The Honest Company Founder Jessica Alba and CEO Nick Vlahos
The Honest Company grew at 20% pre-Covid, 30% during Covid, according to sources
The Honest Company interviewing bankers to conduct IPO process
Big potential for more global growth with 32,000 locations including 3,000 overseas
Innovation in beauty and baby categories add another growth engine
Shareholders include Fidelity Investments
With more than 30 movies under her belt, Jessica Alba is one of the most successful actors of her generation. But for the past eight years, she’s been taking on a different role as the Founder of The Honest Company, a company borne out of her search for safe, eco-friendly, effective and convenient products.
Her personal story and love of natural ingredients speaks directly to younger consumers who identify with the brand, which has a loyal following and an engaged community of supporters. And with the company interviewing bankers for a possible IPO, investors need to be ready to jump on the bandwagon.
The beauty, home and personal care industry should see strong demand continue next year, with home cleaning and hygiene products seeing the most strength. As businesses reopen gradually, beauty should see an uptick from a steady return to brick-and-mortar shopping.
Behemoth competitors like Procter & Gamble Co. are struggling to connect with young consumers, who, more than ever, want to know what a brand stands for. Indeed, women’s empowerment is now a centerpiece of P&G’s marketing around the world, something Playa Vista-based The Honest Company has always made a priority. The company is committed to product integrity, people, sustainability and diversity, and was an early pioneer in “clean” products.
That has translated into an impressive financial performance. The Honest Company’s sales have grown at a 30 percent clip during the pandemic, up from 20 percent before Covid, people familiar with the matter told IPO Edge.
Ms. Alba is highly involved in all aspects of the company and works hand-in-hand with CEO Nick Vlahos to align on the overall strategy. Mr. Vlahos, a former Clorox executive with over 25 years of experience in the consumer products industry, joined the company as CEO in March 2017. Since then, he’s guided a strategy shift from e-commerce to omnichannel, taking The Honest Company beyond an online subscription model.
The Honest Company is doubling down on innovation in the baby, beauty, personal care and home categories. It has expanded its internal laboratories, R&D team and opened a fulfilment center, helping gain more control over production and ingredient standards, fulfill shipments faster and pivot quickly to address rising trends like wellness and self-care.
During the pandemic, the company upgraded its lab structure and adjusted its supply chain with consumers clamoring for disinfecting products. It launched safe cleaning essentials, including an antibacterial disinfecting spray that is available in 500 Costco stores and sells out regularly. It also introduced alcohol wipes that are at Amazon, Target, Rite-Aid, Costco and BuyBuyBaby, as well as several grocery chains such as Wegman’s, Kroger and Meijer.
The company is focused on expanding access to its products and achieving global scale, with partnerships including Whole Foods, Walgreens, Ulta.com, Douglas, Cult Beauty and Boots. The Honest Company is in over 32,000 retail locations, including over 3,000 stores internationally.
E-commerce should also remain a strong suit. The company has more than half a million customers through Honest.com where dialogue with the consumer has become more important than ever. During the pandemic, The Honest Company committed to donating 3.5 million products to sponsored students and children living in poverty, while also supporting families impacted with a cash donation. In 2020, the company also gave to organizations fighting racial injustice, including the NAACP Legal Defense and Educational Fund and the Equal Justice Initiative. It has committed to matching employee donations made toward civil rights advocacy organizations.
The Honest Company’s strategy is anchored in renewed investment in product innovation. Over the past few years, it has expanded in-house research capabilities, and today spends 2 percent of revenue annually on R&D and quality testing to ensure customer satisfaction.
The Honest Company has strict testing requirements: It uses internal chemists, toxicologists and clinical scientists as well as third-party scientists to evaluate safety, performance and potential human health risks. It also avoids ingredients that are known to cause potential health and environmental harm.
With Google searches for the term “sensitive skin cream” doubling in the past five years, The Honest Company launched a fragrance-free, dermatologist approved, vegan daily skincare routine specially formulated for sensitive skin. The company will also be restaging its beauty line using recyclable, refillable and reusable materials, furthering the brand’s commitment to promoting an environmentally conscious lifestyle.
The natural diaper category is growing double digits, whereas the conventional side of the category is declining. The Honest Company is number one in the marketplace and sells 50% of all-natural diapers in the U.S. Nine years ago it launched the direct-to-consumer eco-friendly diaper. In early 2021, The Honest Company will launch a new diaper with advanced absorbency technology, designed with sustainably harvested, chlorine-free fluff pulp, which means reduced toxins in the waterways.
Ms. Alba has transformed her Hollywood fame – and passion for business – into a real asset for The Honest Company. She has her finger on the pulse of consumer trends and uses her name recognition to drive conversation about health, wellness and the importance of safe products and transparency in the industry.
The company has been noticed by big players such as Procter & Gamble Co., Kimberly-Clark Corp. and Unilever PLC. The Honest Company was rumored to have met with banks this fall to review a possible sale process, those conversations were an exercise to test market valuations, according to people familiar with the matter. The Honest Company is focused on pursuing a traditional IPO, those people said.
How should investors look at The Honest Company vis-à-vis listed companies? It fits best within a group of fast growers such as Lululemon Athletica Inc., YETI Holdings, Inc., and Freshpet, Inc., all of which command strong multiples of sales.
Whatever shape a deal takes, investors should see this opportunity for what it is: a fast growing ESG-friendly company with a loyal following and a passionate founder at the forefront. Now there’s a role worth playing.
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