Adore Beauty buys back 25 per cent stake from Woolies

Heather McIlvaine

14th Feb 2017

Less than two years after taking a 25 per cent stake in Adore Beauty, Woolworths Limited has sold its stake back to the pureplay beauty retailer for an undisclosed amount.

Adore Beauty founder and CEO Kate Morris told IRW she had a “great relationship” with Woolworths and that the decision to end the partnership was “absolutely not the case of there being a bad guy,” but rather a strategic divergence.

“We had hoped there would be a lot more opportunities that would work for us, that would further boost our growth. We were able to achieve growth just off our own steam with having a bit of cash behind us, but it was additional opportunities that just weren’t there,” Morris said.

When Woolworths took a 25 per cent stake in Adore Beauty in May 2015, it injected some much-needed liquidity into the 18-year-old bootstrapped beauty company, enabling the online retailer to hire more people, expand the inventory and invest in marketing and technology.

Over the past two years, the business has grown by over 125 per cent. From that perspective, Morris says the relationship was very successful. But she says opportunities to add value in areas like logistics never eventuated.

Woolworths’ sale of its stake in Adore Beauty comes on the back of similar decisions to exit sectors outside its core business.

“Progressively over the past four years, Woolies has divested from those non-core businesses and refocused its efforts on their main business, which is food and liquor,” Gary Mortimer, associate professor and food retailing expert at QUT Business School, told IRW.

He pointed to Woolworths’ sale of its interests in consumer electronics company Dick Smith, hardware company Masters and, most recently, petrol station business Caltex as examples of an overarching strategy.

“Now what they’re doing is looking at their smaller non-core businesses and they’re saying, ‘Let’s get rid of those because, despite their size, they still take up energy and time to manage them well’,’” Mortimer said.

Indeed, two Woolworths employees served on Adore Beauty’s board under the partnership. Their departure has reduced the online retailer’s board to two: Kate Morris and her business partner, James Height. Morris said she will be putting together an advisory board in the next year or so to fill the knowledge gaps.

Woolworths declined to comment to IRW on its decision to sell its stake in Adore Beauty.

Australia’s leading online-only beauty company

Morris is regaining full ownership of Adore Beauty as the online company makes waves in a fiercely competitive industry. Adore Beauty recently implemented Pitney Bowes’ Borderfree solution to make its website more user-friendly for international customers in over 200 countries.

It also launched an ‘Essentials’ category, adding lower-priced brands, such as Avène Eau Thermale, Real Techniques, Nude by Nature and La Roche-Posay, to its range of prestige department store brands and professional salon brands.

“We have some really great traction at the moment. Just in the last 12 months we’ve grown by 60 per cent. So far 2017 is on track to be about 80 per cent up on last year,” Morris said.

Morris started Adore Beauty with just $12,000 in 1999, the same year Sephora launched its online store in the US. At the time, selling beauty products online was uncharted territory in Australia. It took Morris six years to convince the first household name – Clarins – to sign on.

Now the e-commerce company sells more than 165 authorised brands and expects to turn over around $25 million this financial year.

According to Beauty Update Australasia, Adore Beauty is now Australia’s leading online-only beauty retailer based on weekly surveys of over 12,000 local shoppers and internal sales figures provided by the retailer.

From mobile-first to mobile-only

Morris is quick to credit some of this success to her two-year partnership with Australia’s biggest retailer by revenue.

“We got to work with a lot of really experienced retail professionals at Woolworths. I think it was a huge benefit for the business. I certainly don’t have any regrets about it,” she said.

Going forward, Morris said the business will focus on continuing to expand its range as well as providing more personalisation and curation tools to help customers choose from more products. She also aims to boost mobile sales, with more than 50 per cent of traffic now coming from mobile devices.

“The real challenge for us nowadays is not really a mobile-first strategy, but really a mobile-only strategy, because we have customers that may never visit our desktop site. We need to communicate our entire brand and value proposition to them in a sixth of the space,” she said.

This story first appeared in Inside Retail Weekly, issue 2128. To subscribe, click here.