How Lush took on the cosmetics industry

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You only have to follow your nose to find a branch of Lush. The retailer has been making soaps, shampoos and bath bombs for almost a quarter of a century, in Poole on England's south coast. And its long tried to build a reputation as an ethical brand. Nowadays, that's a trend that the rest of the high street would also like to buy into.

Lush shuns automation. All of its products are made by hand and it uses only vegetarian or vegan recipes. Today, the private company turns over $1bn. But co-founder Mark Constantine's journey to this point wasn't easy.

I was homeless for a period of time. And I lived in the woods. I had a job but it didn't pay enough to get the basic room. It went on for about a year or so. I was given money by a charity, just a small sum but it made such a dramatic difference to my life. It meant that I could continue on in my employment.

I was fortunate enough to meet Anita Roddick when she had one shop. So we became Body Shop's largest supplier. And we learned an awful lot of lessons from them.

Then we had a business collapse. And then I just had to pay the mortgage payments. Then I'd put my savings into this other house, but part of it collapsed on the back of some beach huts. And they sued me. And I eventually sold it for half what I bought it for. And then I had to pay the loan sharks off. And I had about $45,000 left. And that's what I started Lush with. These small sums of money go a long way.

Rather ambitiously, Mark Constantine wants to create what he calls a cosmetics revolution to save the planet.

We have to do it through influence. We're 0.5 per cent of the cosmetics industry, even at $1bn turnover. So we have to influence the others as well. They have to move off of plastic packaging. They have to move to more environmentally friendly things. So that's part of the revolution.

Preferably, you don't have some bottle you have to throw away, or what are you going to do with it? You going to recycle it? Is it this PET, is it that one? You don't have any of that.

If you've got a naked product that's just in a paper bag, you know what to do with the paper bag. That's the end of it. We know we've got to change. We've got far too much plastic hanging around. We all know we have.

Is it for other companies to lead that, though, by saying actually, we're no longer doing this, this is...

I don't see how they're going to survive. Because if you've got climate refugees all over the place, and shops are shutting, it's all bad for business. So they have to change. It's just a question of when and how quickly.

Lush's prices will put off some customers. A single bath bomb costs around £5. So the ethical campaigning brand is important to the Lush product. And people are prepared to pay a premium for it.

There's as many reasons not to come in to a cosmetic retailer that isn't offering you a good deal, a particularly good deal. It's a relatively pricey thing. And so I think the ethics can sometimes tip the balance.

Business, considering the climate, is good. The banks are not lending. They've not been doing that for 18 months. They're expecting a downturn. They certainly aren't keen on retail, British retail. Even Japanese banks are telling me they're not keen on British retail.

And at the moment in Britain, we're plus or minus 2 per cent on like-for-like. So not too good, not too bad. You know, just okay. There are people out there with minus 20 per cent, minus 10 per cent, all sorts of dreadful things going on.

Brexit uncertainty isn't helping Lush's business in the UK.

We try and turn the products around through our warehouse with a 28-day use-by date. So it has to leave the warehouse within 28 days. And then it sits on the factory floor for four months. If you go into regular retailers, beauty retailers, you'll find products that have a shelf life of two to three years. Because we're light on preservatives and, indeed, many of our products don't have preservatives at all, and then we like to get it through as fast as possible so you can have the best possible experience.

Staffing is probably the biggest thing. And then the next thing would be the tariffs. But we, as Mo describes, it's got to be very fresh on the ingredients and everything. So any delay in those supply chains can affect our product.

I'm a businessman. I don't understand how increasing my costs, increasing red tape, and generally stopping me being able to get a proper workforce, and cutting me out of markets that I was quite happily in before, and having tariffs. The truth is, I don't get it. I don't understand it.

Europe is a great area for me to be able to increase business. So Germany, France, Italy, Spain. Great places for us. And we're doing very well. So we've got increased like-for-likes in those countries.

I would say the biggest pressure point is Hong Kong. We've got just 10 shops there. The climate there is dreadful. I quite like the idea of doing a big department store of Lush, right? I've got one nearly there in Birmingham. And that means having quite a lot of interesting things that people would like to come to. So, a spa with original treatments, hairdressing with maybe recycled water, a whole floor of just naked product with no plastic on the whole floor, parties.

Opening a department store at a time when many big high street retailers are struggling to compete with online rivals sounds like a bold move. But then, Lush isn't a typical high street retailer. The founders still own most of the business. And there is no desire to follow in Body Shop's footsteps and sell to big brands such as L'Oreal.

I think most customers saw it as a sell-out. And I think it... well, Body Shop lost 20 per cent of its sales. So it speaks for itself, doesn't it? 20 per cent of the customers no longer shop there.

Lush's founders looked at how Body Shop exited and decided it wasn't for them. So they decided instead to launch an employee benefit trust, which is designed to give workers a stake in the business in the future.

When you've got founders who at some stage are going to want to either leave, or they will die and their shares will be up for sale, you have to have someone that can buy it. Traditionally, you would go to the City or you would get private investment. Businesses that have done that are very, very highly geared, got too much borrowing.

So if you have an employee benefit trust, an EBT, and you have an agreement between your shareholders as to how much you're going to increase your profits to sell your shares - and we have five times - then you can still sell to your EBT instead of selling outside, and keep a stable business that can be privileged enough to offer things that may be... ethical things that maybe are not quite so commercial.

But if you take loads of money out and you have lots of borrowing of big bonds and all of that sort of thing, then it's much harder to run this sort of set-up.

Companies such as Lush are increasingly part of the mainstream. And it's worked for the business. Trends, such as veganism and zero-packaging, have come to its way of thinking rather than the other way around.

From its headquarters still above its first shop in Poole to its intention to sell a controlling part of the business to workers, it still does feel like an outlier for now. Whether or not it can continue to compete as successfully to sell its bath smellies is another matter now that every consumer brand wants to do good. But then, you can't buy authenticity.