A short seller on Tuesday accused beauty and wellness company Oddity Tech of misleading investors, claiming it is not the online-only retailer it purports to be. The firm, Ningi Research, released a comprehensive 50-page report detailing various allegations against the newly public company, including operating a network of stores in Israel and engaging in deceptive billing practices. Ningi has a short position in Oddity but did not disclose the size of this position.

"ODDITY fundamentally rejects the short seller report. The allegations contained in the report by NINGI Research are based on demonstrable factual inaccuracies, incorrect assumptions, and unfounded and malicious speculation," a company spokesperson wrote in an email to CNBC. Despite this rebuttal, shares of Oddity fell approximately 7% on Tuesday.

Oddity Tech, which owns the makeup brand Il Makiage and skincare brand Spoiled Child, has marketed itself as a disruptor in the legacy beauty industry by innovating the way consumers purchase makeup online. The company claims to be a purely digital retailer selling directly to consumers, boasting significant profits and growth that similar businesses have struggled to achieve.

Ningi Research, however, alleged that Oddity is not exclusively digital. The firm claimed that Oddity’s Il Makiage brand operates more than 40 stores in Israel, where the company is based, and that the majority of Oddity’s profits are generated from this region, not the U.S. Ningi Research further supported its claims by stating that it had visited the Il Makiage stores in Israel and purchased two of the company's best-selling products from different locations, noting that these stores are not franchised but owned by the company.

In response, Oddity stated that its Israeli brick-and-mortar operations, comprising 43 retail stores and six beauty schools, are an "immaterial" part of its business, contributing to less than 5% of the company's net revenue. "All of ODDITY’s revenue outside of Israel is exclusively from online sales," the spokesperson emphasized.

Ningi Research also suggested that the "secret" to Oddity’s digital growth lies in its subscription model, which the firm claims can be difficult for consumers to cancel. "The sell-side touts ODDITY’s ‘impressively high’ repeat purchase rates of 100 percent, but we don’t buy that. Our research indicates that customers unknowingly enter into non-cancelable plans, allowing ODDITY to recognize repeat purchases in the following quarters even though the customers don’t want the product," the report stated. Additionally, the report included numerous complaints from the Better Business Bureau and social media from customers alleging wrongful charges.

Oddity, through its spokesperson, asserted that the company "firmly stands behind" its use of technology and its commitment to customer experience. "ODDITY will always continue to address incidents of dissatisfaction and keep its customers satisfied and loyal," the spokesperson added.

In a previous statement to CNBC, CEO Oran Holtzman addressed customer complaints, stating that the issues mentioned represent a very small fraction of their user base. "Any online company that operates even close to our sales will experience this; there will always be a certain percentage who are unhappy," Holtzman said. He elaborated that for a "small portion" of its customers, confusion might arise from pre-authorizations related to Oddity’s "try before you buy" option, which allows customers to try out makeup items before committing to purchase.

Holtzman emphasized the company's ongoing efforts to educate users and the significant investments made in technology to mitigate these issues. "Now, I don’t think that it makes sense to cancel this massive customer benefit because a super small fraction of users who didn’t fully read up on how it works were confused," he said. "We’ll continue to work hard to educate those users."

Oddity previously indicated to CNBC that more than half of its business comes from repeat customers, highlighting the company's focus on maintaining customer satisfaction and loyalty despite the recent allegations.

Ningi Research's allegations come at a challenging time for Oddity, as it navigates its transition to a public company amidst heightened scrutiny. The company's digital-first approach and heavy reliance on technology have been central to its value proposition, appealing to a tech-savvy, younger demographic. However, the claims of deceptive billing practices and the existence of physical stores in Israel could undermine investor confidence if not adequately addressed.

The broader implications of these allegations extend beyond Oddity, reflecting the ongoing challenges that digital-first companies face in maintaining transparency and trust with both consumers and investors. The rise of subscription models in various industries has often been accompanied by criticisms of customer retention strategies that are perceived as manipulative or difficult to navigate. As such, Oddity's situation underscores the importance of clear communication and ethical business practices in sustaining long-term growth and reputation.

Furthermore, the dynamics of the beauty and wellness industry are evolving rapidly, with increasing consumer demand for personalized and convenient shopping experiences. Companies like Oddity, which leverage data and artificial intelligence to tailor their offerings, must balance innovation with customer trust. This balance is critical in an era where consumers are more informed and discerning about the brands they support.

In conclusion, while Oddity has firmly rejected the allegations made by Ningi Research, the company faces the challenge of reassuring its stakeholders about its business practices and transparency. The outcome of this situation will likely influence not only Oddity's market performance but also broader industry perceptions of digital-first, subscription-based business models.