Posts

The Background

Back in 1851, a small apothecary was established in the neighborhood of East Village, New York by John Kiehl. Breaking away from typical drug stores that offered common compounds and nostrums prepared onsite, John chose to open a store that focused on essentials oils, homeopathic and herbal remedies to achieve his objective — keeping the local community happy, healthy, and feeling their best.

The apothecary remained in the family for 70 years until it was purchased by Kiehl’s apprentice, Irving Morse, in 1921 before his son, Aaron Morse, took over in 1950 and added grooming products for men and women to the brand’s product line.

Aaron was also the one who introduced free samples to customers and is still practiced at today’s global cosmetics powerhouse Kiehl’s.

More than 12 million Kiehl’s sample packets and tubes are given away each year.

Fast-forward to 2000, Aaron’s daughter Jami Morse Heidegger decided to sell the business she inherited to L’Oreal for approximately $100 million. The brand had become immensely popular among fashion enthusiasts and skin-care connoisseurs worldwide and impossible for her to continue managing.

“It was like a snowball rolling downhill and just getting bigger and bigger. I created something I couldn’t control” – Jami Morse Heidegger

Jami Morse Heidegger, third-generation Kiehl’s heiress and her husband, Klaus Heidegger
Source: Retrouve

After being acquired by one of the largest cosmetics companies in the world, Kiehl’s expanded to 2,000 locations in 61 countries and was well on its way to the top of the beauty industry. What could go wrong?

The Challenge

Jami always feared her business would become a brand fighting for money, attention and space.

The thought of selling her business to L’Oreal didn’t appeal to her at first because L’Oreal had a reputation in building mass brands like Maybelline and had never managed a niche, boutique brand before.

But after it grew to a size she could no longer handle, she had no choice but to hand the brand over to a corporate looking to compete in the burgeoning specialty market.

Kiehl’s was afraid that under the management of L’Oreal, consumers would no longer view the store as independent and cutting-edge but rather as a revenue-generating corporate machine.

“[The challenge is] to grow and export the Kiehl’s way without changing it. We soon realized that we needed to stick as closely as possible to our business model on a global basis, to create a consistent Kiehl’s experience around the world,” said Kiehl’s General Manager Worldwide, Cheryl Vitali.

How were they going to keep a tight leash on L’Oreal?

Inside Kiehl’s apothecary during its early days. Source: Yahoo

The Strategy

The company didn’t want a flashy marketing budget or fancy model to be representing its brand.

“We want to keep the line [Kiehl’s] very exclusive,” said L’Oreal USA’s former chief executive, Guy Peyrelongue.

In order to appease the wishes of the Kiehl’s family, L’Oreal maintained the brand’s identity and its distribution model while ensuring its stores around the world matched the look and feel of the original apothecary in East Village.

Kiehl’s was on a mission to set strict brand boundaries for consistency and product control. And it worked.

Any one that has ever stepped into a Kiehl’s apothecary will recognize the iconic skeleton, Mr Bones, next to the famous Harley Davidson motorcycle.

“The motorcycles entertained the guys while the ladies shopped — and it was also a very clever way to introduce Kiehl’s men’s products to them,” – Chris Salgardo, president of Kiehl’s USA

Kiehl’s shops around the world look almost identical thanks to the brand’s strict guidelines. Source: Marie Claire

The brand also spends heavily on the development of products and ingredients, almost 3 to 5 times more than competitors. Its contribution to multiple charitable efforts also proved to be a successful way to hook customers to not only buy for themselves, but also feel proud to gift Kiehl’s products.

In Thailand, Kiehl’s introduced the country’s first ambassador and offered free samples together with a 5-minute consultation. Source: mThai

The company’s success in the US made global expansion a next natural step. In line with L’Oreal’s focus on digital marketing and ecommerce to capitalise growing consumption, Kiehl’s went online.

“It [online] enables us to get to know our customers better and interact more effectively with them, while remaining true to the brand’s rebellious and offbeat style” – Cheryl Vitali

By 2013, Asia had topped global sales of natural personal care products. The popularity of natural products was driven by major economic changes and rise in disposable incomes, especially among the Chinese, who had become more health-conscious.

The chart shows the sales of natural personal care products by region in 2013; Asia is the leader in sales. Source: Kiline Group

Southeast Asia also displayed the highest-growing demand for beauty and personal care causing Kiehl’s to invest heavily in performance marketing and its website with the help of ecommerce enabler and e-distributor aCommerce.

Beauty and personal care is expected to grow the most in Asia Pacific from 2016-2021. Source: Euromonitor

A fear many brand managers face is consistency across channels. How do I ensure the brand is rightfully represented at all customer touchpoints?

In the case of Kiehl’s, the company successfully projected its edgy and young vibes through bright colors and flashy images on its website in Thailand and Indonesia.

Kiehl’s website was localised for Indonesian customers.

The brand preserves its mission to make each and everyone of its customers feel good by utilizing technology. Kiehl’s recently implemented artificial intelligence and a text messaging model in its stores and online to keep customers engaged and taken care of.

“We’ve learned the first purchase happens in store, and online we’ve created tools to extend services to make a cycle,” Julia Mavrodin, Kiehl’s associate vice president of e-commerce and digital marketing said.

Through historical data collected from online orders, Kiehl’s can accurately estimate when a customer will run out of an eye cream or facial cleanser and send a text message to prompt the customer to order a new one.

A sample text message that Kiehl’s sets to keep their customers replenished with its goods. Source: Digiday

By introducing a direct channel to converse with customers, the brand is able to track where and when customers buy its products, even at partner retailers like Sephora or Nordstrom.

This allows the brand to stay top of mind and shield customers from buying unauthorized products off of e-marketplace like Amazon at the same time.

To this day, Kiehl’s has remained one of L’Oreal’s fastest growing brands and broke the symbolic $1 billion sales mark in 2016.

The Future

Kiehl’s is looking to capitalise on its brand power in new markets like the Middle East and Latin America to ultimately spread the brand’s legacy and become the number one skincare brand in the world.

“To get there we will need to pay even closer attention to our customers. After all, that has been the secret of our success for the last 160 years.”

Here’s what you need to know today.

1. Australian logistics startup Shippit gears up for Asian expansion 

Australian logistics software company Shippit announced today it has raised a series A round worth US$1.6 million.

The Sydney-based startup will use the funding to fuel further growth, hire more people, and expand to Asian markets within the next year.

The round is led by Australian investment firm Aura Group, which established a Singapore presence last year.

The co-founders saw an opportunity for growing its product and sales teams to continue building the company in its home market as well as abroad, so it was a good time to pursue its series A round. Shippit claims to have over 750 customers, including Sephora and the Topshop clothing chain.

Read the rest of the story here.

 

2. DHL taps Alexa to deliver package status updates

DHL Parcel has launched a new skill for Amazon’s Alexa virtual assistant app that allows customers to ask Alexa for updates on an expected parcel delivery,

This a very practical and useful application of Alexa’s talents. While Amazon promotes Alexa’s skills as a shopper convenience, a music streamer or a know-it-all, this new skill is an example of how Alexa also can be a customer service conduit — not just to Amazon — but to any company that sees fit to develop this sort of skill.

Read the rest of the story here.

 

3. Recommended Reading: Amazon’s epic 20-year run as a public company, explained in five charts

For Amazon investors, this is perhaps the only chart needed. Amazon’s stock price as of Friday was $961 a share, over 600 times greater than what it was on its IPO day — after accounting for stock splits.

 

Amazon has made sure not to let too much money drop to its bottom line — giving it the stigma of being a perennial money loser, so it can eat up market share from competitors that are more focused on profits than on growth.

Read the rest of the story here

Let me preface this by saying that I truly believe that at least half of success in business can be attributed to luck, with the other half being execution. Although it is fruitless to try and document something as idiosyncratic as luck, I will discuss what I believe were the key principles that allowed us to scale our business to where it is today.

As a quick primer, Althea.kr is a Korean Beauty ecommerce business. We were founded in Malaysia in July 2015 and in the past year have expanded our operations to Singapore, Philippines, Indonesia, and Thailand. Within one year, we were recognized by Forbes as the largest Korean Beauty website in Southeast Asia with an annualized revenue run rate of $10 million.

Luck aside, I think we can attribute our ability to grow so quickly to three principles – focus, localization, and financial discipline.

1. FOCUS

What differentiates Althea from many ecommerce businesses is that we exclusively focus on one niche – Korean Beauty (K-Beauty). In the past 10 years, the K-Beauty industry has experienced CAGR of 33.8% and a significant amount of that demand comes from Southeast Asia.

We estimate that the addressable market for K-Beauty in the region alone will be $8 billion by 2020.

althea southeast asia

Google Search Interest – ‘Korean skin care’

Side note on why K-Beauty is popular

To understand why K-Beauty is so popular, it helps to understand the unique dynamics of the Korean market. It comes down to the fact that Korea is a small country with a condensed, demanding and fickle population.

Companies are constantly under pressure to innovate and create new products in order to meet the differing demands of consumers and to stay relevant. In traditional beauty companies, it takes approximately two years to create a new product, whereas Korean companies do so within months. One of the best examples of this hyper innovation is highlighted in the unique ingredients used in K-Beauty products ranging from snail mucus, horse oil to egg whites.

Despite the high demand for K-Beauty, it is extremely difficult for consumers to purchase K-Beauty products in most parts of Southeast Asia. The first challenge is the limited selection – there are over 10,000 K-Beauty brands in Korea but less than 100 of them are available in Southeast Asia.

This is because the demand in Southeast Asia, although growing, is still small relative to Korea’s domestic market and their main export market, China. On top of this, the available brands usually only offers a limited selection of their top sellers, not the whole product line.

The second challenge is pricing. In other parts of the world, K-Beauty is known as a value for money product, but because of distribution agreements and import duties in Southeast Asia, customers often pay up to 100% more for the same product.

For example, Laneige sells its Water Sleeping Mask for 28,000 KRW in Korea but it costs approximately 35,000 KRW if a consumer purchases the same product in Singapore.

Althea-southeast-asia

althea-southeast-asia

At Althea, we saw that the vast price discrepancy represented an untapped opportunity. By hiring a specialized team of K-Beauty experts in Seoul to work with brand owners and distributors to build our assortment and negotiate pricing, we have scaled our assortment from 300 SKUs to 3,000+ SKUs. For brands that we have direct relationships with, they see Althea as an easy way to enter five different markets that have diverse languages, culture and regulations.

Our pricing is comparable to what customers would pay in Korea, and we can generally deliver across the region to most areas within five working days. This has established us as an authority on K-Beauty, which has two main benefits:

1. The majority of Althea traffic and transactions come from unpaid channels (Direct and Organic Search results)

2. It significantly improves cost per order (CPO) –  in our more mature markets, we are getting marketing spend ROIs in excess of 25x

althea-southeast-asia

*Blended CPO over the last 12 months in one of Althea’s more mature markets. Source: Althea cost per order, internal data

2. LOCALIZATION

Even though K-Beauty is considered a universal product, it is still important for us to localize our service and offerings. We localize every consumer facing aspect of our business and operate a different website for each of our specific markets. From changing web addresses to suit local domains such as my.althea.kr for Malaysia and th.althea.kr for Thailand to having website content in the local language.

For our marketing campaigns, we engage 150-200 top beauty influencers in each country to act as local brand ambassadors. We benchmark our pricing by market to ensure we have the cheapest prices in each country we operate in.

Payments has always been a hurdle in ecommerce, we cover most major options ranging from credit card, local bank transfer, over the counter, and cash on delivery, which is crucial to success in Southeast Asia, due to low credit card penetration.

Our logistics operations work with 15 local last mile couriers and five local return centers to facilitate ease of deliveries and returns and we’ve adopted our customer service operations to offer social network support in each market.

Althea’s localization efforts: 

  • 5 websites
  • 4 languages
  • 750+ beauty influencers
  • 70+ payment options
  • 15 local last mile couriers
  • 5 local return centers

3. FINANCIAL DISCIPLINE

We are fortunate enough to be a part of the beauty industry, one of the only industries that has maintained its margins for 100+ years. Our product margins are multiples higher than a typical ecommerce business. Combined with the inherent stickiness of the products and a highly engaged customer base (18-34 year old females), our customer LTV is attractive.

These factors mean that we can afford to be aggressive with our customer acquisition cost (CAC) and other customer centric costs. While we invest aggressively in marketing and customer service, we practice strict financial discipline in all other aspects of our business. This means that while we do business in six countries, we only operate two offices and one central fulfillment center. We have one office in Seoul, which has 10 full time equivalents (FTE), and is responsible for sourcing, logistics, HR, and legal.

Our second office in Kuala Lumpur has 20 FTEs that handle development, marketing, finance, and customer support. This asset light model has allowed us to enter a new market once every three months since launching.

We generate significant savings by not duplicating functions across local offices, and in turn we re-invest those savings into growing our business.

By adhering to these three core principles – focusing on a niche category that we can execute well, localizing all customer facing aspects of our business, being efficient with our capital and a little bit of luck, of course, we were able to enter five markets and build a $10 million a year business within one year. Looking forward, we hope to expand our business to the rest of Southeast Asia as well as the greater APAC region.

althea-southeast-asia

The Althea team at their one year anniversary party

BY DAVE CHANG, HEAD OF MARKETING & EXPANSION AT ALTHEA

1. Sephora wields AI for new wave shopping experiences, innovating in personalization

The technology will be an organic ancillary to Sephora’s online buying process and will encourage transactions by allowing the consumer to visualize product benefits post-transaction. The platform is the product of a partnership with facial analysis and visualization technology firm ModiFace.

Read the rest of the story here

 

2. Indonesia’s logistic sector lags behind other ASEAN countries

Indonesia needs to work on its logistic sector because its performance lags behind those of other ASEAN countries such as Singapore, Thailand and Malaysia, Finance Minister Sri Mulyani said.

Read the rest of the story here.

 

3. Yaok offers online service for luxury boutiques

Chinese company Yaok has built an online reservation service for offline brand boutiques to tackle the online/offline conflict. Through Yaok, a brand can have its own official reservation platform, giving it absolute control in managing its image, product inventory, order status and customer database. It also allows instant communication between brand and customer.

Read the rest of the story here

 

4. Line is not getting any new users

Line now has 220 million monthly active users, which is exactly the same as in the previous quarter. The figure is barely up from the 212 million it had exactly a year ago.

Read the rest of the story here