How Lush took on the cosmetics industry | FT

Summary

Lush, a UK-based cosmetics company, has built a reputation as an ethical brand, handcrafting soaps, shampoos, and bath bombs with vegetarian or vegan recipes. Despite facing challenges like homelessness and business collapses, co-founder Mark Constantine has grown the company to a $1bn turnover. Lush aims to influence the cosmetics industry towards more sustainable practices, such as reducing plastic packaging. The brand's ethical stance and fresh, preservative-free products come at a premium, yet resonate with customers. Brexit uncertainty and supply chain challenges impact the business, but Lush remains committed to its values, with plans to sell a controlling stake to its employees, ensuring the company's authenticity and ethical mission endure.

Takeaways

• 🌿 Lush, a cosmetics retailer known for its handmade soaps, shampoos, and bath bombs, has been operating for nearly 25 years and is based in Poole, England.
• 🌐 The company has a global presence, with a turnover of $1 billion, and is recognized for its ethical brand image.
• 👐 Lush emphasizes manual production and vegetarian or vegan ingredients, distinguishing itself from competitors that rely on automation.
• 🏡 Co-founder Mark Constantine faced significant challenges, including homelessness and business collapses, before establishing Lush with a modest sum of £45,000.
• 🌱 The brand is committed to environmental sustainability, aiming to influence the cosmetics industry to move away from plastic packaging towards more eco-friendly practices.
• 💰 Despite high prices, Lush's ethical stance and quality products attract customers willing to pay a premium for sustainable and cruelty-free cosmetics.
• 📉 The company acknowledges the impact of Brexit uncertainty on its UK business, with challenges including staffing and tariffs affecting supply chains.
• 🌍 Lush is performing well in European markets like Germany, France, Italy, and Spain, where it has seen increased sales.
• 🏬 The company is considering opening a large department store in Birmingham, featuring innovative and sustainable elements like a spa and hairdressing with recycled water.
• 🔄 Lush has chosen an alternative path to growth by establishing an employee benefit trust, aiming to give workers a stake in the business, rather than selling to large corporations.

Q & A

How long has Lush been in operation?

Lush has been making soaps, shampoos, and bath bombs for almost a quarter of a century.

What is Lush's stance on automation in its production process?

Lush shuns automation and all of its products are made by hand.

What types of recipes does Lush use in its products?

Lush uses only vegetarian or vegan recipes in its products.

What is Lush's annual turnover?

The private company Lush has an annual turnover of $1 billion.

What was Mark Constantine's background before founding Lush?

Mark Constantine, the co-founder of Lush, was homeless for a period of time and lived in the woods, working but not earning enough to afford a room.

How did Lush initially learn about business practices?

Lush learned a lot of lessons from Anita Roddick when they became the largest supplier to Body Shop.

What financial struggles did Mark Constantine face before starting Lush?

Mark Constantine faced business collapse, had to pay mortgage payments, and was sued over a property that collapsed, eventually selling it for half of what he bought it for and paying off loan sharks.

What is Mark Constantine's vision for the cosmetics industry?

Mark Constantine wants to create a cosmetics revolution to save the planet by influencing the industry to move away from plastic packaging and towards more environmentally friendly practices.

How does Lush handle the issue of plastic waste in its products?

Lush aims to reduce plastic waste by offering 'naked products' that come in paper bags, which are easily disposable without the need for recycling.

What challenges does Lush face in the current retail climate?

Lush faces challenges such as high product prices, Brexit uncertainty affecting its UK business, and the need for fresh ingredients which can be affected by supply chain delays.

How does Lush ensure the freshness of its products?

Lush tries to turn products around through its warehouse with a 28-day use-by date, ensuring minimal time on the factory floor and minimal use of preservatives.

What is Lush's position on selling to large corporations?

Lush's founders have decided against selling to big brands like L'Oreal, as they believe it would be seen as a sell-out and could lead to a significant loss of customers, as was the case with Body Shop.

What is the employee benefit trust (EBT) that Lush has established?

Lush has established an employee benefit trust (EBT) to give workers a stake in the business, allowing them to sell shares to the EBT instead of outside investors, maintaining a stable business that can continue to focus on ethical practices.

How does Lush plan to maintain its authenticity and ethical practices in the future?

Lush plans to maintain its authenticity and ethical practices by selling a controlling part of the business to its workers through the EBT, ensuring that the company remains focused on its values rather than commercial pressures.

Outlines

00:00

🌿 Lush's Ethical Journey and Environmental Vision

Lush, a UK-based retailer known for its handmade soaps, shampoos, and bath bombs, has established itself as an ethical brand over the past 25 years. The company, which shuns automation in favor of handcrafted products and vegetarian/vegan recipes, has reached a $1bn turnover. Co-founder Mark Constantine's personal struggles, including homelessness and financial setbacks, led to the creation of Lush with a modest £45,000. Constantine envisions a 'cosmetics revolution' aimed at reducing plastic waste and promoting environmentally friendly practices within the industry. Lush's products are designed to minimize packaging, encouraging consumers to choose 'naked' options. Despite economic challenges and Brexit uncertainty affecting UK retail, Lush maintains a steady business, with a focus on freshness and minimal preservatives. The company faces hurdles such as staffing and tariffs but remains committed to its ethical stance, even as the high street retail landscape evolves.

05:01

🏬 Lush's Unique Business Model and Future Plans

Lush's founders, who still own most of the business, have chosen a distinct path compared to other high street retailers. They've decided against selling to large corporations like Body Shop did, which saw a significant drop in sales post-acquisition. Instead, Lush has initiated an employee benefit trust to give workers a stake in the company's future, ensuring stability and the ability to maintain ethical practices. The trust allows for internal sale of shares at a set profit increase, preventing the need for external, potentially debt-ridden investment. Lush is also embracing mainstream trends like veganism and zero-packaging, which align with its ethos. The company's headquarters, located above its first shop, symbolizes its commitment to authenticity and ethical business practices. Lush's future plans include opening a department store with innovative features like a spa, hairdressing services using recycled water, and a floor dedicated to plastic-free products. Despite challenges faced by traditional retailers, Lush continues to thrive, reflecting its authenticity and consumer trust in its ethical stance.

Keywords

💡Ethical Brand

An 'Ethical Brand' refers to a company that operates with strong principles of social and environmental responsibility. In the context of the video, Lush has built its reputation as an ethical brand by making products by hand, using vegetarian or vegan recipes, and focusing on sustainability. This is evident when the co-founder Mark Constantine talks about the company's journey and its commitment to ethical practices.

💡Handmade Products

The term 'Handmade Products' highlights the manual creation of goods, often associated with higher quality and a personal touch. Lush's products are all handmade, emphasizing the company's dedication to craftsmanship and quality over mass production. This is showcased in the video through the narrative of Lush's production process, which stands in contrast to automation.

💡Vegan Recipes

Vegan recipes are formulations that exclude any animal-derived ingredients, aligning with ethical and environmental considerations. Lush uses only vegetarian or vegan recipes, which is a significant aspect of their ethical brand identity. This commitment is mentioned in the script as part of what sets Lush apart in the cosmetics industry.

💡Turnover

In business, 'Turnover' refers to the total sales revenue over a specific period. The video mentions that Lush, as a private company, has a turnover of $1bn, indicating its financial success and market presence. This figure is used to emphasize the scale of Lush's operations and its impact within the industry.

💡Climate Refugees

'Climate Refugees' are individuals displaced due to climate change impacts such as rising sea levels, droughts, or extreme weather events. The video touches on this concept when discussing the broader implications of environmental degradation on business and society. It serves as a call to action for companies to adopt sustainable practices to mitigate such global issues.

💡Plastic Packaging

Refers to the use of plastic materials for packaging products, which is a significant contributor to environmental pollution. The video emphasizes Lush's stance against plastic packaging as part of their push for a more sustainable cosmetics industry. This is a key element of their 'cosmetics revolution' to save the planet.

💡Naked Product

A 'Naked Product' in the context of Lush refers to products without any packaging, aligning with the zero-waste philosophy. The video discusses the concept of 'naked' products as an ideal, where items are sold in paper bags that can be easily disposed of, reducing waste and environmental impact.

💡Preservatives

Preservatives are substances added to products to extend their shelf life by preventing spoilage. Lush is noted for using fewer or no preservatives in their products, which is part of their commitment to natural and fresh ingredients. The script mentions the short 'use-by' dates of Lush products, reflecting this approach.

💡Employee Benefit Trust (EBT)

An 'Employee Benefit Trust' is a type of trust fund used to provide employees with a stake in the company, often in the form of shares. The video discusses Lush's decision to establish an EBT to ensure the company's future stability and ethical practices are preserved, rather than selling to larger corporations which might dilute these values.

💡Authenticity

'Authenticity' in the context of the video refers to the genuine and original nature of Lush's brand and products. It is highlighted as a key differentiator for Lush, as they maintain their ethical standards and handmade approach, which cannot be easily replicated by larger, less personalized corporations.

Highlights

Lush has been making soaps, shampoos, and bath bombs for almost a quarter of a century.

The company is located in Poole on England's south coast and has built a reputation as an ethical brand.

Lush avoids automation and handcrafts all products using vegetarian or vegan recipes.

The private company has a turnover of $1 billion.

Co-founder Mark Constantine had a challenging journey, including a period of homelessness.

Lush learned valuable lessons from Body Shop, becoming their largest supplier.

The company faced a business collapse and financial struggles, including dealing with loan sharks.

Mark Constantine started Lush with approximately £45,000 after a series of setbacks.

Lush aims to create a cosmetics revolution to save the planet by influencing the industry to move away from plastic packaging.

The company advocates for 'naked products' that come without plastic packaging, promoting sustainability.

Lush's ethical campaigning is integral to its brand, with customers willing to pay a premium for ethically sourced products.

The company's prices may deter some customers, but its ethical stance can tip the balance in its favor.

Lush's business in the UK is affected by Brexit uncertainty and supply chain delays.

The company prioritizes freshness, with a 28-day use-by date for products leaving the warehouse.

Staffing and tariffs are significant challenges for Lush, along with the need for fresh ingredients.

Lush is performing well in European markets like Germany, France, Italy, and Spain, with increased sales.

Hong Kong presents the biggest pressure point for Lush, with only 10 shops and a challenging climate for business.

Lush considers opening a department store with original treatments and eco-friendly practices.

The founders of Lush own most of the business and have no intention of selling to large brands.

Lush has launched an employee benefit trust to give workers a stake in the business, ensuring its ethical practices continue.

Lush is part of the mainstream with trends like veganism and zero-packaging aligning with its ethos.

The company's authenticity and outlier status in the market are seen as strengths, distinguishing it from other consumer brands.

Transcripts

You only have to follow your nose to find a branch of Lush.

The retailer has been making soaps, shampoos and bath bombs

for almost a quarter of a century,

in Poole on England's south coast.

And its long tried to build a reputation as an ethical brand.

Nowadays, that's a trend that the rest of the high street

would also like to buy into.

Lush shuns automation.

All of its products are made by hand

and it uses only vegetarian or vegan recipes.

Today, the private company turns over $1bn.

But co-founder Mark Constantine's journey

to this point wasn't easy.

I was homeless for a period of time.

And I lived in the woods.

I had a job but it didn't pay enough to get the basic room.

It went on for about a year or so.

I was given money by a charity, just a small sum

but it made such a dramatic difference to my life.

It meant that I could continue on in my employment.

I was fortunate enough to meet Anita Roddick when

she had one shop.

So we became Body Shop's largest supplier.

And we learned an awful lot of lessons from them.

Then we had a business collapse.

And then I just had to pay the mortgage payments.

Then I'd put my savings into this other house,

but part of it collapsed on the back of some beach huts.

And they sued me.

And I eventually sold it for half what I bought it for.

And then I had to pay the loan sharks off.

And I had about £45,000 left.

And that's what I started Lush with.

These small sums of money go a long way.

Rather ambitiously, Mark Constantine

wants to create what he calls a cosmetics

revolution to save the planet.

We have to do it through influence.

We're 0.5 per cent of the cosmetics industry, even

at $1bn turnover.

So we have to influence the others as well.

They have to move off of plastic packaging.

They have to move to more environmentally friendly

things.

So that's part of the revolution.

Preferably, you don't have some bottle you have to throw away,

or what are you going to do with it?

You going to recycle it?

Is it this PET, is it that one?

You don't have any of that.

If you've got a naked product that's just in a paper bag,

you know what to do with the paper bag.

That's the end of it.

We know we've got to change.

We've got far too much plastic hanging around.

We all know we have.

Is it for other companies to lead that, though,

by saying actually, we're no longer doing this, this is...

I don't see how they're going to survive.

Because if you've got climate refugees all over the place,

and shops are shutting, it's all bad for business.

So they have to change.

It's just a question of when and how quickly.

Lush's prices will put off some customers.

A single bath bomb costs around £5.

So the ethical campaigning brand is

important to the Lush product.

And people are prepared to pay a premium for it.

There's as many reasons not to come in

to a cosmetic retailer that isn't offering you

a good deal, a particularly good deal.

It's a relatively pricey thing.

And so I think the ethics can sometimes tip the balance.

Business, considering the climate, is good.

The banks are not lending.

They've not been doing that for 18 months.

They're expecting a downturn.

They certainly aren't keen on retail, British retail.

Even Japanese banks are telling me

they're not keen on British retail.

And at the moment in Britain, we're

plus or minus 2 per cent on like-for-like.

So not too good, not too bad.

You know, just okay.

There are people out there with minus 20 per cent,

minus 10 per cent, all sorts of dreadful things going on.

Brexit uncertainty isn't helping Lush's business in the UK.

We try and turn the products around

through our warehouse with a 28-day use-by date.

So it has to leave the warehouse within 28 days.

And then it sits on the factory floor for four months.

If you go into regular retailers, beauty retailers,

you'll find products that have a shelf

life of two to three years.

Because we're light on preservatives

and, indeed, many of our products

don't have preservatives at all, and then we

like to get it through as fast as possible

so you can have the best possible experience.

Staffing is probably the biggest thing.

And then the next thing would be the tariffs.

But we, as Mo describes, it's got

to be very fresh on the ingredients and everything.

So any delay in those supply chains can affect our product.

I'm a businessman.

I don't understand how increasing my costs,

increasing red tape, and generally stopping

me being able to get a proper workforce,

and cutting me out of markets that I

was quite happily in before, and having tariffs.

The truth is, I don't get it.

I don't understand it.

Europe is a great area for me to be able to increase business.

So Germany, France, Italy, Spain.

Great places for us.

And we're doing very well.

So we've got increased like-for-likes

in those countries.

I would say the biggest pressure point is Hong Kong.

We've got just 10 shops there.

The climate there is dreadful.

I quite like the idea of doing a big department store of Lush,

right?

I've got one nearly there in Birmingham.

And that means having quite a lot of interesting things

that people would like to come to.

So, a spa with original treatments,

hairdressing with maybe recycled water, a whole floor

of just naked product with no plastic

on the whole floor, parties.

Opening a department store at a time when many big high street

retailers are struggling to compete with online rivals

sounds like a bold move.

But then, Lush isn't a typical high street retailer.

The founders still own most of the business.

And there is no desire to follow in Body Shop's footsteps

and sell to big brands such as L'Oreal.

I think most customers saw it as a sell-out.

And I think it...

well, Body Shop lost 20 per cent of its sales.

So it speaks for itself, doesn't it?

20 per cent of the customers no longer shop there.

Lush's founders looked at how Body Shop exited

and decided it wasn't for them.

So they decided instead to launch an employee benefit

trust, which is designed to give workers

a stake in the business in the future.

When you've got founders who at some stage

are going to want to either leave, or they will die

and their shares will be up for sale,

you have to have someone that can buy it.

Traditionally, you would go to the City

or you would get private investment.

Businesses that have done that are very, very highly geared,

got too much borrowing.

So if you have an employee benefit trust, an EBT,

and you have an agreement between your shareholders

as to how much you're going to increase your profits to sell

your shares - and we have five times -

then you can still sell to your EBT instead of selling outside,

and keep a stable business that can be privileged enough

to offer things that may be...

ethical things that maybe are not quite so commercial.

But if you take loads of money out

and you have lots of borrowing of big bonds

and all of that sort of thing, then it's much harder

to run this sort of set-up.

Companies such as Lush are increasingly

part of the mainstream.

And it's worked for the business.

Trends, such as veganism and zero-packaging,

have come to its way of thinking rather than the other way

around.

From its headquarters still above its first shop in Poole

to its intention to sell a controlling part

of the business to workers, it still

does feel like an outlier for now.

Whether or not it can continue to compete

as successfully to sell its bath smellies

is another matter now that every consumer brand wants

to do good.

But then, you can't buy authenticity.