How Molton Brown’s business model has ‘turned upside down’ – Glossy
Travel retail’s struggles continue to reverberate in beauty. Shiseido, for instance, reported a like-for-like decline of more than 30% in year-over-year travel retail sales in the second quarter, announced on August 6. But, not all beauty brands are feeling the same pressure. Though luxury bath and body brand Molton Brown was one of the first beauty companies to sample its products in hotel bathrooms more than 20 years ago, and its hotel amenity and travel retail business historically has accounted for 50% of revenue, it has been able to withstand much of travel’s losses. This is because of consumers’ appetite for hand soap and self care products, said Mark Johnson, global president of Molton Brown.
“We’re looking at the hotel and travel retail industries, and anticipating that, at best, travel and hospitality will recover to what I would call a 2019 level at the back end of 2022 and probably into 2023,” said Johnson. “But we want to and are still going to expand and grow globally in this time.”
In the Covid-19 environment, Molton Brown has seen wins, which underscore its larger plans. It has experienced an 81% increase year-over-year in online sales, and its pillar categories are thriving: Its hand soap segment has grown from roughly 14% of global business in 2019 to about 20% in 2020, while body products have grown from approximately 39% last year to about 41% of revenue this year, said Johnson. And prices for the company’s hand soap and bath products are much higher than those found in essential doors. For instance, hand wash prices range from $30-$70. Only Molton Brown’s fragrance segment has declined, down about 0.7%, in 2020. Molton Brown is part of Kao Corporation, which saw net sales dip by 4.3% for the first half of the year.
With the newfound attention on its core categories and business, Molton Brown is expanding its e-commerce presence globally to France, Greece, Cyprus and India, among others. Ahead, Johnson discusses the ongoing impacts of the global pandemic on Molton Brown, and how the company is pushing ahead with digital.
What were the initial shocks of Covid-19 on Molton Brown?
“Pre-pandemic, our main touch points had been physical retail, so clearly, that’s turned upside down. We were on a journey that, by 2025, 25% of our global mix would be in digital. Right now, around 65% of our mix is digital versus physical retail. The good news is that Molton Brown is a relatively small organization globally; we are only around 700 people, including our retail staff. What this means is that we have remained fairly agile, quick and flexible. We very quickly reallocated a significant amount of investment and resources behind our digital channels, and not just our own e-commerce and digital channels, but those of our third-party partners, as well. We took a very collective look at all of our businesses, all of our channels and our key partners, and sort of said, ‘OK, how do we continue to build our partnerships with John Lewis, Neiman Marcus and Saks?’ ‘How do we work with them to support their businesses through this transition?’ And realistically, that’s by entirely shifting toward e-commerce and digital.”
For your own business, what does digital acceleration look like?
“We had been trying to build awareness of our brand outside of our main areas like the U.K. — obviously the home of the brand — the U.S. and the Middle East, which we felt were pretty well established and delivering quite significant growth [before Covid-19]. But we had looked to geographic expansion and driving that primarily through travel retail and hotels, which was the original sampling and brand awareness opportunity for us and how we had done it before in other markets. That’s changed significantly since Covid-19, and we’re now looking to do this all on e-commerce and online. We’re trying to build our e-commerce platforms with partners that instill a sense of trustworthiness and that have brand synergies with Molton Brown. BigCommerce is the platform we’re working with internationally, and Inviqa is the marketing agency. Greece and Cyprus are our next sites to go live, and we are working to launch France and India after that.”
Molton Brown has a luxury point of view; why do you think you’ve seen so much success with economic uncertainty still looming?
“In full transparency, one of the things I always get nervous about in this business is that we own 25% of the market share for luxury bath and body. It’s really hard to grow market share besides geographic expansion, but we are growing our core categories as bath and self care become a bigger point in beauty. We’re operating at a much higher level than previous years because of the crisis, and it’s had a halo effect on our other categories like fragrance.”
How does this play forward to future product innovation?
“We’ve always had a fragrance DNA, but not as many customers as we would like knew that. So we’ve started making our new launches — we launched 29 fragrances last September — sustainably-focused and refillable in select locations. We’ve also debuted a fragrance finder online, based on one’s personality and not just words on a page. And we’re trying to fast-track a sanitizer product. One of the things that we believe is key to our brand, and one of our most significant points of differentiation, is that we own our own factories in England. We are going to stay manufactured in England, so that will impact where this sanitizer can be sold, which will be in our own stores and in the U.K.”
What have your relationships with retailers been like during this time?
“We’ve been looking at some of the bigger department store accounts in the U.S., and if there is consolidation in the space, it could impact 22 stores, because there is crossover between Saks and Neiman Marcus in 22 locations, for example. Right now, we are thinking about that from a budgeting standpoint and what would happen if we lost that volume. Some of our more suburban footprints, like Bluemercury, have seen tremendous numbers. We think it is because their locations are not generally large shopping mall locations; they tend to be a little more like the Ulta model. People feel more comfortable shopping in those community centers in their hometowns.”
How do you feel about the future of your own standalone stores?
“Our newest boutique was in Hudson Yards, so we have been watching the physical retail space very carefully. We recently closed our Madison [Avenue] store, not because it wasn’t doing well, but because we had a 750-square-foot space, and our landlord wanted us to take on the space next to it, which was another 1,200 or 1,500 square feet. The reality of physical brick-and-mortar is that it’s really about productivity, which means small spaces. This is not the sexy stuff, but it has to be about how much revenue you are driving per square foot.”
What do you think the future of retail will look like?
“There’s such a disconnect with with landlords and retailers right now, and the U.S. is is far behind Europe. In Europe, our landlords are so much more in tune with the value their physical retail brings versus two or three years ago; they are much more willing to work with retailers in terms of changing the model. So, we don’t just pay our rent to landlords in Europe. Many of them [give] us percentage turnover [rent], and we pay a percentage of our revenue to the landlord that incentivizes them to be driving footfall to our locations, as well. There was an article not that long ago, where the a CEO was sort of quoted as saying, ‘If you go bankrupt, then you’re protected, but if you don’t go bankrupt, you owe us a check every month.’ That thought process is going to lead to a lot of real estate coming onto the market and sitting empty. It’s going to be a big reality check for the industry.”
