'Aspiring' Digital Retailers: Do You Know How The Hut Group (THG) ‘Got There’?

THG re-defined the modern retailing model; shaking-up every sector they entered and taking dominant positions.  

Traditional Beauty brands previously took years to build retail relationships. THG bought their way in and scaled through acquisition - Lookfantastic is now the 3rd largest global on-line beauty retailer and already challenging for the top spot. 

They enjoyed stratospheric growth since start-up and now have a stock market valuation of £6.8bn. 

So how did they achieved their notoriety? 

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Julian Grindey is an energising and inspirational MD/CCO/Trading Director, skilled in leading profitable change and transformation, inspiring strategic vision, and commercial delivery and in driving retail and digital growth. Proven in delivering exceptional growth from turnarounds and scale up, in key omni-channel operators, including private label and international product sourcing strategy.

More than 150 DTC (Direct to Consumer) brands in the beauty, fashion and supplement sector have scrambled to partner with THG causing commentators to speculate whether they are a retailer or ‘tech’ company. They are both. 

To shine a light over their success; 4 facts demonstrate THG’s scale:

1.     Founded (2004) when Matt Moulding and John Gallemore raised £500K to start selling CDs as a white label e-commerce provider. Realising demand for CD’s was declining, they adapted their model to become the digital version of a personal care and beauty store.

2.     Operating 4 divisions - Beauty, Nutrition, Ingenuity, and Lifestyle - its beauty brands include Lookfantastic, Skinstore and subscription box service Glossybox.

3.     In June 2020, it struck a deal with Johnson & Johnson, PZ Cussons and Procter & Gamble to mark the transition to DTC, meeting online consumer demand across 169 countries.

4.     That year THG raised £61.8bn. in a huge UK stock market floatation –  the largest IPO of the last decade valuing them at £6.8bn. Within months, work started on a new £1bn headquarters – creating 10,000 jobs as annual sales topped £1bn. 

There are 5 aspects to their success – 

1.     A convincing investment case - growth on this scale is rarely feasible from cashflow alone. Moulding convinced skeptics to invest and lend, time-after-time:

-        £100m round of funding via investment firm KKR in 2014. 

-        a private equity round in 2017 raising €136m. 

-        Securing €2.4bn. in credit lines to fund expansion. 

2.     Strong International brand collaboration - THG holds leading positions with most of the key Health and Beauty brands who use them as a distribution channel.

3.     Integrated Verticals – they developed expertise in sourcing, design and development through to manufacturing and distribution, creating a key competitive advantage. They leverage customer insight to drive the product offering.

4.     Monetising the ‘tech’ stack - “THG Ingenuity.” sells the same technical infrastructure behind their own Lookfantastic and Myprotein brands. Clients include Nestle, P&G and Coca-Cola who benefit from web hosting, design, distribution, payment services and influencer marketing. They even offer translation and creative agency services.

5.     Globalising brands - THG’s revenue is generated in Europe (€736m), but the rest of the world isn’t far behind with €500m annually. They have;

-        a global sales network of brands -  MyProtein, Lookfantastic and Zavvi all have websites in multiple languages and global fulfilment. They offer this to others. 

-        their own influencer platform - with over 10,000 influencers for 1st and 3rd party brands generated 9% of Sales in 2019.

Conclusion

THG became a £6.6bn business by being really BAD – Brave, Agile and Distinctive: 

BRAVE - re-writing its business model ‘on the fly’ - pivoting from music to Beauty retailer in pursuit of margin and opportunities to scale.

AGILE – expanding its business model focus from retailer to tech company - acquiring dozens of DTC brands and relocating them to its battle-tested tech platform.  

DISTINCTIVE – relentless at ‘sweating all their assets’ – unrivalled in their target markets. 

Retailers 'aspiring' to be digital must learn to re-write their business models because ‘BAD’ is the new ‘good’. It makes sense to learn and follow from the pioneers driving the future. 

Julian Grindey is a retail leader. He can be contacted on 07969 397916 or at juliangrindey@aol.com