Can Aesop Keep Its Cool?

MELBOURNE, Australia — Fans of modernist Richard Neutra's VDL House in Los Angeles got a whiff of fragrance when they toured the mid-century home last August. Cult skincare brand Aesop's new Olous aromatic room spray was used to scent the building, located in the hip neighbourhood of Silver Lake, the epicentre of LA's creative community.

The Australian brand, which was founded in Melbourne more than 30 years ago, works very hard to cultivate its appeal to young creatives by being wherever they are. Aesop also partners with literary magazine The Paris Review and employs buzzy architects like Milan’s Dimore Studio and Norwegian's Snøhetta for its stores, conjuring a lifestyle for customers to buy into along with the company’s $55 room sprays and $40 hand washes.

“If you are that creative professional, we are in your life. We want to be relevant and connected to her,” says Michael O’Keeffe, the chief executive, sitting in the brand’s UK office in a converted warehouse off Lamb’s Conduit Street in Bloomsbury, London, a hub, of independent bookshops, men’s clothing brands, cafés, cheese shops and florists. “We have a store close to where they live or work; our partners are where they get coffee or eat; they’ll go to a local gallery and see us working in partnership. The world of Aesop intersects quite tightly with their lives.” Indeed, so prevalent is Aesop soap and lotion in the restrooms of hip restaurants from Los Angeles to London that it is a marker of cool.

Dennis Paphitis, a Melbourne hairdresser, started the business in 1987 to offer his upmarket clientele a gentle hair product using essential oils. The first 15 years were focused on making quality products in functional packaging and keeping a tight rein on where his distinctive brown, utilitarian-looking bottles with their premium prices were sold: influential stores like Colette, Luisa Via Roma, Barneys New York and Fred Segal were among his early stockists. By 2003, the brand was still small but profitable, generating about $2 million annually but struggling to grow further. Breaking into department stores would boost awareness, but they were still dominated by brands from major beauty conglomerates such as L’Oréal and Estée Lauder.

If you are that creative professional, we are in your life. We want to be relevant and connected to her.

In early 2003, Paphitis hired O’Keeffe, a management consultant, to pivot the brand away from wholesale to direct-to-consumer retail. “I remember using a Geranium Leaf Body Cleanser in the shower and thinking ‘Wow, I’ve never used a product like that before, it’s incredible. Why doesn’t everyone know about it?’ It’s simple, let’s get it out there,” says O’Keeffe.

Together they opened the first Aesop store in St Kilda in Melbourne in 2004. Alongside Kiehl’s and L’Occitane, it was one of the first beauty brands to have its own retail presence in a sector where department stores still drove the majority of sales. But Aesop immediately set itself apart with its unique shop designs that aim to become one with local environments. See the blue-tiled Los Angeles store inspired by David Hockney paintings, for example. There’s also the company’s in-store demonstrations, tightly curated product selection (Aesop’s range is about a quarter of the size of most competitors) and personal service. “It’s always about the relationship with our store staff. Skincare is innately personal and if you just make it transactional then you really lose something,” says O’Keeffe.

Aesop also took a global approach early, adding distributors in Asia, in part due to the inherent limitation that Australia, with its population of 24 million, presented for a premium skincare range.

“We know in any market Aesop will only ever be so big. We’re not mass market, so our market share is only ever going to be 2 or 3 percent, so to get scale you have to widen that or go broader geographically. We didn’t want to go wider and dumb down the message or do mass-market advertising and things we’re just not good at,” O’Keeffe explains.

A turning point came at the end of 2006, when Aesop’s Japanese distributor decided to exit cosmetics and the company took over the business, knowing that customer demand was there and seeing an opportunity to sidestep persistent demands from partners that the brand offer whitening products and promotions. “They want you because you’re different, but they want you to play by the same rules,” O’Keeffe muses. “We’re competing against some of the biggest consumer goods companies in the world and if we try to play using their rules we’re going to get run over. I think the biggest danger for Aesop is not that these competitors will move across to our space, it’s that we drift across to theirs. Above-the-line advertising, a promotional approach and celebrity endorsements may work for Procter & Gamble and L’Oréal, but go against what we stand for and also our skills.”

Aesop Store | Source: Courtesy

So O’Keeffe relocated to Japan with his family, brought the business in-house and two years later it was profitable. More importantly, it gave management the impetus to do the same elsewhere. From 2009 they took back control from distributors in Singapore, Hong Kong, Malaysia, Taiwan and South Korea. They also stepped up store openings in Australia, opening one or two stores a year, funded in part by a small $3.9 million private equity investment from local firm Harbert Private Equity.

The stores themselves were always about good design. Paphitis is known for sending staff the “Ten Principles of Good Design” by Dieter Rams, the German industrial designer lauded for his work for Braun. He likens each store to a charm on a bracelet: each one unique, but with a common connection; part of the same brand story but respectful to the local neighbourhood and exciting and different enough to illicit conversation.

“As chain stores and franchises have grown, people are saying my high street looks like everyone else’s,” explains O’Keeffe. “Does the same store in Norway work in Singapore or wherever? I think it’s dumb, simple design that retailers got away with for a long time. We do have to create stores that will connect.”

The brand spends significant time assessing if cool neighbourhoods like the Marais in Paris and Nolita in New York are right for Aesop. Its first store in London was on Mayfair’s Mount Street and was the “wrong street,” says O’Keeffe, because his early adopter creative professional customer doesn’t spend time in a neighbourhood better known for its Céline store and the five-star Connaught hotel. It closed, while their store in edgier Shoreditch, adjacent to clothing brands A.P.C and Sunspel, “immediately flourished.” The company’s latest London store is located on Duke of York Square, Chelsea, where the local creative community gathers.

Rita Clifton, former chairman of Interbrand, said Aesop’s early control over everything from the product to the store experience has been crucial to its success. “For so many years in the beauty and cosmetics sector, there was an obsession with product. It was the latest formulation or ingredient, it was a product business that didn’t use all aspects of the brand experience,” she explains. “Aesop are almost like the Apple of the beauty and skincare business. It’s not only the Aesop products in store, it’s a sensory experience. The stuff smells great, it looks amazing, the packaging is beautiful, the stores are beautiful and people who work in store are a cut above — they care about what they do,” she adds. “Yes, the product is very good, but it is not the be all and end all.”

Its emphasis on brand experience is not the only way Aesop’s strategy runs counter to prevailing industry trends. The company also shuns social media influencers, launches stores with little fanfare and while fast-beauty brands offer new products weekly, Aesop sticks to a two-year research and development cycle, resulting in about four to six new products a year.

Will hipsters baulk at Aesop's expansion and dent its cachet?

“It’s important for us to release products that customers connect to and will ideally be around for years [to come],” says O’Keeffe. “The whole idea of more flavour variation and choice is overblown. Do you want to go to a restaurant with pages of menu items or a restaurant that is really tight, that has four main courses, but you want to eat every one of them?”

By 2012, Paphitis had owned the brand for 25 years and was aiming to exit alongside his private equity investors. Natura Cosmeticos, the Brazilian beauty brand whose direct-selling business is the Avon of Latin America, took a 65 percent stake in Aesop for approximately $71.6 million, valuing the overall business at about $110 million. Harbert exited and Paphitis and the company’s management sold their stakes but stayed on, with Paphitis as consultant and O’Keeffe as chief executive. At the time, Aesop was turning over roughly $40 million with 61 stores. In 2016, Natura bought the remaining stake in the company. Aesop now has 209 stores and sales have grown five-fold to $215.4 million in 2017. The brand has also helped boost Natura, which last June purchased the Body Shop from L’Oréal, to total revenues of more than $3 billion in 2017.

Natura, for its part, has helped Aesop build scale in existing countries, ramping up to 30 store openings a year. Since then, same-store sales have grown at between 15 and 20 percent per year. Compare that to L’Oréal, owner of Kiehl’s, where same-store sales rose only 4.7 percent last year.

With plans to enter new markets in Portugal, Spain, Belgium, the Netherlands, Luxembourg, Vietnam, the Philippines and across the Americas, Aesop shows no signs of slowing down. The company is also increasing its focus on e-commerce, which makes up just 5 percent of sales versus 60 percent from retail stores, 25 percent from department stores and 10 percent from other wholesale partnerships.

But continued growth comes with risk. “There is an element of once something gets too big it loses its general appeal, you lose this exclusive membership vibe,” warns Lisa Payne, beauty analyst at Stylus, a trend forecaster. So, will hipsters baulk at Aesop’s expansion and dent its cachet?

“My European team remind me of it all the time,” laughs O’Keeffe. “If all you are doing is relying on selectivity of distribution, it is going to naturally limit your growth and I think as an emerging brand that’s OK, but you have to transition away from that. The key is to build the relationships and keep that going and hopefully they will fall in love with the products and everything else about you. You may lose a few, but where are they going to go?”

Not everyone agrees. “Today, you can go to any department store and have 15 different competitor options with better formulations, cheaper prices, packaging as beautiful and the kudos of using something a little more niche,” adds Payne. What’s more, new restaurants and boutique hotels, where you may once have expected to see Aesop, are tapping newer, cooler products: take The Line hotel in Los Angeles which uses Buckler’s, a small indie brand focused on essential oils, or The Edition hotel in London, which has Le Labo in its bathrooms. Others are swapping out Aesop for brands like Byredo and Grown Alchemist.

Aesop will have to fight hard to stay relevant and keep its cool. “As we grow, we have to have an even more distinctive voice,” acknowledges O’Keeffe. “You try to dilute that and brands become soulless creatures.”

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Editor's Note: This article was revised on 10 May, 2018. A previous version of this article misstated that Snøhetta, the architecture and design studio that designed Aesop's Duke of York Square store, is Swedish. This is incorrect. Snøhetta is Norwegian. The article further misstated that Aesop’s latest store is on London’s Broadway Market. This is incorrect. Its latest store is in Duke of York Square in the Chelsea area of London.