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01/06/2016

Bigger is Better for Lush

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From its artisan-looking shops and grocery-styled product displays to its ethical sourcing and activist ethos, Lush Fresh Handmade Cosmetics has always marched to the beat of a different drummer.



Now in its 20th year, the company is still doing its own thing — comfortable in its own skin, steadfast in its positioning. So it’s not all that surprising that at a time when many retailers are thinking smaller, Lush is doing just the opposite. The company is about to undertake a major store relocation program, moving many of the stores in its North American portfolio to bigger spaces.



“Initially, we think we will relocate 110 out of our existing 230 stores (in North America) to larger format shops, including some big flagships in prominent locations,” said Mark Wolverton, president and CEO, Lush North America.



With an existing average footprint of some 700-sq.-ft., Lush is looking to relocate to stores in the 1,000-sq.-ft. to 2,000-sq.-ft. range (some will be even bigger). The larger spaces will allow the retailer to display the full breadth of its expanded product offering and to maintain its hands-on, consultive-selling environment.



Lush, which makes everything it sells, has seven manufacturing facilities, including two in North America. In June, it opened its largest location yet — a 7,000-sq.-ft. flagship on Oxford Street in London — for which it developed 240 new products. Lush wants to roll out some of those new offerings beyond Oxford Street to its store fleet. It anticipates introducing about 100 of the new SKUs to North America next summer

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“We need space to put these products on our shelves,” said Wolverton. “We have locations that we can’t take full advantage of because they are just too small.”



Lush is not only relocating existing stores — it’s opening new sites as well. Along with 20 relocations in 2016, we will open 17 new stores.



At press time, Lush had 231 stores in North America, with 53 shops in Canada and 178 U.S. locations.



“We could easily do 500 stores in the United States,” Wolverton added. “Our expansion potential is high.”



North American landlords, Wolverton noted, view the retailer as a prime tenant. Part of the interest has to do with the brand’s appeal. With an average sale of $35, Lush is popular with a wide range of ages and income groups.



“We do well in high-end to low-end centers, and also in streetfront locations,” Wolverton said. (The majority of its U.S. stores are in malls.)



FINANCIALS



The company’s financial performance is another plus. Lush has reported six years of double-digit sales growth, with a 36% rise in its most recent fiscal year, which ended June 30, 2015. (Note: All financial metrics are for Lush North America except where noted.)



Average store sales rose from $1 million in fiscal 2014 to an expected $1.7 million for fiscal 2016 (ends June 30. 2016).



Digital sale have risen as well, from $18 million in fiscal 2015 to an expected $44 million for its current fiscal year.



Globally, the brand is on track to hit the $1 billion revenue mark this year, with sales in North America up from $300 million in fiscal 2015 to an expected $402 million.



“Our store traffic is way up,” Wolverton said. The company is anticipating a 44% increase in holiday sales growth over last year.



Lush’s financial success and coveted tenant status is remarkable for a company that for a long time was written off as a hippie brand, with smelly stores that displayed product more like a grocery store or a deli than a beauty boutique.



But the beauty market and consumers have evolved considerably since 1995, when the brand first set up shop (in Poole, England). Today, Lush, with its stringent no-animal-testing, 100% fresh natural ingredients positioning and ethical sourcing policies, is one of the companies at the vanguard of a movement that has increasingly widespread — and mainstream — appeal.



“Lush has not changed,” Wolverton explained. “But the mark has moved much closer to where we are. Society is demanding a higher standard.”



A similar thought was echoed by Lush North American COO Andy McNevin when asked to explain the company’s success.



“It’s a combination of things,” he said, “but most important is that we are in the same market position we always have been in with regard to our ethos and what we stand for, such as no animal testing, human rights and environmental protection. Those same things have become more important to people, and they are migrating more to our space.”



Lush also has another important competitive advantage: It is a vertical company from start to finish. Everything from product development and store design (including the construction of its wooden displays) to marketing and manufacturing is done in house.



One hundred percent vegetarian (and 81% vegan), all Lush products are handmade from fresh ingredients — fruits, vegetables and essential oils. The notion of freshness is intrinsic to Lush’s lineup of products for bath, shower, hair and body, and fragrances. No product in any of its stores is more than six months old. Stickers are affixed to each item showing the date it was made and the “best by” date.



ETHICS



Product innovation is not the only thing that sets Lush apart. The company’s commitment to its ethics is unusually strong, even when compared with other socially conscious retailers.



“At the heart of our brand is a commitment to look after people, animals and the planet,” Wolverton said.



Lush products are created to have as minimal an impact on the environment. Many of its items are sold “naked,” or with no packaging, reducing the waste sent to landfills. When packaging is used, it is recycled and recyclable. And because products are sold fresh, there is a very minimal use of preservatives.



Lush sources its raw materials globally, and suppliers must sign a pledge confirming no animal testing has been done. The company supports Fair Trade and Community Trade initiatives.



On the social front, Lush is not afraid to make waves or to use its stores as a platform to raise awareness about the issues it cares about. The retailer typically partners with non-profit groups to support its environmental and human rights activism. In addition to in-store and online petitions, Lush creates limited-edition products that tie into the campaigns and donates 100% of the sales to grassroots groups that support the cause.



In one of its most recent efforts, the company partnered with the non-profit All Out organization to raise awareness and help support human rights efforts in the 70-plus countries where homosexuality is a crime. A special soap bar, called “Love Soap” and selling for under $6, was created, with the words “#GayIsOK” carved into it.



“Our take was $450,000, which went to small grassroots organizations working for equality and LGBT rights,” said Brandi Halls, director of brand communications, North America.



Halls summed up the company’s activist ethos in three words: “We are campaigners.”