0:00

Welcome to Fear and Greed Sunday feature,

0:02

I'm Michael Thompson. Online beauty

0:04

retailer Adore Beauty was in the news

0:06

this week with its CEO stepping down

0:09

for personal reasons after about 18

0:11

months in the top job. The company has

0:13

had a bit of a bumpy ride since

0:15

listing on the ASX back in 2020. Its

0:19

share price hit a high of almost $7 when

0:21

it listed and bottomed the

0:23

last year at about 70, 71

0:27

cents around their cost of living,

0:29

questions over strategy. They've all

0:31

plagued the company. Founders Kate Morris

0:33

and James Hight stood down from

0:35

executive duties last year. But

0:38

behind it all is a

0:40

really interesting story. And back in 2021

0:42

Kate Morris, one of those two founders,

0:44

actually joined Fear and Greed to take

0:46

Shawn Aylmer through it. How the company

0:49

was founded, how it used e-commerce and

0:51

customer service, a real focus on customer

0:53

service to grow. Now keep in mind

0:55

this was recorded back in March of

0:59

2021. Plenty has changed since then but it

1:01

is still a terrific interview out of the

1:03

Fear and Greed vault. I hope you

1:05

enjoy it. Adore

1:12

Beauty has all the hallmarks of a classic

1:14

business success story. Kate Morris started the online

1:16

beauty retailer from a garage in Melbourne in

1:19

1999 at the age of just 21 with

1:23

co-founder James Hight. Fast forward

1:26

more than two decades to 2020 when Adore

1:28

Beauty listed on the ASX in one of

1:30

the most public IPOs last year. And now

1:32

with first half revenue of more than 96 million

1:35

dollars, it's a business that's growing and

1:37

exceeding its own forecasts. The

1:39

numbers are impressive, almost 11,000 products

1:42

across 260 brands in hundreds of

1:44

thousands of active customers in Australia

1:47

and New Zealand. But retail

1:49

is a very tough market and

1:52

Adore is up against some serious

1:54

opposition both here and overseas. I'm

1:56

pleased to say Kate Morris, founder and executive

1:58

director of Adore Beauty is my guest this

2:00

morning. Kate, welcome to Fear and Greed. Good

2:02

morning, Sean. How are you? I'm well, thank

2:04

you. Now, can you give us a thumbnail

2:06

sketch of Adore Beauty, how you went from

2:09

your garage in Melbourne 22 years ago to

2:11

listing last year? Yes. Gosh,

2:14

just, you know, a potted 21-year

2:16

history. It

2:19

was a bootstrap story for a very long time.

2:21

I decided to start

2:23

the business with James when I

2:25

was working on the Clarence counter

2:27

actually and saw how a lot

2:29

of the customers coming into the

2:31

department stores to buy Beauty found

2:34

that experience pretty unpleasant and it's a

2:36

pretty hard sell environment and it's all

2:38

a bit intimidating and to my way

2:40

of thinking Beauty should

2:43

be something that's fun and something that you do

2:45

to make you feel confident, you know, a bit

2:47

of an act of self-care and so it didn't make

2:49

any sense to me that the shopping experience is making

2:51

people feel differently. And so,

2:53

yes, we're actually the first online Beauty

2:56

store to start in Australia. So, as

2:59

a clueless 21-year-old working out of

3:01

my garage, we borrowed $12,000

3:04

from James' dad which was, you

3:06

know, just kind of enough to buy a

3:08

little bit of stock and get a website

3:10

built and very slowly and painstakingly grew the

3:12

business over, well, yes, 20-odd

3:15

years. So, we were pretty much bootstrapped for

3:17

most of the journey which I guess gives

3:19

you a lot of discipline around having to

3:21

find a business model that works because if

3:24

you don't, you don't eat. And

3:28

premium Beauty, the important thing to understand

3:30

about it is a very high-trusted,

3:33

emotive purchase and

3:35

so the thing that took the long

3:37

time was really building up all of

3:39

the relationships that we have with over

3:41

260 brands while at the

3:43

same time building up that

3:45

trusted relationship with our customers as

3:47

well. I'll get onto the listing in

3:50

a moment but you just mentioned that you

3:52

are very focused on loyalty and you recently

3:54

released Adore Society which is a loyalty

3:56

program and in kind of

3:58

interviews done by... senior managers of

4:01

the group, they continually talk about repeat

4:03

customers. Just how important is it if

4:05

you can get someone to access the

4:07

door beauty and purchase a product? How

4:10

important is that you can get them to purchase a

4:12

second one? Is that easier than actually trying to find

4:14

a new person? Yeah, the

4:16

returning customer story is actually the

4:18

most important thing to kind of

4:20

understand about our business, particularly as

4:23

it compares to other retailers. So

4:25

I guess the thing that we've

4:27

been building over all of this

4:29

time is these sticky

4:31

cohorts of returning customers

4:34

who come back onto the platform

4:36

every year. And what we see

4:38

is that every year that they stay with us,

4:40

they purchase more frequently and they

4:42

spend more with every purchase.

4:45

And so that returning

4:47

customer base is really kind of a

4:50

key point to understand. It's I think

4:52

64% of our revenues are

4:54

coming from returning customers who come back

4:56

to the platform over and over. And

4:58

that's what you see again with that high

5:01

trust purchase in premium beauty, once people get

5:03

to love the experience that

5:05

you can offer and the range of brands that

5:07

you can offer, then they do come back. And

5:09

so that's been our slow process of trying

5:12

to convert every new customer that tries

5:14

us out into a returning customer.

5:16

And I guess that's kind of what happened with COVID

5:19

is that we had this kind of once in

5:21

a blue moon opportunity

5:23

to welcome over half a

5:25

million new customers onto our platform

5:28

in that last year. And so I guess that's our

5:30

hope is that we can, in the same

5:32

way that we have been for the last 20 odd years, convert

5:35

those into customers that will continue to come

5:37

back and be more valuable as they return.

5:39

So how do you keep those half a million

5:41

customers that, thanks to the pandemic and other things,

5:44

visited the door for the first time? Look,

5:47

we've been investing pretty heavily

5:50

in our customer experience for

5:52

many, many, many years. And I

5:54

mean, we have an MPS that's kind of pushing

5:56

80 odd. That's a

5:58

Net Promoter score. from our discourse,

6:00

sorry, like a Google review score

6:02

of 4.9 out of 5. But

6:06

you have 4.9 out of 5

6:08

on Google reviews and we're talking

6:10

thousands of reviews. That's pretty impressive.

6:12

Look, we have worked hard on

6:14

it for a really, really, really

6:16

long time. And I think it's one of

6:18

these things that possibly a lot of people

6:20

consider a bit of a no brainer to

6:23

get e-commerce right. But there's a million little

6:25

things that you have to do right. And

6:27

you also have to consistently do them right

6:30

over years and years and years. So we have

6:32

customers who've been with us. I mean, we've got

6:34

data going back to FY12 of

6:36

customers who have been with us on the platform for

6:39

that long. Now, if we let them down at any

6:41

point and we don't make it right, then

6:44

we recognize that we

6:46

can't take them for granted. And so, yes, we've we

6:49

worked on that really hard. And

6:51

it's a whole lot of unsexy things that happened

6:53

in the background of e-commerce like

6:55

logistics software. And we also own

6:57

our warehouse and inventory. And

6:59

I think that's been for us, that's been a

7:01

really big asset, particularly with with the number of

7:04

products that we have. That means that we can

7:06

provide that same consistent and smooth experience

7:08

every single time a customer orders from us. Where do

7:10

most of your products come from? Where are they manufactured?

7:13

They come from all over the world. So we have a

7:15

pretty big chunk of Australian products. So

7:18

I think that's what's around about 30

7:20

percent. But yeah, they come from all over. So

7:22

they come from the US. They come from Europe.

7:24

They come from Korea. They

7:26

come from everywhere. So as a customer, and clearly

7:28

I'll become one as from this afternoon, I

7:32

log on. What's the length of time

7:34

to fulfillment? If

7:36

you ordered this morning and you're

7:38

in the next day delivery

7:40

network, which covers most of

7:42

the capital cities, you will have

7:44

it tomorrow. Stay with me, Kate. We'll be right back.

7:51

My guest this morning is Kate Morris, founder

7:53

and executive director of Adore Beauty. I

7:56

want to go back to the listing. Firstly, why did you

7:58

list and how did you find the process? The

8:00

reason that we listed, and this is kind

8:02

of the plan that we made with Quadrant

8:04

Private Equity when we brought them on

8:07

as majority partner back in 2019, was

8:09

something that we'd been

8:11

thinking about for a long time. And

8:13

for me, I guess as

8:15

being the founder of a business, it's

8:17

always been cash constrained and always been

8:19

bootstrapped. I feel like we've done

8:21

like a pretty amazing job really of growing

8:24

organically. And I guess that the analogy

8:26

we use is that we got used

8:28

to building a fire with green

8:31

wood and no matches. But I think

8:33

I always felt that a door could

8:35

be much bigger. And I

8:37

wanted it to be in the position of

8:39

no longer being cash constrained and having

8:41

the opportunity to take all

8:43

of the opportunities that

8:45

there might be now and into the future.

8:48

And also to think that the

8:50

culture that we've created at Adore

8:52

Beauty is something really genuinely pretty

8:55

special and something that needs to

8:58

be protected. And I guess my

9:00

kids are too little to think about passing

9:02

a family business on to them. So I

9:04

guess I wanted to be in the position

9:07

where if I got hit by a bus tomorrow, the

9:09

business is in a position to go on. But

9:12

yes, how's the experience? Gosh. Now, I just

9:14

want to say I have spoken to lots

9:16

of people who have done IPOs. And pretty

9:19

much the theory is that

9:21

if I knew what was involved, I probably wouldn't

9:23

have done it. Now that might be overstating it,

9:25

but there's a little bit of that in most

9:27

IPOs, I think. 100%.

9:29

We also too, we did the entire thing

9:31

virtually from lockdown. And that

9:33

was pretty tough. So 14 hours

9:36

a day of Zoom calls day after day after

9:38

day after day after day. I think I could

9:40

safely say I've never worked so hard in my

9:42

life. And I've worked pretty hard. You listed at

9:44

$7. Now, you sort of listed

9:46

at the time when retailers, particularly e-commerce retailers,

9:49

were at their peak, which is fantastic

9:52

when you're looking to take money out

9:54

of business and that problem with that, though,

9:56

of course, is that since then, e-commerce retailers

9:58

have fallen in share price. across the

10:00

board and a door has been caught up in

10:02

that as well. How much

10:04

do you think about the share price? Does

10:06

it worry you that it has fallen since

10:09

December when you listed? I mean, how do you think

10:11

about that part of it? Because you have plenty of

10:13

shareholders now. For sure, for sure.

10:15

And I mean, I think I'd certainly take

10:17

my responsibility to them extremely seriously and particularly

10:19

I know there's a lot of women who invested

10:21

in equities for the first time. It was actually

10:23

kind of one of the coolest things about it

10:25

was that I had so many women come

10:28

to me and message me on social saying,

10:30

right, this is it. I thought this is

10:33

finally a company that I understand and I

10:35

can get behind and I'm

10:37

going to figure out how to do this. I'm going to set up

10:39

a broker account and I'm going to go. So

10:41

I take my responsibility to them

10:44

very seriously and I guess, you

10:46

know, the market does what the

10:49

market does and our job is really to

10:51

make sure that we keep delivering

10:53

on what we've promised. I mean, I

10:55

think we were really proud of our

10:57

results that we delivered for the first

11:00

half of FY21 when we... So

11:02

you beat the forecast, didn't you? You beat the

11:04

prospectus forecast. Yeah, exactly. And so

11:06

for me, it's like, okay, well, that's

11:09

our job. The market does whatever

11:11

the market does. And I mean,

11:13

I think everybody can see,

11:16

Lisa, I certainly hope they can

11:18

is that particularly if you look

11:20

at other markets like the US

11:22

and the UK and then even

11:24

further ahead to South Korea and

11:26

China, Australia still has a

11:28

lot of room to go in terms of

11:30

online penetration. So even after COVID, it's sitting

11:33

at what, like 11%. You've

11:36

got the UK now with non-grocery retail

11:38

now at 40% online. I

11:41

guess we've been consistently growing

11:44

for the last 21 years and we're

11:46

going to keep doing

11:48

that. And I guess that's all we can do,

11:50

right? I mean, you are up

11:52

against some hugely powerful players and

11:55

the Sephora and Meccas of the

11:57

world, but also the Amazons. And

11:59

what is... the thing that you

12:01

would say adore beauty, what is your

12:03

comparative advantage in cutting through? Yeah,

12:06

sure. I guess on one level,

12:08

I'd point to our track record of how we

12:10

have grown. I think about

12:12

where we were as a garage business

12:14

21 years ago with no money and

12:16

really no right to compete against these

12:18

massive department stores. But I

12:21

guess it's our willingness to disrupt

12:23

and our capability to be quick

12:25

and to be agile that's continued

12:27

to enable us to establish

12:29

a market leading position as far as

12:31

online beauty retail goes. And

12:34

I mean, so for into the market

12:36

in 2015, I think since then our

12:38

businesses gone like a rocket. So

12:40

I guess in the way that we think about what

12:42

we bring to premium beauty, it's

12:45

kind of the combination of three

12:47

things and it's no one of

12:49

them, but it's all three of them together.

12:51

It's a brand portfolio of over

12:53

260 brands that we spent, you

12:56

know, as I said, such a long

12:58

time building up and developing those really

13:00

deep trust-based relationships with our brand partners.

13:02

And the brand portfolio that we have is actually

13:05

unique in as far as the

13:07

way that it combines prestige department

13:10

store brands and professional brands and

13:13

niche or specialist brands and mass-dige brands. So

13:15

from a customer's perspective, it's very

13:17

much a one-stop shop. You just

13:19

use one of my all-time favorite

13:22

words, mass-dige, which is mass-crestige. Just

13:24

the listeners there, I'm just clarifying that because I

13:27

don't think it's a word to be honest, Kate, but let's just like... I just said

13:29

it. It is now. It

13:31

is now. Right. Fair enough. Okay.

13:35

So that was the first one. It's totally is. And

13:37

beauty definitely is. Yeah, right. So that's the first one

13:39

is this brand portfolio. And the second

13:41

one is, I mean, the customer

13:43

experience that we've spoken about in

13:45

terms of the levels of customer satisfaction.

13:48

So yes, it's our fast delivery

13:50

times and it's the free

13:52

samples and the opportunities for

13:54

trial that come in every box and then even

13:56

the little Tim Tam that we include, which we've

13:58

been doing for... so many years, it's

14:00

kind of almost become a bit

14:03

of a trademark. And the thing about that

14:05

is that the first time I really knew of

14:07

Adore Beauty in this little quite a while ago

14:09

now was the Tim Tam because someone in my

14:11

household ordered something from Adore and

14:13

there's a Tim Tam in it. And that's actually

14:15

how I thought about it. I mean, what a

14:17

great marketing ploy. That's how I took

14:19

notice of Adore Beauty from the beginning. Yeah,

14:21

well, there you go. It's basically what it what

14:24

it sort of stands for is how we want

14:26

our customers to feel about

14:28

their beauty purchase. This is a treat. This is

14:30

just for you. You know, it's like

14:33

it's it's one little individual one in its

14:35

own packet. You even have to share it.

14:37

So that incredible customer experience that goes

14:39

on and builds these really

14:41

loyal and sticky cohorts of

14:43

returning customers. And then

14:46

the third thing is the

14:48

content platform that we've

14:50

built in the way that we're able to

14:53

utilize our data set to

14:56

deeply personalize the customer journey

14:58

for everyone. I mean, effectively

15:00

what that means is that

15:02

for both our customers and

15:05

our brands, we're a marketing

15:07

partner for our brands. But for our

15:09

customers, we're also a trusted source of

15:11

information and a place where you can

15:13

go and and be educated and be entertained.

15:15

I mean, we have the top two

15:17

now fashion and beauty podcast in Australia,

15:20

which is pretty amazing. Yeah, retailer.

15:22

You know, very amazing. Yeah. Well,

15:24

the first of them just passed two million

15:26

downloads, which is just more than a year.

15:28

Yeah, thank you. And so

15:30

it's kind of the combination of these three

15:32

things together. It really is this sort of

15:34

end to end integrated

15:37

media and retail platform

15:39

that keeps customers coming back and

15:41

also keeps our brand partners really happy.

15:44

We'll be back with more in a minute. I'm

15:51

talking to founder and executive director of Adore

15:53

Beauty, Kate Morris. Finally, you

15:55

launched the global shades campaign to make

15:57

the beauty industry more inclusive. You

15:59

should. The had a story at the

16:01

time about how you rise. Making decisions

16:04

based largely on cash flow in inventory

16:06

levels had meant eat unintentionally excluded people

16:08

of different colors. How important lesson Is

16:10

it? The corporate astray or baton thing

16:13

and it is as responsibility I suppose.

16:15

This kind of bigger than that. It

16:18

is bigger than that and for

16:20

us it guys that see as alleys

16:23

said the valleys. ah the really cool

16:25

thing of the it'll be culture

16:27

that I mentioned earlier that I think

16:29

is so special. and and two of

16:32

those. Core Values: One of them is

16:34

doing the right thing. And

16:36

that means we do the right

16:38

thing by by the community, by

16:40

each other, by our customers, by

16:42

our suppliers. But it also means

16:44

that when you make that mistake.

16:47

You are in up to it and you

16:49

do whatever needs to be done to make

16:51

it rice and so it's sort of. It's

16:54

that kind of integrity. Pay said it's really

16:56

fundamental And that said, May as a as

16:58

a founder and leader in the business. I

17:01

absolutely need to leave. Five needs to that

17:03

every day. And then the second

17:05

of the valleys that that comes into play

17:07

areas is always going and so I guess

17:10

what that means is that you know yes

17:12

if we do make a mistake as part

17:14

of that campaign I acknowledge that it was

17:16

my blind spot myself and the rest of

17:19

the people in decision making capabilities that it

17:21

with my it was my blind spot and

17:23

that that we could fix it and that

17:25

once we know better we can do better.

17:28

And I think though. Sadly, there are

17:30

really a core of what. Drives.

17:32

That particular campaign for us that

17:34

yes I I think is businesses

17:36

really need to be aware of

17:38

the unintended consequences own decisions that

17:40

they might be making. Perhaps it

17:42

had enough. Diversity in their

17:45

ranks of without enough. This only

17:47

happened because we had a massive

17:49

manager who was able to use

17:51

her experiences. I actually my experience

17:53

will be reflective of the spirits

17:55

of many, many many others and

17:57

this is not. Rise as a

17:59

grateful. Great thing about

18:01

that story is it sort of brings integrity

18:03

and commercialization together and they're on the same

18:05

path in that instance. 10

18:07

years time, where will the door beauty be? Oh

18:09

gosh, well I mean, you know, like world

18:11

domination obviously. So

18:14

I guess I think about that

18:16

in a couple of different ways and the first

18:19

is in terms of the customer

18:21

mission that we have. When

18:23

we started in the garage 21 years

18:26

ago, really the mission was

18:28

to empower our customers

18:30

to feel their most confident and

18:33

fabulous selves. And

18:35

so I guess if we're succeeding

18:37

then we're achieving that for more

18:39

and more and more customers

18:42

as being in terms of the first place to

18:44

start your journey of self-care.

18:46

I've always believed that beauty is

18:48

actually a self-care category. It's much

18:50

more about that than it is about the

18:53

way that you look. I think we

18:55

have ambitions of being not just the biggest

18:58

online beauty business in Australia but the

19:00

biggest beauty business in

19:02

Australia and New Zealand as well. And

19:06

we certainly plan for there to be some beyond

19:08

by then. And then I also

19:10

think about, well, I really want to be that

19:13

kind of world's best example and so I get

19:15

asked the question a lot of, you know, who

19:17

do you think is doing like a really amazing

19:19

job of this globally? And actually

19:21

I want everybody's answer to that in

19:23

this industry to be Adore Beauty. Fantastic.

19:26

Kate, thanks for talking to Fear and

19:28

Greed. My absolute pleasure. That was Kate

19:30

Morris, founder and executive director of Adore

19:32

Beauty.