Analysis: How The Hut Group is primed for success

It’s been another year of growth at online powerhouse The Hut Group. The health and beauty specialist posted a 38% jump in EBITDA to £69m as sales rocketed 47% to £736m in 2017. 

The business doubled its global workforce to over 4,000 employees over the year and spent £164m on acquisitions, including Glossybox and Illamasqua.

And with a £600m rolling credit facility secured earlier this month, it would seem this fast growing, highly acquisitive group has no intention of slowing down.

So how has The Hut Group built momentum – and, more importantly, how will it maintain it?

Millennial talent

The Hut Group is not just hiring talent, it’s hiring young talent. The average age of The Hut Group’s employees is 29.

Chief executive Matt Moulding said although the firm did not set out to create such a millennial-heavy workforce, it’s a process that has come with several advantages.

“It’s certainly been hard in the past to find employees with the relevant digital skillsets,” he explains, adding that recruiting from other retailers was sometimes counterproductive because The Hut Group has a “very particular” way of doing things.

“We take on hundreds of new graduates each year and offer them commercially minded technology training in a live environment”

Matt Moulding, THG

As a result the retailer has targeted new graduates with maths or science degrees and invested heavily in their training from day one.

“We take on hundreds of new graduates each year and offer them commercially minded technology training in a live environment,” he says.

“It’s a process that allows us to have people who are very fit for The Hut Group’s purposes. We have found that if we did that at the other end of the age spectrum, employees are more expensive and more difficult to retrain, so the cost and chances of successes become much smaller.”

The retailer, which plans to hire a further 2,000 employees in its current financial year, plans to open a new head office at Manchester Airport within the next three years which will house 10,000 people.

It has also set up an in-house academy, which is designed to train the next generation of retail leaders and ensure all its employees are tech-savvy. 

Know your strengths

The Hut Group’s stellar results come at a tough time for the wider retail sector, in which many players are lumbered with increasing costs of both operating stores and running an online offer efficiently.

For Moulding, this backdrop is indicative of a sector that has overstretched itself when it comes to fulfilling customer expectations both online and offline.

“Retail online and offline are two very different businesses. If we tried to open 100 stores in the UK we would not be able to do that well”

Matt Moulding, THG

When asked which retailers he thinks are performing well at the moment, he reels off single channel players ranging from Asos and boohoo to B&M.

“Retail online and offline are two very different businesses. If we tried to open 100 stores in the UK we would not be able to do that well,” says Moulding.

While he admits there are a handful of bricks-and-mortar retailers that have transitioned to online well, the bulk have struggled to create offers that do not cannibalise the other.

Moulding also points out that delivering online success requires a very different kind of retail expertise.

“They are two massively distinct skillsets – perhaps a younger demographic is better for online while a more experienced team is better to drive high street operations,” he says.

The challenge, Moulding points out, is nurturing both sets of talents within a single organisation – and for the The Hut Group, success has come from focusing exclusively on creating as robust an online platform as possible.

Priorities, priorities, priorities

The Hut Group has secured more than £1bn in loans to bolster its business ambitions in less than a year.

The business, which secured a £515m rolling credit facility last October and a further £600m in May, has identified three clear priorities to invest in.

The first is further beauty brand acquisitions, which The Hut Group can take direct to consumer. It has acquired businesses including luxury cosmetics brand Illamasqua and skincare firm Espa in 2017 and plans to build its portfolio in the year ahead.

Moulding explains that it prioritises a strong brand and loyal following over turnover when looking at prospective acquisitions.

It’s second focus is investing in technology. The Hut Group has built its ecommerce and logistics platforms in house, which Moulding says sets them apart from “99.9% of retailers”.

The retailer is now in a position to make canny investments in technology firms or capabilities to plug into this platform that will help drive efficiencies.

To this end, its final investment priority is property expansion. As well as funding its new Manchester head office, The Hut Group opened a manufacturing facility in the US last year and will debut its new distribution centre in Poland in October.

Moulding is also looking to snap up property in the USA and Asia as it ramps up its international expansion.

Don’t believe the hype

One of the top priorities on most retailers’ agendas is investing in cutting-edge technologies like AI, so you’d be forgiven for thinking that for a technology-driven retailer with pockets as deep as The Hut Group, it would be leading the field.

However, Moulding does not believe AI is integral to The Hut Group’s operations today.

He says, despite looking, the retail group has yet to find a firm that offers AI technology “at scale with proven technology which would enhance the customer experience on a global scale”.

“I have no doubt that AI will have a role to play in all aspects of retail operations within five years, but we’re not going to buy in for the sake of it,” he says.

Moulding says the fact its warehouse and ecommerce platforms are in-house and “fit for purpose” means it can afford to wait for the technology to become more mature before plugging it in, without falling behind the curve of retail innovation.

Look to the long term

Moulding puts his stellar results down the groundwork laid in the previous two years.

This sentiment is echoed in Moulding’s plans for the future. When asked about international expansion, he says “you can’t wait for the sales to come and then invest, it has to be the other way round”.

On the brands The Hut Group has acquired and will acquire in the months to come, he insists he does not care if it takes years for them to become profitable, provided the brand is the right fit for the group.

The same applies to his investment in staff training. Moulding says the benefit lies in creating a strong company culture, rather than reducing churn.

“We’ve looked at the average length of tenure at tech giants like Spotify, Netflix and Google, and it’s around 18 months,” he says.

“If we train our employees up maybe we’ll get a longer service from them, but it’s more about getting that environment engrained in the culture of the company.”