Hon­est In­vest­ment

Jes­sica Alba’s com­pany has cut sku’s, repack­aged, added prod­ucts and cut prices for its beauty line.

WWD Digital Daily - - Front Page - BY AL­LI­SON COLLINS WITH CON­TRI­BU­TIONS FROM ELLEN THOMAS

Jes­sica Alba’s Hon­est Co. has re­ceived $200 mil­lion from L Cat­ter­ton to help it grow its beauty line.

Beauty 2.0 is com­ing soon from Jes­sica Alba's Hon­est Co., which just inked a deal for a $200 mil­lion in­vest­ment from L Cat­ter­ton.

That mi­nor­ity in­vest­ment gives the brand the cap­i­tal to ac­cel­er­ate its global growth plans, which in­clude ex­pand­ing Hon­est Beauty into Europe for the first time with a Dou­glas launch in spring

2019. That line is also be­ing com­pletely re­vamped, with new pack­ag­ing, prod­ucts and prices. The cap­i­tal will also fund con­tin­ued in­no­va­tion — a core strate­gic pri­or­ity for the com­pany — ac­cord­ing to Nick Vla­hos, who took over as chief ex­ec­u­tive of­fi­cer in March 2017.

Since Vla­hos joined the com­pany, Hon­est has added a beauty-spe­cific in-house lab — fin­ished in March — with the aim of “get­ting ag­gres­sive” when it comes to in­no­va­tion, Vla­hos said. “When it comes to in­no­va­tion, prod­uct for­mu­la­tion [and] de­vel­op­ment, we're look­ing at for­mu­lat­ing in our own fa­cil­i­ties and do­ing small-batch­ing to create the per­for­mance [and] the safety we're look­ing for.” To that end, over the past year Hon­est has hired an R&D team to build out its in­no­va­tion ca­pa­bil­i­ties, though the com­pany will con­tinue to work with ex­ter­nal part­ners, Vla­hos said.

The com­pany's in­no­va­tion ca­pa­bil­i­ties are fo­cused around its two key cat­e­gories — beauty and baby — Vla­hos said, and are key to the re­launch of Hon­est Beauty, which de­buts in July.

The new Hon­est Beauty, com­plete with de­creased stock­keep­ing unit count, prod­uct in­no­va­tion and mod­ern­ized matte white pack­ag­ing ac­cented with pops of blush pink, rolls out July 15. The prod­ucts — 45 re­launched sku's and a hand­ful of new prod­ucts — will hit Tar­get and Ama­zon, where Hon­est Beauty is launch­ing for­mally with a full port­fo­lio and a new, up­dated brand page. New prod­ucts in­clude an eye shadow pal­ette, matte primer and four new lip crayon shades.

“We've re­fined and stream­lined the busi­ness,” Alba said. “We wanted to make sure we have those great­est hits and things she re­ally loves and not try to throw too many things at her.”

“It's re­ally a more di­gestible of­fer­ing; it gives us room for more fu­ture in­no­va­tion,” Vla­hos said. Prod­uct names were sim­pli­fied and made “more to the point,” he noted, and prices will be low­ered. Lip pen­cils, for ex­am­ple, will go from about $18 to about $13, and fa­cial oil will go from $55 to about $35. The goal, Vla­hos said,

“is to create more of a masstige of­fer­ing.”

The first step in the re­launch was de­clut­ter­ing the sku count. “It's very spe­cific around what her needs are and how she's shop­ping and think­ing,” Alba said of the prod­uct de­vel­op­ment strat­egy go­ing for­ward. “In launch­ing Hon­est Beauty, con­sumers would say to us, ‘Can you make de­odor­ant? Can you make tooth­paste?' We just wanted to do it all.

“Hav­ing too many things isn't al­ways a good thing, and be­ing more spe­cific and cu­rated in your of­fer­ings is ac­tu­ally bet­ter, and that's what we're do­ing un­der Nick's guid­ance,” Alba said.

Alba has been tak­ing full ad­van­tage of the busi­ness' new in-house of­fer­ings to work on the beauty line.

“We can de­velop ev­ery­thing in-house,” she said. “We have two labs in our of­fice, so I can meet with my chemist, do color-match­ing with pig­ments. If there's a tex­ture of a serum that we're mak­ing, I can say, ‘Make it thicker' or ‘Can it smell like this?'”

Go­ing for­ward, the prod­uct as­sort­ment will fo­cus on stream­lined essentials in both skin care and color — the cat­e­gories are about equal in terms of sales, Alba said. Of the 45 re­launch­ing sku's, about 10 are skin care and 35 are color cos­met­ics.

“It just needs to be sim­pli­fied,” Alba said. “She is ob­sessed with our mas­cara, it re­ally works and she gets that im­me­di­ate pay­off, and she doesn't want her eye op­tions to be too com­pli­cated. She wants that one key thing, so it's not hav­ing 50 dif­fer­ent mas­caras — it's hav­ing one great one.”

A typ­i­cal Hon­est Beauty look, said Alba, is “not a full glam-azon ev­ery day.”

“She just wants stuff [where]…I'm not ad­vo­cat­ing for peo­ple to do their makeup in the car, but she can do it in the car but still cares about how she looks, or has a kid on her hip and do­ing makeup with one hand,” Alba said. “We're think­ing about her life­style and be­ing on the go,

“What you put on your skin does go into your sys­tem and you should be able to still do ev­ery­thing you want to do and not worry about how it will af­fect your health down the line.”

— Jes­sica Alba, Hon­est Co.

and in­vest­ing in that in­no­va­tion as well, be­yond the for­mu­las and how we can make it eas­ier for her.”

Alba's Hon­est Beauty cus­tomer is not un­like how she views her­self, mi­nus the celebrity — a ca­reer-minded Mil­len­nial mom who is in­gre­di­ent-con­scious and jug­gling a lot of re­spon­si­bil­i­ties.

The com­pany's beauty busi­ness over-in­dexes in the 25- to 35-year-old new mom de­mo­graphic, but can skew younger or older. “It's more of a mind-set and mak­ing thought­ful, in­ten­tional choices in life, whether it's food or beauty,” Alba said. “It's an ap­proach to well­ness that's not ex­treme. Like, I'll have my glass of wine, but I'll try to work out three times a week. I do work a lot and I care about my ca­reer, but I care about my home life and I'm al­lowed to do both — she wears many hats.”

Hon­est Beauty is sold at Tar­get and on Ama­zon, and the hair prod­ucts are sold at Ulta Beauty. The pos­si­bil­ity for the rest of the line to roll into Ulta cer­tainly ex­ists. It cer­tainly doesn't hurt that Alba is on a tex­ting ba­sis with Ulta ceo Mary Dil­lon.

“There's a big op­por­tu­nity to work with Ulta,” Alba said. “I'm ob­sessed with Mary Dil­lon — she's so smart and an in­spir­ing busi­ness leader to me. I'll text her and I talk to her when I have [ busi­ness ques­tions].”

As part of the Hon­est Beauty re­launch, the busi­ness is work­ing to clearly com­mu­ni­cate a clean-beauty-that-works mes­sage, ac­cord­ing to Vla­hos.

“The most im­por­tant thing in all of the re­search we've done is that [con­sumers] want to see pay off — per­for­mance mat­ters, so when we de­velop prod­ucts, it needs to have that ef­fec­tive­ness,” Alba said.

But for Alba, Hon­est Beauty's big­gest chal­lenge is com­mu­ni­cat­ing that clean po­si­tion­ing with­out fear-mon­ger­ing.

“Skin care is part of your daily life,” Alba said. “What you put on your skin does go into your sys­tem and you should be able to still do ev­ery­thing you want to do and not worry about how it will af­fect your health down the line.

“How do you say, ‘ This is go­ing to work and it doesn't have all th­ese things in it,' but not [use scare tac­tics]?” Alba said. “We feel like, let's give you the in­for­ma­tion and a great al­ter­na­tive and if you don't feel like you're trad­ing down then why wouldn't you give it a shot?”

On Alba's side is the grow­ing well­ness move­ment. “It stands in line with con­sumer val­ues to­day — in ev­ery cat­e­gory, if there's a health and well­ness an­gle, it's grow­ing,” she said. “Mil­len­ni­als… are prob­a­bly look­ing at their grand­par­ents and par­ents and say­ing, ‘Why are all th­ese women dy­ing of heart dis­ease and why is di­a­betes on the rise? Why are women hav­ing a hard time get­ting preg­nant? What's go­ing on?'”

It's sim­i­lar to the re­al­iza­tion Alba had that changed her own daily habits and pro­pelled her to start Hon­est. “I don't want to be like that,” she said. “I want to live a healthy life and a good life, and that's cer­tainly why I started the com­pany. It seemed like ev­ery­one in my family had can­cer — my mom, my grand­mother, my cousin's great- grand­mother, and heart dis­ease on my dad's side. I looked at data and the rise of the in­dus­tri­al­iza­tion of chem­i­cals that are in ev­ery­day prod­ucts and the rise of dis­eases caused by the en­vi­ron­ment. There's a par­al­lel path, and I was like, ‘We can live our best lives and not have th­ese things that could po­ten­tially harm us.'”

Those con­cerns trickle di­rectly into Hon­est, which Alba founded back in 2012 as a di­rect-to-con­sumer propo­si­tion. Now though, the goal is es­sen­tially to get the prod­ucts in front of the peo­ple who want them, Vla­hos said, through di­rect, whole­sale or on­line means.

Ac­cel­er­at­ing dis­tri­bu­tion will be a big part of Hon­est's L Cat­ter­ton era, Vla­hos noted, though it's some­thing Hon­est has al­ready started.

“We've dou­bled the dis­tri­bu­tion in the U.S. over the last year, but when you look at the ac­tual num­ber of doors, it's 17,000 doors,” Vla­hos said. “But the op­por­tu­nity is at least 30,000-35,000 doors in the mar­ket. There's still sig­nif­i­cant white space avail­able, just in the U.S.”

“You're go­ing to con­tinue to see us drive a broader foot­print in the back half of the year with other re­tail­ers,” Vla­hos added.

Things have shifted at Hon­est since Vla­hos, a CPG vet­eran re­spon­si­ble for the global ex­pan­sion of brands like Burt's Bees, took the helm in March 2017. Be­fore then, Hon­est had been seen ex­plor­ing the two tracks of ei­ther a pos­si­ble sale or an ini­tial pub­lic of­fer­ing, and had been said to be in ex­clu­sive deal talks with Unilever be­fore the busi­ness ac­quired Hon­est com­peti­tor Sev­enth Gen­er­a­tion for $700 mil­lion. Hon­est's $1.7 bil­lion val­u­a­tion from its ven­ture cap­i­tal raises of years past didn't make those pro­cesses eas­ier, sources said.

Around the same time as Hon­est was said to be ex­plor­ing fi­nan­cial op­tions, the busi­ness faced al­le­ga­tions that the in­gre­di­ents in its sun­screen and house­hold clean­ing prod­ucts weren't liv­ing up to their claims. In 2017, Hon­est set­tled the suit over clean­ing in­gre­di­ents for $1.5 mil­lion, and a suit re­lated to “nat­u­ral” la­bel­ing for $7 mil­lion.

When Vla­hos stepped in, other man­age­ment, in­clud­ing co­founder and for­mer ceo Brian Lee, took a step back.

Vla­hos has been the driv­ing force of Hon­est's fo­cuses on in­no­va­tion, baby and beauty. Both seg­ments are grow­ing dou­ble dig­its, he said — beauty, specif­i­cally, was up 34 per­cent for 2017, he noted. Hon­est will de­but 80 new or im­proved prod­ucts in those cat­e­gories, in­clud­ing the new beauty prod­ucts, be­fore the end of the year, he said.

For L Cat­ter­ton, Hon­est marks the firm's first tra­di­tional CPG in­vest­ment.

The pri­vate eq­uity firm has long in­vested in the con­sumer seg­ment, and in beauty, cur­rent hold­ings in­clude stakes in Tula, Kopari, Il Maki­age and Cover FX.

“The Hon­est Co. has tremen­dous brand eq­uity, in­no­va­tive and qual­ity prod­ucts and a loyal cus­tomer fol­low­ing,” said Scott Dahnke, global co-ceo of Cat­ter­ton. “The Hon­est Co. has evolved into a life­style brand and has many chan­nels to grow in nat­u­ral baby, per­sonal care, beauty and ad­ja­cent cat­e­gories in the fu­ture.”

Vla­hos, too, sees the op­por­tu­nity for po­ten­tial cat­e­gory ex­pan­sion.

“Even­tu­ally, [the] op­por­tu­nity that will make Hon­est unique as a mega brand and as a life­style brand is the po­ten­tial around talk­ing about what you put in your body, as well as what's around you,” he said. “Those of­fer us, in the fu­ture, ad­di­tional op­por­tu­ni­ties for ad­ja­cency ex­pan­sion.”

Di­rectly asked if an Hon­est IPO is off the ta­ble, Vla­hos said:

“We're a six-year-old com­pany and we com­pete with com­pa­nies like Proc­ter & Gam­ble that is 181 years old. We're in our in­fancy from a de­vel­op­ment stand­point, we're get­ting into the toddler years now, and we con­tinue to have op­por­tu­nity, based on where con­sumers are grav­i­tat­ing in well­ness and bet­ter-for-youtype prod­ucts, to re­ally build an iconic global brand. There's no dis­cus­sions around, ‘Hey, we need to go pub­lic, we need to go do any­thing other than what we're do­ing,' cur­rently. We're well funded as an or­ga­ni­za­tion, we have a very clear strat­egy that we es­tab­lished a year ago when I joined this com­pany.…We've just scratched the sur­face in North Amer­ica, we're just em­bark­ing on a new fron­tier in Europe and then the world is our oys­ter as we look to the fu­ture.”

Goldman Sachs ad­vised Hon­est on the L Cat­ter­ton in­vest­ment.

For Alba, this next phase for Hon­est — in­clud­ing Vla­hos' takeover of the day-to­day op­er­a­tions — leaves more time for act­ing. “Nick brought in some in­cred­i­ble c-suite ex­ec­u­tives,” she said.“My love is act­ing and per­form­ing and telling sto­ries, and I felt I could go back to it,” she said.

Her first project will be the tele­vi­sion se­ries “L. A.'s Finest” — a “Bad Boys” spinoff costar­ring Gabrielle Union. Film­ing the pilot was es­pe­cially poignant for Alba, as the show is cen­tered on two fe­male leads who are women of color.

“It's taken so long and there is still a huge op­por­tu­nity for women of color not re­ally be­ing ad­dressed, but slowly it's hap­pen­ing,” Alba said. “There is a con­scious­ness around the types of projects get­ting green-lit and that peo­ple are car­ing about. Women have been con­sum­ing me­dia for­ever, you just haven't made the right stuff for them, you've ig­nored them for so long.”

“There’s a big op­por­tu­nity to work with Ulta. I’m ob­sessed with Mary Dil­lon — she’s so smart and an in­spir­ing busi­ness leader to me.”

— JES­SICA ALBA, HON­EST CO.

Jes­sica Alba and Nick Vla­hos

Prod­ucts from Hon­est Beauty.

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