Luxury online department store The Hut Group, who claims to have invented the 'multi-website retail' model, has witnessed record growth in recent years; right at a time when more and more retailers seem to be failing. Its unique and innovative approach to acquisition and multi-business management has so far seen it side-step this unfortunate industry trend, and land more success than ever before - most recently landing the prestigious award for International Growth Retailer of the Year 2017.
Through its proprietary platform, the British ecommerce company based in Northwich, Cheshire, currently operates more than 100 international websites that sell premium 'fast-moving consumer goods' (or FMCG) within the health and beauty markets.
In fact, a recent surge of acquisitions has made THG Europe's number one fastest growing retailer for health and beauty, and in 2017 they were valued at £2.5bn, making them one of the most singularly valuable private companies in the UK.
Acquisition strategy
The Hut Group was founded in 2004 as a simple provider of white label ecommerce websites for grocery retailers. Six years later they were also taking on entertainment brands, and began specialising in health and beauty sites with the acquisition of lifestyle brands Myprotein and Lookfantastic.
But 2013 was the year when THG really hit the big time.
The brand took their first steps towards becoming international and expanded their growing empire overseas. The subsequent increase in revenue and profitability enabled them to attract business from some of the UK's big-name stores such as WH Smith, Argos Entertainment and ASDA who were looking to move online.
Fast forward to 2016 and THG were announcing revenues of £501m - an increase from the previous year's £334m. International sales were also up 89 per cent to £316m, while gross profit increased by 67 per cent and EBITDA rose 67 per cent to £50m.
Their rapid rise during those three years can in part be attributed to a number of strategic acquisitions, including that of beauty box subscription service GLOSSYBOX, bought from majority shareholders Rocket Internet and Kinnevik Online.
The deal was struck after THG saw the success of its own subscription brands including lookfantastic, Beauty Box, MyGeekBox and PopInABox, and was a strategic attempt to further extend their international reach.
At the time, Matthew Moulding, The Hut Group's co-founder and chief executive called it a "significant investment" for The Hut Group:
"In GLOSSYBOX, we have acquired a great brand, with a solid and engaged customer base that, once powered through our platform and marketing infrastructure, should be capable of further significant growth.”
He attributes his company's successful growth on its relentless focus on technology which enables them to connect their various acquisitions through their universal ecommerce platform. In this way, Moulding said he was confident THG would "continue to deliver strong growth and extend our global reach”.
Certainly, 2017 has so far seen this prediction come true as THG enjoys record profits after a number of strategic takeovers and stake sales.
In August, the retail giant sold a £125m stake to asset management kingpins Old Mutual Global Investors (OMGI) in a deal valuing the company at £2.5bn.
The stake sale, which was OMGI's first equity investment in a private company, catapulted THG into one of the UK's most profitable companies, just two years after a previous fundraising effort valued the company at less than £1bn.
Directly after this move came THG's most significant purchase to date; the purchase of skincare brand Espa.
Espa was chosen as a promising addition to THG's portfolio after acquisition experts saw the rise of 'selfie culture' and recognised the enduring potential of the online beauty market.
Describing the method THG took when considering new takeovers, Mr Moulding said the company had a dedicated team of nine staff who were constantly looking for new deals; specifically targeting companies they saw as having the potential for huge growth.
"We take a five-year view on acquisitions and have big targets which makes us very different to private equity, otherwise there's no point in doing them," he said.
By the end of the year, the company expects to have invested around £400m on primarily health and beauty businesses as it chases ever-higher sales targets. The latest addition was the £25m purchase of cult beauty brand Illamasqua.
Mr Moulding's strategic approach to targeting lifestyle acquisitions seems to have paid off, as the beauty division now accounts for nearly 75 per cent of total sales.
To help facilitate their rapid growth and the procurement of ever more businesses, THG has recently requested an extension to their borrowing capacity from £345m to £515m. The likelihood of this request being granted is high since the company's profits for this year alone reached a stately £750m - a more than 50 per cent increase on last year. With this agreement, the syndicate of banks that currently work with THG, including Barclays, HSBC and Silicon Valley Bank, will be extended to include a number of other high-profile lenders and investors.
Commenting on the credit extension, Moulding said: "This year has seen a real acceleration in investment for THG, especially across beauty, infrastructure, technology and talent.
"This substantial new credit facility is another important step for the group and provides us with even more firepower to pursue our ambitions for further significant international growth.”
And it's worth noting that the international aspect of THG is another important ingredient to their success.
Their targeting of international companies has given them a number of footholds in lucrative markets and also partially cushioned them from the fall of pound sterling since the EU referendum. Today, around 75 per cent of Hut Group's sales are made outside the UK with North America being its largest market.
Changing consumer behaviours
One of the main reasons why THG has experienced such growth at a time when other retailers, even those with a reasonable web presence, are struggling to tread water, is due to a profound shift in the way people are shopping.
Where other companies are only now reacting to changing consumer behaviours and trying to keep up, THG looked ahead and quickly realised the disruptive potential of online retail and appropriated the market by developing a bespoke hosting system to cater to it.
The company’s acquisitive strategy targeted the beauty industry which the management team recognised was about to see a boom, and they continue to dedicate time to searching out companies that will be able to capitalise on changing behaviours and market conditions.
And it's not just the health and beauty sites that are bringing in the dough. Last year, the online retailer bought Cheshire's Hale country club for £25m which it is currently developing to be a "global centre of fitness and wellbeing excellence", according to its website - an offline sentiment that's firmly in line with the corporate brand objectives. There are signs that the business will be looking to invest in similar ventures in the future.
For business start-ups and buyers who are looking to launch a retail business in the climate that made THG thrive to such an extent, an essential first step is to establish a strong web presence. So important is it that THG succeeded by doing this before even thinking about investing in physical properties; an approach that completely subverts traditional business practices where we see high-street shops 'expand' into digital media while keeping their physical stores as a priority.
Several high-profile administrations in recent years have attested to the fact that high-street brands who pay significant outlay for brick and mortar premises but are failing to create a user-friendly and efficient digital presence are seeing their profits drop and user base deplete. More transactions are taking place via devices than in person, and this is a trend that's only likely to accelerate as companies like THG sophisticate the market and further erase the line between wholesalers and customers.
We are on the cusp of a complete revolution in the way we shop and interact with brands. As a business buyer or seller, an awareness of the direction of the market will be invaluable in formulating an appropriate business model and successfully choosing and managing acquisitions.
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