A short seller alleged Tuesday that the beauty and wellness company rare technology has been misleading investors and is not the online-only retailer it claims to be.
The firm, Ningi Research, published a 50-page report detailing a series of allegations against the new public retailer, including that it runs a fleet of stores in Israel and engages in deceptive billing practices. Ningi has a short position in Oddity but did not disclose the size of that position.
“ODDITY fundamentally rejects the short-seller report. The allegations contained in the NINGI Research report are based on demonstrable factual inaccuracies, incorrect assumptions, and unfounded and malicious speculation,” a company spokesperson wrote in an email to CNBC.
Oddity shares fell about 9% on Tuesday.
Oddity Tech, the parent company of makeup brand Il Makiage and skincare brand Spoiled Child, sold investors on the premise that it is disrupting the traditional beauty industry by changing the way people buy makeup online. It bills itself as a purely digital retailer that sells directly to consumers and has said it has seen outsized profits and growth that similar companies have struggled to achieve.
Ningi Research alleged that Oddity is not a purely digital company and that its Il Makiage brand has more than 40 stores in Israel, where the company is based. Ningi further claims that the majority of Oddity's profits come from the region, not the US.
Ningi Research also said it visited Il Makiage stores in Israel and purchased two of the company's best-selling products in different locations. The firm said the stores are not part of a franchise but are owned by the company.
Oddity said in a statement that the Israeli brick-and-mortar business, which totals 43 retail stores and six beauty schools, represents an “immaterial” part of the business, accounting for less than 5% of the company's net revenue, according to the spokesman.
“All of ODDITY's revenue outside of Israel comes exclusively from online sales,” the spokesperson said.
The short seller also alleged that the “secret” to Oddity's digital growth is in subscriptions, which Ningi said can be difficult for consumers to cancel or cancel.
“The sell-side touts ODDITY's 'impressively high' repeat purchase rates of 100 percent, but we don't believe that. Our research indicates that customers unknowingly enter into non-cancellable plans, allowing ODDITY recognize repeat purchases in subsequent quarters even if customers do not want the product,” the report says.
The report also details a series of Better Business Bureau and social media complaints from customers who say they have been unfairly charged.
Oddity, through the spokesperson, said in its statement that the company “strongly supports” both the use of technology and the customer experience.
“ODDITY will always continue to address incidents of dissatisfaction and keep its customers satisfied and loyal,” the spokesperson said in the statement.
In October, an analyst asked the company about customer complaints and whether the problem was occurring “at scale.” In response, CEO Oran Holtzman said it's “important to understand the magnitude of the claim and we're talking about a fraction of a percent.”
“Any online business that operates even close to our sales will experience this, as there will always be a certain percentage that will be dissatisfied,” Holtzman says. She said that for a “small portion” of her customers, it can be easy to get confused about pre-authorizations made on their cards related to Oddity's “Try Before You Buy” option, which allows a customer to try out a makeup item.
“Now, I don't think it makes sense to cancel this huge customer benefit because a very small fraction of users who didn't fully read how it works and were confused,” Holtzman said. “We will continue to work hard to educate those users and we have invested heavily in technology in this regard.”
Oddity previously told CNBC that more than half of its business comes from repeat customers.
