Feelunique & Online Beauty Retail | In Practise

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Feelunique & Online Beauty Retail

Founder of Feelunique

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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Executive Bio

Aaron Chatterley

Founder of Feelunique

Aaron is the founder of Feelunique, one of Europe's largest pure-play online beauty retailers. Aaron founded feelunique.com in 2005 and has scaled the business to generate around £100m in revenue selling thousands of brands. In 2021, Sephora agreed to purchase feelunique in a bid to finally enter the UK beauty market.Read more

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Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Aaron, can you take us back to 2005, when you first started the business? What was the original founding idea?

I had previously had a web development company, in Oxford, that I sold in 2000. I moved back to Jersey, in 2004, and was looking at doing something in a similar space. We had some friends that had launched a business called play.com, which was doing particularly well, with north of half a billion a year, at that time. There is only so far you can scale that service type business, so we decided, rather than starting an agency and with the way that ecommerce was going, there were probably some other sectors that we could look to go after. Instead of agency, we would go client side.

We looked at several different verticals, such as digital cameras and music downloads. Eventually we hit upon beauty because of the replenishment nature of the product. There were several players but nobody was really doing it particularly well and nobody really had a depth of range. There were players like Lookfantastic that were very focused on the hair market; there was Buy Cosmetics, who were a bit more discount based. Obviously, HQhair was, again, hair focused. Nobody really provided that end-to-end range-based offering.

After quite a bit of research and working out the product market fit, we figured that beauty was a real white space opportunity. Our intention was always to try and create a real global destination so we wanted something where there was a really significant opportunity, in the way, at the time, that Net-A-Porter owned high end fashion, ASOS were coming through on fashion, Amazon owned books and Play owned DVD and games. We felt that there was an opportunity to own a big piece of the beauty market.

How do you look at the potential unique characteristics of beauty as a category online? You mentioned replenishment. Obviously, the value relative to the weight is really attractive for shipping. Is there anything else about how customers behave or why it would be particularly attractive to ecommerce, as a category?

Yes, I think there are a whole bunch of reasons. The first is, obviously, the fact that almost everything that we sell will run out. You will buy it, you will use it and you will need more of it. Whether it’s the same product or brand is not quite so important. But generally, if you buy a moisturizer, a shampoo or conditioner, you’re going to need more of it. The replenishment is the key thing.

Behind that, particularly with relation to beauty, there is a real community piece 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.

These products are quite intimate; you put them on your face and body. Does that meant that, typically, we could see higher repeat rates or loyalty or retention of customers, in the long run, versus other categories?

Yes, absolutely. We have learnt an awful lot about the beauty industry in the last 16 or 17 years but, yes, there is a really strong sense of loyalty between consumers and brands in beauty. Historically, before we got involved in the industry, I think there was probably a lot more brand loyalty than there is now. Often, you would get women who were Clarins customers or Chanel customers. Whilst there is still an element of that now – and I think it’s more around hero products – I think the typical girl or woman nowadays will have several products and brands that they are loyal to – their staple products – but they will probably shop across five or 20 different brands, on a regular basis.

That is where we’ve been able to really capitalize. We entered the beauty market at a time where that was becoming more prevalent. Most of the brands that we work with do have D2C themselves; they do have their own dotcom presence. Whereas 20 years ago that would have been fine because the woman was an Elizabeth Arden customer and they would buy most of their products, now they might buy an Elizabeth Arden cream, a Chanel lipstick and a Maybelline mascara. What multi-brand pure play beauty retailers, like us, provide is that it’s a one-stop shop, but still within that narrative led community environment where the experience is still a strong one.

In the long run, the community is probably what drives back the customer to their destination, whether they are buying or not. So take us back to the early days, how did you source your first products?

This is where our naivety became one of our greatest strengths. When we launched the business, we were two guys who knew nothing about beauty. We had this crazy idea. We knew a lot about ecommerce and I had come from a web development background. We had built great ecommerce websites for other people. We knew how to get people through the door; we knew how to engage them, we knew how to create beautiful websites and we knew how to convert them. We had run businesses before and we had strong commercial experience, but what we didn’t have was real grass roots beauty experience. If we had had that, we probably wouldn’t have done it.

To answer your question, we had this naïve belief that we would build this beautiful website and then we will make a bunch of calls to the likes of Chanel, Estée Lauder, Lancôme and all these other amazing brands, get their order forms and start selling their products. But that is absolutely not how it worked.

We did all of the right things, outside of understanding exactly how the beauty industry worked. We built this great website; we put money into it ourselves. We got the platform ready, we made the phone calls to all the beauty brands and, out of maybe 100 calls, 97 of them told us we were crazy and it would never happen and that it wasn’t how it worked. You had to have stores if you wanted to sell the likes of Chanel and Dior.

Initially, we’d spent all this money and we got a handful of very small or very niche brands directly, such as Nivea. We had L’Oréal Paris, randomly, and we had a handful of small, independent niche challenger brands who were desperately looking for any platform to sell online.

We launched the business, very quickly, with a really eclectic mix of bizarre brands but that was never our intention. Our intention was to provide everything from the really high-end luxury and premium brands, such as Chanel and Dior, all the way through to the mass brands such as Maybelline and everything in between. But we launched quickly, without really hitting the mark there.

Within two or three weeks of struggling to get brands on board, we discovered the gray market. We found out that there were alternative wholesale suppliers, where we could pretty much get any brand that we wanted. We found two or three suppliers that enabled us to list all the brands that we wanted, but we were buying them through third-party gray market suppliers. They were legitimate products but down chain supply where it’s not coming directly from the brand; it is coming from all sorts of extended suppliers.

We were able to lift everything that we wanted to, within the space of a few months and, actually, we were buying it super cheaply, so we were able to be very competitive pricewise. We took the order forms from the two or three wholesalers and we listed all of their products. We had none of it in stock, but we were able to get stock delivered overnight. We listed all the products on our site and on the price comparison sites that we were working with. At the time, paid search was in its infancy; there was no Facebook or Instagram. We were basically running on Google Shopping, Pricerunner, Kelkoo and other price comparison platforms.

Obviously, as the business got bigger and bigger and we were selling more and more products, we had to place that order less frequently because we already had one on the shelf. But that’s how we did it. We started off as a gray market retailer and we slowly built up direct supply with more and more brands, over time. It then got to a point where, perhaps 24 months into the business, we were buying multiple brands from multiple wholesalers and arbitraging prices. The buying process became very, very complex and you were not always getting the latest drops. The range that we had would never be completely full because it takes a while for products to drift through to the gray market.

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Feelunique & Online Beauty Retail

September 7, 2021

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