Special Delivery

As a student at Harvard Business School, Katia Beauchamp developed a passion for shopping online. The fashionista couldn’t resist chic finds like a Walter shift dress and Madewell skinny jeans on budding e-commerce curators Gilt and Shopbop. But the former commercial real estate agent, now 29, wasn’t willing to buy new makeup that way. Why? When purchasing something that she applies to her skin and costs up to $1,000 an ounce, “I have to try it first,” says Beauchamp.

So when it came time for the 2010 graduate to find a job, she teamed up with her best friend and business-school classmate Hayley Barna, 26, a former management consultant, to launch a company that allows e-shoppers to do just that. Beauchamp fired off e-mails to beauty-company CEOs asking for samples that shoppers could try at home before making a purchase online. By that spring, the pair had amassed more than 1,000 samples from a handful of brands, including Benefit, Kiehl’s and Nars. It was enough to send out their first beauty boxes to 200 takers. The idea rapidly grew into Birchbox, a more than $12 million-a-year business that has over 100,000 paying customers in the U.S.–more than twice the number from six months ago.

The subscription-based business works like this: cosmetics companies supply Birchbox with free samples of their latest products, which are selected with input from Birchbox editors, who bundle them into batches of four or five and ship them to your doorstep for $10 a month. Birchbox also takes a cut when subscribers purchase full-size versions of the products on its website.

The idea is catching on elsewhere. Since Birchbox debuted, more than 20 other beauty-box sellers have launched in the U.S., including Beauty Army, TheLookBag and Sample Society. Dozens of similar start-ups have surfaced in other parts of the world, including the United Arab Emirates (GlamBox), Turkey (Vanilya Club), India (Ritzbox) and Hong Kong (Glamabox). Of course, the $380 billion beauty industry has long used free samples and pretty packaging to seduce shoppers. But with beauty boxes, customers pay for somebody else to sift through countless eye creams, lip balms and blushes. The boxes give cosmetics consumers the feeling of having a “friend who’s just a little bit more in the know,” says Mintel beauty analyst Vivienne Rudd.

Beyond appealing to cosmetics junkies, the boxes are a low-cost way for smaller brands to get consumers overwhelmed by choice to try their stuff. “These services are cherry-picking the best brands for you,” says Rudd. “It takes the fear factor out of things.” As the beauty business has grown in recent years–global beauty sales rose 7% in 2010, according to Euromonitor–thousands of niche brands have flooded the market, leaving consumers with more of the personalized boutique products they love but also more confusion. And as more people buy online instead of at department stores–Web sales of beauty products in the U.S. rose 25% from 2005 to 2010, according to Kline & Co.–beauty boxes, which rely on social media and online interactions to build awareness, are well poised to profit.

For many cosmetics makers, clever e-marketing is the main draw. In exchange for the free samples, beauty boxes provide makeup companies with sophisticated intel on their customers. The companies cull detailed demographic and personal information when subscribers sign up, including eye color and skin type, which the companies use to tailor their finds to specific subscribers. “We’re reaching a target group of beauty fanatics,” says Marion Bock, CEO of Pierre Fabre in Germany, which sends samples of its Ren Furterer hair-care products and Avne and A-Derma lotions to Glossybox, a beauty-box firm that launched in Germany last year.

The boxes also help drive online cosmetics sales. Some beauty-box sites link buyers to cosmetics-company sites to make purchases. Others, like Birchbox, let members place orders directly on their site. “For us, it’s a retail door,” says Christina Zilber of Jouer Cosmetics in Los Angeles, which sold 2,000 tubes of a $14 lip balm in a single week after a trial-size version went out to 60,000 Birchbox subscribers last fall. The click-through rate (a measure of how often customers click on a link to learn more or make a purchase) for Munich-based Maria Galland products–which have been in Glossyboxes in Germany, France, Switzerland and Austria–has been as high as 15%, compared with a typical 1% response rate for direct mail, according to Christine Berliner, international marketing director for Maria Galland.

The boxes also create buzz. Many customers post photos or videos of their latest box on YouTube, Pinterest, Facebook or blogs, along with unvarnished assessments of the products. “They talk about it on the Internet, and you reach more people because of that,” says Quentin Vacher, CEO of JolieBox, which operates in France and Britain.

Since its launch in March, Glossybox has expanded to 15 countries and amassed 150,000 paying customers, a number it expects to more than double this year. Theresia Gouw Ranzetta of Accel Partners, which helped Birchbox raise $11.9 million in funding, estimates that its subscriber base could grow tenfold to 1 million by the end of 2013. The combination of low-to-no-cost inventory and high margins in beauty sales makes for “a unique value proposition” within e-retail, she says.

The question is whether subscribers will stick around once the novelty wears off. Birchbox investor Phineas Barnes of First Round Capital predicts that as more cosmetics consumers move online, the beauty-box model could capture 5% of the global beauty industry in five years. And the model adapts to feedback, which breeds customer loyalty, says Bock of Pierre Fabre. “Affordable luxury is never a fad,” adds Ranzetta. In the makeup business, neither is frilly packaging.