The Los Angeles-based beauty branding, design, product development and manufacturing company has named as its chairman Christie Hefner, executive chairman of Canyon Ranch Enterprises and former chief executive officer and chairman of Playboy Enterprises, to guide it through a growth spurt. In the last year or so, Hatchbeauty received $5 million in secured debt financing from an affiliate of New York investment firm Enhanced Capital Partners Inc., tripled the size of its headquarters by moving into 12,000 square feet of office space, and hired around 40 employees to bring its total staff to close to 100 people.
When assessing the state of a business, Hefner explained she examines top-line revenues, profit margins, client diversity and the connection between its strengths and market demands. On all criteria, she suggested Hatchbeauty is performing at a high level. “One of the things that I hope to help them with is to choose how to focus to make sure that they are matching their opportunities with their resources and, if they don’t have the resources they need, to figure out the best way to bring additional resources to bear,” said Hefner, noting Hatchbeauty’s expertise is starting to be tapped outside of its core competency in beauty and personal care, and that its client roster can easily stretch beyond the U.S. borders.
Hefner, who met Hatchbeauty founding partners Tracy Holland and Ben Bennett working on initiatives to expand Canyon Ranch’s reach, has already played an important role at Hatchbeauty over the last several months, according to Holland. Holland said Hefner has identified “short-term and long-term strategies around talent and how we build out the staff. She’s very involved and has been a crucial part in opportunity-seeking questions and strategy meetings, and how we executive on a program or opportunity, and do we take it or not take it. We look at her as the third leg of the stool in terms of this [management] group here.”
At the moment, Hatchbeauty is considering bringing on board a strategic partner. “Christie is leading the charge,” said Holland. “We have been profitable from the second we opened our doors. Right now, our business is fine. We don’t need any working capital to keep the doors open and lights on, but with all these new business opportunities, we have done a head-count analysis and it could be that we are 150 people by the end of 2016. In order to be able to do that, you do need to be able to look at how you scale to that.”
Hatchbeauty, which is estimated to generate $100 million to $200 million in annual retail sales, is divided into three separate entities: an agency that handles design and branding, a turnkey products developer and a manufacturing facility. Hatchbeauty bought the assets of Gorbec Pharmaceutical Laboratory in Durham, N.C., in 2012. Bennett and Holland emphasized pairing manufacturing capabilities with Hatchbeauty’s creative know-how gave it a sharp point of differentiation from competitors.
Holland said, “We felt strongly that owning a manufacturing facility gave us a vertical advantage that no other creative, design and branding agency has, which allows us from a total holistic perspective to look at a product, a concept and a go-to-market strategy truly understanding what the cost implications are on the innovation and R&D side, and then, for a lot of our clients, streamlining that supply makes sure that what we create on the creative and design side is actually executed upon with the finished product.”
The agency business contributes only a small portion of Hatchbeauty’s overall revenues, but Bennett stressed it is Hatchbeauty’s “heartbeat.” “There are other companies that are providing turnkey services to brands and to retailers, but the DNA of our company is in our agency and it always has been,” he said. “If it is a retailer who’s calling us or a brand who’s reaching out to us and wants us to work with them, they want the magic that happens in the agency.” Hatchbeauty takes on about 10 to 12 agency clients at a time. Typically, Holland said 90 percent of the clients Hatchbeauty works with end up manufacturing in its facility, although it’s not a requirement.
Retailers have been calling on Hatchbeauty a lot lately to develop proprietary brands with premium positioning. Hatchbeauty collaborated with CVS to develop Nuance Salma Hayek and Costco to create Beauty’s Most Wanted, an umbrella brand with product lines by manicurist Jenna Hipp, dermatologist Jessica Wu, hairstylist Orlando Pita and makeup artist Pati Dubroff. Makeup artist Kristofer Buckle is joining the Beauty’s Most Wanted brigade in September with tinted lip balms in three shades that are sold together at Costco for $40. “Kristofer brings excitement, theater and drama,” said Bennett. “He works with almost everybody, but he’s really known for working with the divas. The divas are demanding and they want the best of the best, and he is their go-to guy.”
Bennett and Holland underscored that proprietary beauty brands give shoppers a reason to enter stores. “Retailers have to do this,” said Bennett. “It is the only way that they will survive. A retailer who is not able to secure an exclusive or develop proprietary brands to curate a unique assortment for their clients will not survive. Some retailers have come around to understand that, and some retailers are still getting that. It is the most exciting thing that is happening at retail in our space.”
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