislation, and the Empire Education Group, which owns the nation’s largest chain of cosmetology schools, has backed legislation in Ohio to drop the hour requirement to 1,000.

The increased scrutiny on cosmetology regulations at the state level follows a federal Department of Education effort, starting in 2009, to crack down on for-profit schools that charge high tuitions for credentials that do not lead to well-paying jobs. For each program, the department compiled so-called gainful employment information, which compared student debt with earnings after graduation and issued ratings. The figure for all programs nationally was 24 percent. Cosmetology programs fared particularly poorly: Nearly 40 percent of them, including 12 in Iowa, either failed or were in a warning “zone,” indicating that their students were not making enough to comfortably pay back their debts.

Cosmetology schools say the numbers do not accurately capture what their graduates earn in an industry with so many tips. And it is true that cosmetologists have the potential to make a good living. According to the Bureau of Labor Statistics, the median annual wage for a cosmetologist is $24,850. Those in the top 10 percent earn more than $50,000, or nearly $25 an hour. The problem is that most of these professionals flounder for years before getting to that point, if they reach it at all. After more than seven years on the job, Ms. Lozano finally got a raise. But that meant the loan payments she had been able to defer came due. The money she’ll use to finish paying them most likely won’t come from haircuts. Ms. Lozano plans to go back to school to become a registered nurse. If she’s able to find a position in that line of work, she could more than double her current salary. And it will give her and her daughter, who wants to be a doctor, another thing to bond over. “I told her she wasn’t allowed to go to school for hair,” Ms. Lozano said. “I don’t want her going through the same thing that I did — the debt, and everything after the fact. I won’t let her do it.”

 

A $21,000 Cosmetology School Debt, and a $9-an-Hour Job (Part one)

 

When she was in cosmetology school, Tracy Lozano had a love-hate relationship with weekday mornings. Those predawn moments were the only time she saw her infant daughter awake, and she savored them. When the time came to hand the baby to her own mother, she said in a recent interview, she would stifle her tears, letting them roll only when she had closed the door behind her.

She would put on her game face when she pulled into the parking lot of the Iowa School of Beauty, just outside Des Moines. From what Ms. Lozano could tell, a cosmetology license was a realistic way to ensure a better life, and she was willing to make sacrifices. While also working nights at a Pizza Hut, she borrowed $21,000 to cover tuition and salon supplies and put in eight-hour days at the school for the better part of a year.

The amount of time Ms. Lozano spent learning to give haircuts, manicures and facials was enormous, but the requirement was set by the state, and she didn’t much question it. She was determined to earn enough money to move out of her mother’s house. Only a few weeks after getting her cosmetology license in 2005, she was hired at a local Great Clips.  The job, though, paid just $9 an hour, which meant that her days double-shifting at Pizza Hut weren’t over. Even with tips, Ms. Lozano didn’t earn more than $25,000 in any of her first few years as a cosmetologist. For years, she relied on food stamps and health insurance from the state. She couldn’t cover living expenses and keep chipping away at her loan payments. Thirteen years after graduating, she still owes more than $8,000.

What Ms. Lozano didn’t know was that the state-regulated school system she had put her faith in relies on a business model in which the drive for revenue often trumps students’ educational needs. For-profit schools dominate the cosmetology training world and reap money from taxpayers, students and salon customers. They have beaten back attempts to create cheaper alternatives, even while miring their students in debt. In Iowa in particular, the companies charge steep prices — nearly $20,000 on average for a cosmetology certificate, equivalent to the cost of a two-year community-college degree twice over — and they have fought to keep the required number of school hours higher than anywhere else in the country.

Each state sets its own standards. Most require 1,500 hours, and some, like New York and Massachusetts, require only 1,000. Iowa requires 2,100 — that’s a full year’s worth of 40-hour workweeks, plus an extra 20. By comparison, you can become an emergency medical technician in the state after 132 hours at a community college. Put another way: An Iowa cosmetologist who has a heart attack can have her life saved by a medic with one-sixteenth her training.

There’s little evidence that spending more hours in school leads to higher wages. Nor is there proof that extra hours result in improved public safety. But one relationship is clear: The more hours that students are forced to be in school, the more debt they accrue. Among cosmetology programs across the nation, Iowa’s had the fourth-highest median student debt in 2014, according to federal data.

Walk into any hair salon in Iowa and you’re likely to find a stylist making $10 an hour who loves her job but is struggling to pay off her student loans. Over 10 months, in visits to a dozen salons and in conversations with 37 former Iowa cosmetology students — and an additional 25 in other states — we heard a variety of opinions about how much training the profession requires and the financial returns it offers. And we heard again and again how the dream of becoming a professional hairstylist, or someday owning a salon, can be stymied by debt.  The issue is national. More than 177,000 people enroll in for-profit beauty schools across the United States each year, which on average charge more than $17,000 for tuition, fees and supplies to earn a cosmetology certificate.  Across the Iowa border, in Fremont, Neb., Ashley Sandoval makes $10.50 an hour at another Great Clips location. In the five years since she graduated from cosmetology school, she said, interest has ballooned her debt from $22,000 to $29,000. “I’ll be paying it off for the rest of my life,” Ms. Sandoval said.

The Iowa Cosmetology School Association, which acts on behalf of several of the 13 companies that own schools in the state, would not make a representative available for an interview. But the association did provide written responses to questions through its lobbyist, Threase A. Harms. The group said that its primary concern was successfully preparing students, not making money, and that differences in state regulations made comparing hours difficult. The association also doesn’t see the crippling student debt as the schools’ fault, citing the fact that students are allowed to take out more in loans than is necessary to cover educational expenses. “We have students graduating with minimal debt because they made wise choices,” the association said.

Cosmetology schools have a unique business model in the for-profit school world. They have two main streams of revenue. The first comes from students, often in the form of taxpayer-funded grants and loans to pay for the tuition. Cosmetology schools took in nearly $1.2 billion in federal grants and loans during the 2015-16 school year.  The second stream is the salon work the students do while in school. They spend some time in classrooms learning about, for example, chemicals and how to sanitize the work space, but once they’ve hit a certain number of hours, they start working on real clients in salons run by the schools. In full-time programs, going to school becomes a full-time job, where students clock in and out for seven- or eight-hour shifts.

The total number of required hours varies, but all states require some amount of practice with paying customers. In Iowa, students spend 715 hours in the classroom and 1,385 hours on the floor.

Prices for these salon services — which include haircuts, manicures, facials and, at some schools, massages — are typically set below market rates to attract customers. The salons also sell shampoo, conditioner and other beauty products. One Iowa student said he and others had gotten perks (such as trips and special training) if they sold enough products. Another student, who sued a school in Pennsylvania, reported that her grades were partly based on whether she offered salon products to clients.  The schools don’t have to pay students for the services they provide; in fact, the students pay tuition for the hours they work in the salons.

All told, for-profit cosmetology schools nationwide brought in more than $200 million in revenue from their salons in the 2015-16 school year, according to federal statistics. Most schools are small, privately owned entities that do not have to disclose their profits.  “Without the revenue coming from those salons, most of these schools wouldn’t be profitable, or it would be marginal,” said Leon Greenberg, a lawyer in Las Vegas who has examined the financial documents of several schools he unsuccessfully sued under the Fair Labor Standards Act. “It’s pretty much ingrained in their business model.”  Some schools have pushed their business models to the legal limit — and beyond, according to government regulators.

La’ James International College owns six of the 27 cosmetology schools in Iowa, plus one in Nebraska and another in Illinois. Iowa’s attorney general sued the school in 2014, accusing it of defrauding students through deceptive marketing and enrollment practices. Under a settlement, the school admitted no wrongdoing but agreed to forgive almost $2.2 million in student debt. It had to pay a $500,000 fine, and the owners — Cynthia Becher and her son, Travis Becher — had to personally pay fines of $25,000 each. The federal government also placed La’ James under restrictive monitoring for alleged mishandling of students’ financial aid. (The Bechers declined to comment on the suit.)

Lisa Shaw, a former La’ James massage instructor, said Ms. Becher had met with staff members regularly and often told them, “This is a business first, and a school second.”

Ms. Shaw and Bez Lancial-McMullen, a former La’ James cosmetology instructor at the campus in Davenport, Iowa, recalled attending meetings in which company officials spoke of the need to maintain sizable profits. Students were regularly pulled out of Ms. Lancial-McMullen’s classes to work in the salon, she said. Other complaints submitted to the attorney general’s office about the school describe similar practices, although the Bechers have consistently denied the claims.  Both women eventually resigned because they objected to the way students were being treated. Ms. Shaw left in 2014, saying the company’s owners looked at students “as dollar signs.”  “I feel like the school is predatory,” Ms. Shaw said. “I could no longer be a part of taking people’s money and then treating them like that.”  Stephanie Wood Becher, who is the school’s director of marketing (and Travis Becher’s wife), denied that Cynthia Becher would ever tell employees to put the school’s business needs first.  “Education and betterment of the student is always and has always been the #1 priority for her and L.J.I.C.,” Ms. Wood Becher wrote in an email.

La’ James had to open its books during the attorney general’s lawsuit, revealing annual profits that ranged from $1.2 million to $3.4 million from 2009 through 2012. In Iowa, tuition, fees and supplies for its cosmetology program come to $21,500 per student.  Compared with other institutions, “I think we’re cheap,” Mr. Becher said, noting that the cost includes books and supply kits. “We’re private. We’re not public. We don’t get tax breaks.”  The Becher family also owns more than a dozen limited liability companies, which include a distribution center for its salon products. In 2017, the United States Department of Education reprimanded La’ James for failing to publicly disclose a rape in a dorm in Nebraska. Federal law requires colleges to publish annual security reports and logs about crimes on campus, which La’ James failed to do, “exposing students and staff to potential harm,” according to government reviewers.Joni Buresh, the school’s compliance officer, said in an email that the security reports were available to students, and that she believed that the law requiring crime logs didn’t apply to campuses like the one in Nebraska.    She acknowledged that a rape had been reported to the police but said that school officials “honestly are not confident that this rape incident ever occurred.” Ms. Buresh said they had now filed the paperwork requested by the federal reviewers.

END OF PART ONE.

Professional Salon Products- Ingredient Disclosure Victory!

On September 14th, California Governor Jerry Brown signed into law the Professional Salon Products Labeling Act (AB 2775). Previously, ingredient labels were not required on professional salon products, leaving workers and consumers in the dark about harmful ingredients. Thanks to AB 2775, companies that sell professional nail, hair, and beauty salon products in California are now required to list ingredients on product labels. As companies move to comply with this new labeling law, the impact will be felt across the country. About time everyone!

 

Employee Lawsuit brought against Sephora for unpaid wages

Sephora is at the centre of an Employee Lawsuit after workers accused the retailer of failing to adequately compensate them for time spent going through security and applying make-up before a shift.

The lawsuit was brought against it in the Superior Court of California, County of San Francisco, with a team of attorneys representing around 8,000 Sephora workers. The employees are asking the judge to grant class certification for the wage-and-hour lawsuit, according to a report by Top Class Actions.

However, despite Judge Karnow raising concerns that lack of solid evidence of the unpaid time spent in work could lead to liability issues, attorneys on the Sephora employee lawsuit countered that this lack of time logging was due to Sephora, which had a ‘duty to track’.

An attorney allegedly stated, “As far as liability goes, a lot of the claims involve time. You can’t allow an employer to avoid paying employees by virtue of the fact it didn’t track its time. That means an employee cannot prove his or her damages. If they had tracked time, we wouldn’t be having this conversation.”

Sephora workers were said to have provided evidence that they are expected to wear and maintain their make up as part of their duties, while the lawsuit also alleged the retailer failed to provide ample rest and meal breaks.

The beauty retailer is said to have started compensating workers an extra three minutes for security bag checks, a move that attorneys argue is an acknowledgement by Sephora that it had been failing to do this previously.

Frédéric Fekkai Buys Back His Brand

Frédéric Fekkai, in partnership with Cornell Capital LLC, has taken back the brand he started by acquiring Frédéric Fekkai Brands.

Fekkai Brands creates hair and body care products, including shampoos, conditioners, treatments, hair fragrances and styling products. Additionally, the company owns and operates a number of salons across the US.

Fekkai, who founded his namesake brand in 1996, sold it in 2008 to Procter & Gamble. P&G then sold the brand in 2015 to a joint venture formed between the CEOs of Designer Parfums and Luxe Brands.  The ownership group selling off the company includes Dilesh Mehta, Tony Bajaj, Joel Ronkin and Amy Sachs

Blue Mistral LLC, a holding company founded by Fekkai and Cornell Capital, will own and operate Fekkai Brands together with Bastide, a fast-growing Provence-based provider of luxury fragrances and hand and body care products that Fekkai has led since 2017. As CEO of Blue Mistral, Fekkai will further accelerate the growth of the Fekkai Brands and salons by placing a heightened emphasis on education, innovation and the customer’s overall experience while leveraging opportunities for collaboration with Bastide.

“I am thrilled to rejoin Fekkai Brands and eager to reconnect with the salons, teams and consumers,” said Fekkai. “This acquisition will provide me the opportunity to reinfuse my passion for innovation into the brand, while reigniting its growth and guiding Fekkai Brands through its next chapter in a modern and exciting way.”

“The opportunity to partner with Frédéric, a proven entrepreneur in the beauty sector, as he returns to the helm of his iconic brand is truly compelling,” said Henry Cornell, senior partner of Cornell Capital. “Leveraging Cornell Capital’s cross-border network and operational expertise, and Frédéric’s deep relationships and reputation within the industry, Fekkai Brands is well-positioned to succeed in the growing global cosmetics and personal care industry.”

Ronkin, exiting CEO of Fekkai Brands added, “Frédéric is an accomplished entrepreneur with a proven track record of building highly desirable brands. We are confident that his return to the Company will be instrumental in fueling its growth and driving innovation.”

Salon Product Ingredient Disclosure Bill Is Now Law In California

 

Salon workers, who are overwhelmingly women, are exposed to a broad array of very toxic chemicals in the nail, hair, and beauty products they work with every day. They usually don’t have access to information about the toxicity of these products because professional beauty product ingredients aren’t required by law to be labeled.

The California Professional Cosmetics Labeling Requirements Act (AB 2775) co-sponsored by BCPP requires an ingredients list on professional cosmetic product labels. This bill gives nail, hair and beauty salon workers vital information about the chemicals they are exposed to day in and day out.  On May 30, 2018 AB 2775 passed the CA State Assembly with unanimous bi-partisan support (76 to 0).  On August 24, 2018 the bill passed the CA State Senate again with overwhelming bi-partisan support.  California Governor Jerry Brown signed AB 2775 into law September 14, 2018.

Nail and hair salon workers, who are overwhelmingly women, are exposed to dangerous chemicals in hair dyes, straighteners and relaxers, make-up and nail products. In California, this means nearly a half million licensed nail and hair salon workers are exposed to chemicals like formaldehyde, toluene, phosphates, and other chemicals linked to cancer, reproductive harm, respiratory, and neurological harm every day.  Several studies have found elevated rates of breast cancer among hairdressers and cosmetologists. In fact, the International Agency for Research on Cancer lists “occupational exposures as a hairdresser or barber” as a probable carcinogen[1]. Studies show hair dressers experience an increased risk of miscarriage, giving birth to low birth weight babies, neurological conditions such as Alzheimer’s. Nail salon workers suffer negative impacts to maternal and fetal health as well as respiratory harm.  Currently, manufacturers must list ingredients on the labels of cosmetics sold at the retail level—this is good for the people who sell, buy, and use those products. However, the ingredients in professional cosmetics do not have to be listed on product labels. This lack of transparency makes it impossible for beauty professionals to make informed choices about the products they use and how to protect their health.

 

California Assembly Bill 2775 (CA AB 2775) gives salon workers the information they need to protect their health.  While federal regulation requires the labeling of ingredients in beauty and personal care products marketed to consumers and sold in retail settings, there is no equivalent disclosure requirement for products used in professional salon settings including nail, hair and beauty salons. This lack of transparency prevents salon professionals from getting the information they need to protect themselves and their clients from unsafe chemical exposures.  Introduced by Assemblymember Ash Kalra, AB 2775 requires manufacturers of professional cosmetic products sold in California to provide a full list of ingredients on products starting July 1, 2020, excluding fragrance and colorants.  BCPP co-sponsored California Assembly Bill 2775, introduced by Assemblymember Ash Kalra, along with Black Women for Wellness, the California Healthy Nail Salon Collaborative, and Women’s Voices for the Earth.  The bill has broad based support from nearly 3 dozen leading NGOs including American Cancer Society Action Network, American College of Obstetricians and Gynecologists, NRDC, Clean Water Action, and Consumer Federation of California. AB 2775 also has the support of various industry trade associations and a leading multinational cosmetics company including the Personal Care Products Council, the Professional Beauty Association, California Chamber of Commerce, and Unilever.

How Beauty Products Are Sold: Part One

Customers don’t know very much about how beauty retailers sell them products. The process by which a lipstick goes from factory to store to you is pretty opaque. Sure, we know conceptually that beauty has high margins and a big markup. But while newer brands like The Ordinary and Beauty Pie have started to offer a bit of transparency into pricing and how brands are ultimately made available to consumers, there is still a lot of mystery baked into the process.

The recent apparent shuttering of an indie beauty brand and its lawsuit against Sephora helps shed some light on how truly complex it is to sell beauty products — and the costs that get passed on to shoppers.

A few weeks ago, the beloved indie makeup brand Obsessive Compulsive Cosmetics (OCC) abruptly shuttered its website, its New York City store, and all its social media accounts. While the brand has not made any official statement and none of its third-party retailers like Nordstrom and Urban Outfitters have confirmed anything, it’s widely assumed that the brand has gone out of business. Founder David Klasfeld seems to have started a new Instagram account under the handle @dkwmakeup, and notes in the bio: “I founded and ran the world’s first 100% Vegan & Cruelty-Free Cosmetics line from 2004-2018.” (Racked has reached out again to OCC and will update if we hear back.)

If this is the case, what happened? The only person who knows for sure at this point is the founder of OCC, but a lawsuit with Sephora dating back to 2015, may provide some clues. It also sheds some light on things like who actually is responsible for building and filling the product testing fixtures you find in stores, what large markdowns mean for a brand, and how store exclusivity works.

There are two legal documents publicly accessible, one from 2015, first published by blogger Zadidoll, and one from 2016. These provide an incomplete record of the full proceedings, and it’s unclear if Sephora and OCC settled this case or what the final outcome was. But what is clear is that retailers hold a lot of the cards and OCC probably lost a lot of money. A representative for Sephora sent the following statement to Racked: “Per company policy, we do not comment on pending litigation.

The terms of a Sephora contract

According to the 2016 order, OCC and Sephora signed a contract in 2012 stating that the retailer would sell the brand’s products and that OCC would be 100 percent responsible for the costs of the fixtures, which is the system of shelving and pigeonholes where testers and products for sale are displayed in the store. They can vary in size from a small box on a shelf to an aisle-long behemoth. Per industry sources, this is a pretty common arrangement. (More on what those fixtures cost in a bit. Hint: a lot.)  OCC then alleged in the suit that it entered into a verbal agreement with Sephora to alter the original contract in two ways: first, that Sephora would become OCC’s exclusive brick-and-mortar retailer with the understanding that it would place enough orders to make up for the ones OCC would have to decline from other retailers. Second, Sephora was supposedly going to help defray the costs of the fixtures by contributing 50 percent, since it supposedly wanted to increase the number of stores selling OCC, which would then necessitate building more fixtures. OCC alleged in the suit that Sephora reneged on these oral agreements by not placing more orders and not helping to pay for fixtures. Sephora argued that it was a moot point because the original contract stipulated that the contract could only be modified in writing and therefore the suit should be thrown out.

However, the judge ruled that OCC could continue pursuing it, because he determined that OCC had acted in such a way (turning down orders from other retailers, for example) that made it seem clear that OCC relied on Sephora’s verbal statements. (He threw out a fraud allegation that OCC made about Sephora, however.) Sephora was given 20 days to serve an answer, but the conclusion or settlement does not appear to have been made public.

But that’s not the full story. An earlier 2015 order details exactly how much money OCC stood to lose in the Sephora deal. Sephora wrote a letter to OCC to terminate the deal in 2015, stating it would sell the products it had until a certain date, while also requesting OCC to fulfill two outstanding purchase orders that OCC hadn’t shipped yet. After the date in the termination letter, Sephora expected OCC to take back leftover product (this is called a return-to-vendor, or RTV, clause) and reimburse Sephora for the unsold product. The bottom line? Sephora said it expected to be reimbursed $832,700 for the unsold products. Otherwise, it allegedly said it would liquidate its remaining stock at fire-sale prices. OCC asked for a preliminary injunction, arguing that “if provisional relief is not granted it will suffer irreparable harm because an immediate mark down of the outstanding inventory would have financially devastating effects and moot any award of damages.” According to the lawsuit, OCC never reimbursed Sephora for remaining stock, and Sephora did end up marking down the remaining products and selling them off quickly, according to Revelist. Ultimately, OCC claimed damages of $521,647.20. This is where the paper trail ends.

PART TWO COMING NEXT WEEK