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23 November 2018
By Maynard Paton
One of my favourite ways of assessing companies is by calculating their turnover per employee.
The theory is simple: companies that produce high sales from few people are often simpler to manage and grow than businesses that produce low sales from many people.
In fact, if you can find a business that can expand significantly without needing to take on huge numbers of extra staff, then perhaps you have found a business with a product that actually sells itself.
Suffice to say, companies blessed with products that sell themselves are generally good for us investors!
Let’s now use SharePad to investigate Warpaint London — a cosmetics business with high sales per employee.
Simply click here to read my Warpaint London article for SharePad.
Maynard Paton
I really enjoyed this analysis Maynard, particularly the comparison between Fevertree and Warpaint. It set me thinking about how these companies distribute product.
Neither sell any significant numbers of their product on line, they both use traditional distributor networks, for Fevertree its the high end bars and clubs (initially in London, but then the world) and Warpaint discount stores such as B&M TKMax (at the AGM they told me that they eschew the top end retailers such as Boots, dept stores etc because the costs are prohibitive).
I think Fevertree was successful because they harnessed the social network effect in bars among high net worth youngsters, creating a niche for their product, based on:
=taste
-natural ingredients
-social cache
The larger investment in sales staff may basically be their need to get product into the bars.
Warpaint, on the other hand, uses the internet and influencers to pull customers into the discount stores. That might explain why they have fewer sales people, the money just gets spent on influencers.
On the surface, this model seems to be a win win for both discounters and warpaint, the influencers pull customers in and hence increase foot fall for B&M etc.
After attending the AGM this year, I investigated further and went to a B&M store to see the Warpaint display, it was half way down one aisle among vitamin supplements etc, certainly not the glitzy displays of department store. In fact, I was left wondering how anyone would find it, this really is not like the shopping experience that I’d imagined……more like shopping for a screwdriver in a B&Q. But then I was told by the partners running Warpaint that their young customers will find them!!
Clearly, social influencers are the core to marketing Warpaint’s products, in fact I think it is their only source of customers. Customers are not going to happen across product by chance. Every new customer has to be pulled in and, in addition, maybe repeat business has to be encouraged by them too.
So this throws up so many questions:
How well established are the contracts with B&M etc?
If November was so bad, is there a risk that B&M cut and run?
When the customer goes back for a refill, will the product still be there?
Can others copy the Warpaint model easily?
But then maybe that’s my 20th century thinking, perhaps everything is directed by the influencer, even to the extent of repeat business, customers just have to find the latest ‘pop-up’ store where their cosmetics are selling this week. So I shouldn’t worry about where the product is?
Coming back to the comparison with Fevertree I’m not sure there’s a social cache with Warpaint’s products. With Fevertree you can be seen with the bottle in front of you in the bar, signalling your social status, your natural credentials, your cool?
With cosmetics, yes, you can talk about where you got them from and the price you paid, but all you’ve got the telling to your friend that a certain influencer suggested it, and I don’t know how powerful that is, face paint doesn’t scream w7 at you.
So on balance I think you are right to avoid Warpaint.
There are much lower barriers to entry for competitors vs Fevertree which has a much stronger brand (now).
A business so reliant on influencers seems very vulnerable, if Warpaint’s efforts on line falter there is going to be a lot of stock to write-off. But then that’s the partners forte selling written off stock.
Hi Roger
Thanks for the thoughtful Comment.
The difference as you say is that FEVR has built up its own social cache, while W7L has had to rely on influencers. I agree that relying on influencers seems vulnerable. I suspect few of the influencers are devout W7L customers, and would continue to promote W7L were a more lucrative arrangement from a cosmetics rival appear.
I do think ‘influencer marketing’ can be somewhat ‘shady’, and the advertising authorities are catching up (slowly) with some offenders. The real growth phase of influencers will not last forever, and eventually the influencers may just be viewed in the same light as actors on TV ads.
For now, though, everything for W7L is based on the influencer, so as long as the stock is available somewhere nationally, then I don’t think it matters whether it is B&M or somewhere else. As long as the product is selling, and the retailer can earn a decent margin, then distribution should not be a problem.
Maynard
WarPaint London (W7L)
News article
https://www.bbc.co.uk/news/technology-46960179
“Sixteen social media stars including singers Ellie Goulding and Rita Ora, models Rosie Huntington-Whiteley and Alexa Chung, and vlogger Zoella have agreed to change how they post online.”
Further disruption to the power of UK social-media influencers.