EG quizzes Lush’s global property boss on the cosmetics retailer’s impact on the environment, getting by with a little help from landlords and being a ‘creativity crusher’.
Cosmetics company Lush’s products exude positivity. Its yuzu and cocoa bath bomb promises to “unleash a tide of sweet comfort”. A sweet-smelling shampoo bar known as Honey I Washed My Hair “transports your troubles away”. The Just to Clarify face mask “lifts the mood” and “perks you up”.
So it comes as little surprise to find executive Paul Wheatley in an upbeat mood, despite the growing list of challenges that retailers such as Lush face – many of which land directly on his desk as the Dorset-based company’s global property director for the past decade.
A downturn on the UK high street, the challenges of international expansion, shifting relationships with landlords, the problem of balancing physical and online sales, the company’s environmental impact – these and other issues have kept Wheatley busy in recent months and years.
But he is used to pressure, adopting an innovative approach to problem-solving and taking a risk from time to time. Since 2008 Wheatley has overseen several milestone store openings for Lush. The global store estate now stands at 928 shops across 48 countries.
Highlights for Wheatley have included Lush’s 9,500 sq ft debut on Oxford Street, W1, in 2015. At the time, neither Wheatley nor chief executive Mark Constantine were entirely sure if it was a punt that would pay off.
“I think everyone was kind of taken aback by it,” Wheatley says of that shop’s success. “We got a huge amount of positivity from a lot of landlords immediately about that particular store.
“Nobody had really ever done what we did in Oxford Street. So we had no real idea as to whether it was going to be successful. We didn’t know whether we would make pots of money or lose money.”
A more recent landmark is Lush’s largest-ever shop, opened in Liverpool in March and totalling 14,850 sq ft.
The three-storey store, resulting from part of an ongoing relocation and right-sizing programme, includes a spa, florist, “hair lab” and perfume “library”.
Help us help you
Globally, Lush generated a group turnover of £524.5m (or £987.4m, including sales from its franchise partners) and an operating loss of £4m in its most recent annual accounts, covering the year to 30 June 2018.
“From a bottom-line perspective, it’s very tough out there,” Wheatley says. “Any help we can get from landlords will be gratefully received.
“We balance what we do for our staff, what we do for our customers and what we can do for business. It’s a tricky balance, all the time. We are tiptoeing along.”
On Wheatley’s part, Lush’s books are opened to its landlords, which he says is “the only fair way” to build a stable relationship.
“If you sit down with landlords [nowadays], generally they are understanding,” he adds. “It doesn’t mean you will get what you want, and I suppose that’s fair enough. It is meant to be a win-win; I would like to come out of any negotiation feeling like we are [all] happy.
“But some [institutional investors] are rooted in: ‘We are not going to change; do what we tell you and we will wait five years’, which might work because they are investors, but from our perspective the rate of change in retail means you can’t wait five years. That’s the problem.”
After the 2008 financial crisis, Lush embarked on a mainly turnover-based leasing model – but fixed costs then soared, just when its turnover was stabilising. Consequently, Wheatley’s preference would involve setting a site’s estimated rental value as the maximum for the occupier, rather than conventionally basing turnover rents as a minimum rent below ERV.
“We are much more about flexible leases,” he adds. “If it’s not working for both of us, then we will look to move on. But there is no fixed thing that works in every location.”
At a time when retailers with any number of outlets appear to be angling for heavy restructurings, it seems plausible that Lush’s store owners and licensees could be eyeing its sprawling portfolio – including around 100 shops in the UK – with a little trepidation.
Landlords might take some comfort, then, from learning that the retailer is adamantly “not a company that will be throwing CVAs around left, right and centre”, to use Wheatley’s words.
“We are as ethical as we can possibly be,” he says. Although the retailer has been actively relocating and refitting shops, its store count has always “hovered” around a tally of 930, Wheatley says.
But there are contingencies. Lush is able to exit 90% of its global store estate within less than five years in the event of a serious downturn, Wheatley adds.
“That’s a good place for us to be, because we don’t know what’s around the corner. We like to think we do, but it’s hard to predict what’s going to come up in even 12 months’ time.”
High street freedom
Lush’s store locations are split relatively evenly between high streets and shopping centres. And while Wheatley accepts that the more expensive centre presences can tap into potential footfall from millions of shoppers, he seems to prefer the “freedom” of expression and interaction that the high street offers.
Lush is no stranger to activism, having provided the seed funding for the Extinction Rebellion movement aimed at combating the climate change crisis. Memorably, it also ran a controversial “spy cops” campaign against undercover policing last year.
“We are known for our demos and campaigning, for the fact that we are not a sedate retailer,” Wheatley says. “We like to be outside the front door sometimes, and obviously you can’t do that at shopping centres. There are rules and regulations.
“When it comes to those larger stores, currently they are all of a size and on the high street. That’s not to say that we wouldn’t do [bigger ones at] shopping centres in the future – we have talked with a couple of landlords previously about doing that.”
In the UK, travel hubs also make for desirable spots – Lush opened in Paddington Station earlier this month, and will launch at Clapham Junction in October.
But apart from these sites (and some relocations in the coming year) Lush plans to direct most of its near-term capital investment outside the UK. Since festive trading can make the already-turbulent UK market even bumpier, the retailer has set its sights on building up its presence in Asia, particularly Japan, to remove “some of the peaks of Christmas” and distance itself from the gift experience.
“It’s very tough to make money outside that Christmas window [in certain markets],” says Wheatley. “If you get Christmas wrong, then you are in for a tough year or two after that.
“Asia is less reliant upon Christmas than the UK or the US are. It would be nice if we could make money in more than just six weeks of the year, and have that carry all the way through the rest of it.”
But the Asian markets are also presenting some challenges. In Hong Kong, sales have “dropped dramatically” on the back of civil unrest, Wheatley says. “Would it be right currently to consider putting more money into Hong Kong? That’s a question we have to ask ourselves.”
Wheatley singles out Japan, where Lush has around 84 stores, as a target for expansion, and adds that France and Germany have “huge growth potential”.
A store opening in Taiwan is being considered, and more launches are expected in the likes of Australia, New Zealand, Spain, Portugal, Sweden and Italy.
Lush is also assessing whether there is scope to split its larger shop formats into smaller concept stores – its plastic packaging-free brand, Naked, may sit in one part of the city and its perfume “library” in another, to give people “different experiences in different shops”.
“You dig where there are potatoes,” says Wheatley, adding that, on the other hand, “when you get to 930 stores, finding a place that can guarantee [profit] straight away is a different thing.
“It’s a lot easier when you are smaller,” he says.
Tech warriors
Despite the challenges of running physical shops while the retail industry goes through upheaval, Wheatley is adamant that Lush’s bricks-and-mortar division, which leans heavily on sensory-rich experiences, is here to stay. The riot of colours, sounds and fragrances in its stores would be hard to replicate on screens, after all. “We are very well known as a tactile business,” Wheatley says. “How do you recreate that online?”
Digital now accounts for around 11% of total sales, a figure that Wheatley says is growing year on year. He emphasises that it exists to aid the physical side of the business – not to replicate or replace it.
“We don’t really split digital and physical any more: it’s just retail,” he says. “If you try to draw that distinction, you can spend too much time worrying about what happens with one and not enough on the other.”
Lush’s digital research and design team – dubbed its Tech Warriors – has evolved from solely looking at digital sales at its inception, to piloting disruptive store technology, such as its own till systems and social media channels.
One example of how the team has shaken up traditional formats is through its tech-driven, bath bomb-only store in Harajuku, Tokyo. Unusually for a Lush store, which is famous for product demos, no sinks were installed. Rather, a demo and other details can be screened on an app once customers scan a product with their devices, conserving water.
Naked ambition
In other green initiatives, Lush is expanding its Naked concept to Hong Kong next month, having launched similar shops in Manchester, Milan and Berlin.
“We are trying to take the way that we consume product and think in a different way, and thinking about how we can change that,” Wheatley says.
Store fit-outs also form a key part of this approach; reclaimed wood and cradle-to-grave floor tiling are among the aspects that Wheatley keeps on the list.
Despite some preconceptions, it is not a cheap exercise. “Landlords are very surprised when we show them what we are spending on these stores, but that’s because they need to look a certain way, and they are bespoke,” Wheatley says.
“We don’t just put in aluminium fixtures and fittings all the way around. We measure every single wall in every single part of the store, and we make all of our furniture accordingly.”
Even then, Wheatley has in the past been lambasted for being a “creativity crusher” by the fit-out and marketing teams.
He shrugs, and says drily: “It’s true, because [I’m] trying to balance that cost; [I] need to make sure we have got the return on investment as well. But the environmental considerations are always there.”
Lush: key facts and figures
- Global turnover: £987.4m
- Global store estate: 928
- Countries: 48
- UK shops: around 100
- Largest store: Liverpool (14,850 sq ft)
EG Property Podcasts
To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette
