Pure profit made by hand

The rapid expansion of cosmetics chain Lush shows that where there's no muck there's brass. Dominic Prince reports

Lush, the cult perfume chain, does not yet have a presence in the US. But it has at least one American fan. On a recent trip to London, one of the shops in Covent Garden was besieged by secret service men who wanted the shop to be closed to the public while Hillary Clinton did her shopping.

It was not always like this. In 1993 Mark Constantine, then a 40-year- old entrepreneur, contributed to the column called "My biggest mistake" in this paper.

At the time he was the managing director and owner of Cosmetics to Go, a pounds 7m company. He said his biggest mistake was not assessing correctly the demand for his products. He was either over-stocked or under-stocked.

Cosmetics to Go was a mail-order cosmetics company that had been borne out of the success of a previous Constantine business - he was the largest supplier to the Body Shop in the UK, having sold his first henna shampoo to Anita Roddick when he was just 17.

But a year after writing in The Independent on Sunday, Cosmetics to Go had well and truly gone - bust - and Constantine had gone from being a rich man to a poor one. He lost everything he owned and urgently needed, he says, "to earn some money simply to exist".

The self-styled "cosmetics entrepreneur" hit on another idea almost immediately. Three months after going bust, he was back in business. Lush is a manufacturer and retailer of fresh hand-made soaps, shampoos and cosmetics. Lush has been a retailing sensation, much in the mould of the early Body Shop.

Consider this. The first retail outlet was started in Poole, Dorset, in April 1994 and it was profitable from the first day of operation. By the same month in 1998, there were 25 shops. A little over a year later, there are 60 shops worldwide and by the year 2000 Constantine says there will be at least 100. The company has no borrowings, a 95 per cent Dun & Bradstreet credit rating (pretty much the best credit rating you can get) and is, says Constantine, "very profitable".

The expansion programme is financed from existing and on-going revenues. But there is also an until-now secret weapon. Two very rich backers. The company was originally financed and is still co-owned by two London property millionaires, John Chalk and Peter Blacker.

There you have it, another similarity with Body Shop. When Anita Roddick started her first shop on the south coast, a single investor - Ian Mcglinn, who is still the largest individual shareholder in Body Shop - backed her.

With 25 shops in operation, the 1997-98 turnover was - according to Constantine - pounds 22m, but within that figure there was at least one shop that had a turnover of more than pounds 1m. The shops are generally located in prime sites: the King's Road in west London and two branches in Covent Garden, central London, to name just three. And all of the shops in the UK are wholly owned by Lush - none is franchised. The ones outside the UK are run not by franchisees but in partnership.

"There is", says Constantine, "no standard deal. People come to us and if we like them we'll go into business with them, but most of the people who approach us are turned down."

The things that strike you on entry to a Lush shop are the overpowering smell of perfume and the sense of wackiness. Soap is sold with the minimum of fuss and packaging and all products have not only the name of the individual who made it in the factory in Poole but also the date it was made. The stuff is produced in huge slabs and then cut up and sold in batches of 100 grams.

The cost of making the soap is secret. But, with a kilo of the Lush variety costing an average of pounds 13, the margins are probably huge. Then there are shampoos, moisturisers and hand creams - in fact whatever Constantine can dream up on a day-to-day basis.

The key to the success of the company is distribution. Because the goods are all hand-made and use ingredients such as fresh fruit, chocolate and maple syrup, with as little preservative as possible, they have a limited shelf life. In Constantine's ideal world, soap would be hand-poured into a mould and hand- cut at 4am in the morning, shipped out to one of Lush's outlets and sold by noon.

As with all good ideas, there are imitators and this is one of Constantine's biggest headaches.

"We have registered the brand name 'Lush' in every country that we operate in, but we do have real problems with trademark infringements with each of the individual products. We have a product called 'Dream Cream' and we also have an action against the high-street chain Superdrug which has just started a line called 'Dream Cream'."

The company spends a lot of money each year protecting its individual and corporate trademarks. On one occasion, a potential foreign partner went to meet Constantine and the very next week tried to register the trademark in his own name - a rough business, cosmetics. There are shops in Australia, Canada, Brazil, Italy, Japan, Singapore, Sweden and Croatia. In each of the countries where the company has a presence, there is also a manufacturing facility so the product is manufactured at source, not shipped out from the UK.

I became interested in Lush when I visited the King's Road branch on a wet Tuesday afternoon, not the best time for retail sales you might think and generally you're probably right, but the place was heaving with customers. Not only were they young and by their looks affluent, they were also buying shopping bags of the product.

Now the backers, Mr Chalk and Mr Blacker, are talking of a stock market flotation. The problem for Constantine is "as it was with Cosmetics to Go - assessing the demand for the product".

His ideal, he says, is "one thousand shops worldwide".