All things considered, it wasn’t completely dire on the admissions front through 2020. The London Stock Exchange (LSE) remained Europe’s most active market, generating around a third of total European proceeds through the year. A fair slice of the London total was attributable to the September listing of The Hut Group (THG), the largest UK initial public offering in five years.
The group has been in business since 2004 when it was creating white-label websites for retailers. These types of sites are used to sell a company’s goods directly, but under a different brand, company name, or domain. One of its early customers was Tesco (TSCO) and it has associations with the group’s former chief executive Sir Terry Leahy. But it has also regularly attracted the custom of other big hitters in the retail world.
Co-founder Matthew Moulding (pictured, and formerly of the now-defunct Phones4U) is the public face of THG, serving as both chairman and chief executive. That arrangement falls short of a key provision of the UK Corporate Governance Code, although shareholders are unlikely to be too concerned given the group has increased in value by a third from its initial closing price, leaving it with a market capitalisation of £7.7bn - theoretically large enough to qualify for inclusion in the FTSE 100 index.
The group offers proprietary brands in the beauty and nutrition/supplement segments, which might fall under the somewhat vague ‘wellness’ category, while pushing third-party brands through its e-commerce outsourcing division, THG Ingenuity. Social media, used in conjunction with a subscription model, plays a central role in how THG takes brands to consumers. It is essentially a mash-up between e-commerce and well-worn forms of marketing; a hybrid of Amazon and Avon.
It has been on something of a buying spree since admission. At the end of the year, it announced that it had acquired Dermstore.Com for $350m (£256m) from US retail chain Target Corp (US:TGT), while its nutrition offering has been expanded following the purchase of two UK suppliers, David Berryman and Claremont Ingredients, for £60m in aggregate.
One of the most important segments of the business, the unmistakeably titled Lookfantastic is apparently the UK’s number-one beauty retailer. In addition to directly hawking products from big-name brands such as Estée Lauder and Clinique, it also offers a ‘Beauty Box’ subscription service. For a set monthly fee, subscribers are sent a mixed box of cosmetics, heavily discounted, and containing a good smattering of the third-party products outsourced to THG Ingenuity. Much of the marketing exposure comes through online platforms such as YouTube, which also generate commission income through affiliate links.
Revenues for THG Beauty, which accounts for around half of the group total, increased by 57 per cent through 2020. Top-line expansion at THG Ingenuity was more subdued at 7.2 per cent, although it revealed a raft of new contract wins in the fourth quarter.
In common with many e-commerce peers, lockdowns and tier restrictions have had a galvanising effect, as over 3.5m new active customers were added during the fourth quarter alone, with over 10.7m added during the full year. The use of the group’s apps has also increased dramatically, “providing a powerful new channel in which to engage with consumers”. This week, medium-term revenue growth guidance was raised to 30-35 per cent.
All good stuff, but it is difficult to identify any unique characteristics that differentiate the group’s service offering from online competitors, save for a particularly effective social media strategy. Still, further opportunities in this space are opening up through the secular decline in physical retail. From cash flows to further detail on whether recent headline growth can be maintained, the market will have plenty to unbox when maiden results as a public company are published in the coming weeks.
