Beauty & Balance

Jessica Alba’s The Honest Co. Gets $200M Investment From L Catterton

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 development, we're looking at formulating in our own facilities and doing small-batching to create the performance 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 …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, 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 overindexes 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 ."
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 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 ?” 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, 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-you-type 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-to-day 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” spin-off 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.” 
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