Feelunique, Adore Beauty, & Beauty as an Online Category | In Practise

Feelunique, Adore Beauty, & Beauty as an Online Category

In Practise Weekly Analysis

Feelunique

Why is this company interesting?

Feelunique is one of Europe's largest pure-play beauty retailers and was purchased for £132m by Sephora, owned by LVMH, in 2021. Feelunique forecasted ~£100m revenue in 2021 with a gross margin of 27-28% and negative £3m EBITDA in 2020. The company sells thousands of products from over 300 premium beauty suppliers, operates the 2nd largest beauty box subscription service in Europe, and has zero private label offering today.

We're studying Feelunique to gain insight into the opportunity for the two listed pure-play beauty retailers: Adore Beauty and THG Beauty. Adore Beauty is an Australian ecommerce retailer with attractive economics and a long growth runway ahead and THG is spinning out the £1bn Beauty division in 2022. Adore's LTV / CAC return is over 6x in Year 4 and revenue is growing ~30% and THG Beauty is growing at 50%+.

We believe beauty is an attractive category to sell online due to favourable product dimensions, high-value-to-weight ratio, and high repeat rates due to the intimate nature of the category.

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In July 2021, Sephora purchased Feelunique, one of Europe’s largest online beauty retailers, in a bid to enter the UK market and strengthen LVMH’s beauty ecommerce strategy. The Hut Group, owner of Lookfantastic, Cult Beauty, and Dermstore, also recently announced a plan to spin out and float the beauty division in 2022. THG Beauty is currently the largest online speciality retailer globally and expects to grow sales over 50% year-on-year to £1bn in FY21. We interviewed the Founder of Feelunique to explore how pure-play retailers work with suppliers and the opportunity for a global ecommerce beauty retailer.

There are some attractive attributes to selling beauty products online:

  1. Products have a high-value-to-weight ratio
  2. Return rates are low
  3. Beauty items are perishable goods
  4. Intimate product category

Beauty products are typically small products with a high-value-to-weight ratio which makes delivery cheaper and more efficient relative to general merchandise categories. Most beauty retailers only accept returns if the product hasn’t been opened; once a mascara or moisturizer has been used once, it cannot be returned. This reduces the fulfilment expense per unit below other online categories such as fashion which typically has a return rate over 25%. The combination of attractive product dimensions and low returns leads to a fulfilment expense as a percentage of revenue 5-10% lower than companies such as Asos or Boohoo.

The perishable nature of beauty products leads to a natural replenishment cycle which drives higher order frequency and repeat purchasing. The fact customers apply the product to their skin also lends itself to higher loyalty than other categories. Adore Beauty, the Australian-listed beauty ecommerce retailer, retains 61% of customers and has an average order frequency of 2.1x per year which increases to over 4x in year 5. Beauty almost takes the best characteristics of a category like food (perishable, high frequency, intimate and brand loyalty) but without the logistical challenges.

One other unique aspect of beauty as an online category is how it lends itself to community-based marketing techniques - as the Co-Founder of Feelunique put it:

with relation to beauty, there is a real community and an opportunity to create a narrative and story. It is one of the things that separates fashion and beauty from being under such an obvious threat from the likes of Amazon and some of the other more mass retail environments that exist, such as Alibaba and eBay. Beauty and fashion is, often, a very narrative and experiential purchase, so I think that gave us a bit of an edge. There are very few businesses that I would want to start in ecommerce nowadays because of the dominance of Amazon and others. It is easy to replicate straightforward retail but with luxury, fashion and beauty there is a real defensibility around the fact that it is part of the retail experiences that is the special nature of what you are buying. - Cofounder of Feelunique

An online community of 18-50 year old women interested in beauty products is a very different environment than a platform like Facebook or Twitter. This reminds us of an interview we hosted last year with the executive who built Sephora’s online community:

Beauty people are the nicest people on earth. Really, you could be a three-headed medusa and put on a new shade of lipstick and post a picture of yourself and say what do you guys think and a thousand people will tell you, “You go girl. It looks awesome.” Or you could be a three-headed dude and post a picture of yourself with a new shade of lipstick and 7,000 people will tell you it is the most pro you supportive thing. Coming from gaming, where we had a hotline to law enforcement and suicide prevention as a community management. They didn’t even have a trolling policy, when I started at Sephora. They didn’t even have any safeguards because the people were too nice. That’s what I learned is that they’re the nicest people on earth. It’s a really big lesson that the more focused a community is, the more harmonious it will be. - Former Community Manager of Sephora, LVMH

This type of online environment fosters trust between users and encourages product referrals which drives higher conversion. The combination of an engaged online community and a multi-brand ecommerce retailer is what originally interested us about Adore Beauty. This is the cofounder Kate Morris on why Adore is unique:

The way we think about Adore is more than just an online store. So traditionally, retailers have only focused on the fulfilment element of the transaction, just making products available for purchase. But Adore's unique content element means that we also own the destination for discovery. So we started heavily investing in content 5 or 6 years ago, and that's meant that we've been able to move past just offering convenient replenishment. Through our expanding media network of podcast, videos and blog posts, we use content to educate, engage and entertain our customers. So to our brands, we've become a marketing partner, not just a distribution channel - Kate Morris, Cofounder of Adore Beauty

Adore has deeply integrated content marketing engine with a selection of beauty products from over 250 prestige brands.Adore’s BeautyIQ is the top beauty podcast in Australia and so popular that it’s within the top 10 in the UK even though Adore doesn’t sell products there. The content could be seen as a soft version of Call Me Daddy, Barstool’s former podcast now exclusive on Spotify. This was a comment from our recent interview with a competitor of Adore:

Adore is trying to be their customer's biggie best friend. Their podcast is hilarious and has such a strong connection being quintessentially Australian. There are so many things people laugh about they are building many celebrities out of their staff. They have three of four staff who are a hybrid of content creator, marketing manager and influencer. They have their own following here in Australia and people love them. They discuss beauty but also the most hilarious things which should not be spoken about on the podcast; they are great. - Former Merchandise Manager at MECCA

One observation is that most Gen-Z customers now trust micro-influencers more than celebrities. The explosion in content and live video means companies can easily connect with customers and those brands that can turn employees into personalities will have a long-term advantage online.

The power of integrating content with commerce already shows up in Adore’s LTV economics; CAC is paid back within one year and the LTV / CAC is over 6x by Year 4. If BeautyIQ can continue to scale an audience at a similar relative pace as Call Me Daddy, Adore could prove to be one of the most unique vertical ecommerce businesses globally.

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