Beauty and the board

Adore Beauty has come a long way from its beginnings as a garage startup. Co-founder and executive director Kate Morris talks about the innovative e-tailer’s growth plans and the strategic advantage of gender diversity.

Adore Beauty’s initial public offering (IPO) was not only the biggest of 2020, but also the largest female-led Australian market float. Building a female-dominated board and management was a priority for co-founder Kate Morris. The commercial logic is obvious given over 5.3 million Australian women purchase cosmetics in an average six month period and over a quarter of women who purchase cosmetics buy health and beauty products online (26 per cent) in an average three months, according to Roy Morgan 2019 figures.

But Morris, who has spent over 25 years in the sector, says there’s a powerful governance rationale as well. She and her business (and life) partner James Height dived into an IPO for the company in October 2020, insisting on diversity and gender equity on the board. Adore has a majority female board and executive team and 67 per cent of their managers are women. The company also rejected any pitches from all-male investment teams during the IPO process. “Gender diversity is still an active priority for us,” says Morris.

The daughter of two social workers from Launceston, Tasmania, Morris was surprised to hear potential investors remark during the roadshows for the IPO process how strange it was to be presented by the company’s female executive team. “We look different and we sound different,” she says. “I didn’t even realise that was weird in the world of investment banking.”

The problem was more subtle than sexism; it stemmed from ignorance among some male bankers and analysts about an industry Morris has been passionate about since she worked the Clarins counter at Myer’s Melbourne store during university.

“Women talk to each other about their beauty purchases and they buy products they use habitually. It’s not like buying a TV,” she says. “We had one team of all-male bankers present to us and I just went, ‘We’re not having those guys. For me it was like, ‘Show me that you understand my business, show me that you care about it.’

The company’s approach paved the way for it to take advantage of the COVID-19 opportunity as it arose, which many hadn’t seen coming. “We had to close the knowledge gap,” says Morris. “[The bankers] asked why sales were going up during COVID-19 and we had to explain beauty isn’t about appearance. Beauty is about self-care and the need for this increased in the pandemic.”

As with many retailers, the pandemic brought opportunities and the team played on the front foot — increasing sales, expanding its customer service lines and increasing its warehouse space to 4000sqm and team to 200 while introducing COVID-safe plans. In November 2020, they soft-launched a mobile app.

“The equivalent of toilet paper in the beauty world is shampoo, conditioner, moisturiser, cleanser — all the things that you absolutely do not want to be stuck in lockdown without,” Morris told the AICD’s Australian Governance Summit in March.

Sales for the six months to the end of December 2020 rose 85 per cent to $96.2m, beating the company’s prospectus forecasts by eight per cent and Adore’s own forecast.

“It was a challenge because we were balancing keeping everybody’s jobs safe, and keeping everybody safe from a health perspective, while sales were doubling,” says Morris. “We went back to the principle of being really upfront with staff and managing our customers’ expectations regarding delivery times.”

Board matters

Big players Woolworths and Quadrant had a presence on the Adore Beauty board while they were involved with the company, but Morris says the new board has been incredibly valuable. Chair Justin Ryan FAICD — who also chairs Grays, Modibodi and Quad Lock, and is a director at the National Institute of Dramatic Art — has helped steward the scale-up. Other directors are Birkensleigh, Marina Go MAICD, James Height and Morris.

At the outset of the pandemic, Morris and the board ran through many scenarios about growth and potential losses if the warehouse had to close. “We were planning all the way from, ‘What if sales double or triple what we had forecast?’ to ‘What if our warehouse is shut down altogether and we can’t take any customer orders and therefore have zero revenue?’” she says. “We looked at how much cash we had and how long we could survive.

Open communication with staff and the board sharing information was key. “James and I said to each other a bunch of times, ‘Gosh, I’m glad we’re not going through this on our own’, because that would have been quite terrifying,” says Morris. “Having support and knowing there were other people on your team we were able to call on if we needed help or support was really valuable.”

Facing the company’s first reporting season six months since the October float, Morris says that the requirements are onerous, but her finance team is managing the challenge. “But being a public company is a responsibility we take seriously.”

As a technology-enabled retailer, Adore has a focus on content-led customer engagement and acquisition pointing to the company’s two top-ranking podcasts (Beauty IQ Uncensored and Skincare School), YouTube channel and mobile app. “Retailers have not traditionally been known for creating compelling content that customers would voluntarily listen to.”

Addressing the power imbalance

Reflecting on the discourse around workplace sexual harassment and noting the majority of her staff are under 40, Morris is adamant. “Harassment is a side effect of power imbalance; it’s about power and abuse of power,” she says. “This is the problem you get if you don’t have enough women in the decision-making process.”

Morris says insisting on gender equity on the board and in management requires focus and patience. When the company listed, Adore Beauty gave eligible members of its mostly female workforce $1000 worth in shares, which was an opportunity to dip their toe into the share market.

Research for the 30% Club Australia has found small-cap listed companies struggle with board diversity and composition. Building Gender Diversity on ASX 300 Boards, a KPMG report released in July 2020, found that ASX 300 had a low average proportion of females on boards at 28.4 per cent, compared with 31.8 per cent and 30.7 per cent female representation on ASX 100 and ASX 200 boards respectively.

Innovation

As Adore’s new innovation chief, Morris says it’s important for the market to understand what her new role is. “I don’t care about titles, but it has been useful to communicate that I am back in startup land.”

Among her projects is strategy for the next five to 10 years, and developing a range of products for skin and hair expected to be released in 2022. “From our data, we can see all the things customers are looking for that none of the other brands are catering for now,” she says. “Can we create brands that fulfil those needs for our customers and could those brands be successful internationally? We don’t see why not.”

Another priority is to build Australian consumers’ online retail habits. “There’s a huge opportunity in the core business in Australia and New Zealand,” says Morris. “Online beauty and personal care products in Australia account for 11 per cent of retail sales, whereas, in the UK, it’s about 40 per cent. That customer experience of going into a department store cosmetic hall hasn’t been innovated in 70 years. It’s just the same as it was in the 1950s and customers have moved on a bit from that . Innovation is absolutely fundamental.”