The Honest Companys not terrible but not very good 2016

The Honest Company has become a beloved brand in many homes in its five-year history. But the consumer products business has also taken its lumps in 2016.

Its currently fighting civil lawsuits brought against it by consumers who say they were misled by the companys labeling of various products, including its laundry detergent and sunscreen.

Relatedly, Honest was called out by the Wall Street Journal earlier this year, after the outlet commissioned twoindependent lab testsof the companys laundry detergent and determined it contained an ingredient sodium lauryl sulfate thats commonly found in other products but that Honest has warned consumers not to use. (Honest has disputed the labs findings and says its detergent instead uses a different compound called sodium coco sulfate. Still, its now reportedly reformulating its detergent without that second compound.)

The company also gasp failed to go public or get acquired this year, despite a Bloomberg report back in February that it was exploring an IPO with the help of Morgan Stanley and Goldman Sachs and more recent reports (confirmed by TechCrunch) that it was talking with several big consumer products giants about a sale.

Among its reported suitors:Unilever, which soon after agreed to acquire a different product that makes green household products Seventh Generation.

Presumably, each of these developments has been humbling for a young company thats reportedlygenerating $300 million in annual revenue and was said to be valued at $1.7 billion in August 2015, when it raised its most recent round of funding from investors.

While Honest wasnt the first consumer products outfitto market itself as safer and somehow more pure than its predecessors, ithas garnered a lot of attentionfrom customers, investors, and acquirers as well as been a target for critics, it says because of its star cofounder, actress Jessica Alba.

Not that the company is throwing in the towel. Far from it, Honest instead appears to be undergoing a shift, both away from its origins as an e-commerce business, as well asfrom the broader non-toxic household products that it was originally focused around. In fact, dont be surprised ifHonest eventually goes public or gets acquired as primarily a cosmetics company.

First, theres the opportunity. While household products may be a much bigger market and we arent suggesting thatHonest will abandon this territorytheU.S. beauty and personal care market alone was reportedly valued at $80 billion last year.

It pays to sell lipstick. Estee Lauder, the New York-based maker of prestige womens products,trades at a roughly$30 billion market cap right now. Meanwhile, Paris-based LOreal, one of the biggest personal care companies in the world, has a market cap of $93.6 billion.

One could also see how Honest, which became popular with parents willing to pay a premium to avoid certainchemicals, is evolving alongside Alba. Though she was a parent to two very young daughters when the company was founded in 2011, she may be less interested in selling diapers, detergent, and baby formula as her children grow up. Similarly, new parentsmay feel less of a connection to herthan several years ago, both because her daughters are no longer babies, and because of the companys mixed publicity this year.

Yet the bigger possible indicator that the company is switching up its strategy camelast weekwhen the fashion industry trade journal Womens Wear Dailyreported that Honest is cutting 80 employees, or roughly 14 percent of its workforce. Among those who are leaving are CFO and COO David Parker, and cofounder and president Sean Kane, who is reportedly stepping back to start a new company.Parker was previously CFO of the market research consultancy Lightspeed Research. Kane was previously a VP at the price comparisonplatform PriceGrabber.

Honest CEO Brian Lee told the WWD that the job cutsreflect Honestsgrowing evolution away from its reliance on e-commerce and afocus on more offline channels.

But Lee also mentioned wanting to grow Honests beauty business and to expand internationally, which are points that Honests chief marketing officer, Chris Thorne, also madeon stage at our Disrupt show in New York earlier this year.

Indeed, the company launched a makeup and skin care line in September 2015 under the labelHonest Beauty, and it seems to be making a push to make those products, which are available for order online, much more widely available on shelves. For one thing, Honest has been placing its skin care and make-upproducts in a growing number ofUltalocations, a chain of more than 700 beauty stores in the U.S. Honest Beautyhas also said to expectretail locations of its own, though so far, it has only opened andclosed apop-up storein L.A.

Honest Beauty alsorecently launched ahair-care line, and WWD reported in October that itsplanning to launch in Canada. That same story also reported that Honest Beauty islooking to move into Western Europe andAustralia. (TC sources have also said for some time that the company is looking to expand into Europe.)

Honest Beauty isstill a small business in the grand scheme of things. WWD hasreported that brandhad reached more than $10 million in retail sales as of October. But WWD wrote in a separate piecethatthe new label is upping its retail presence at Ulta by 20 percent and that it recently hired celebrity makeup artist Daniel Martin as a creative color consultant to help with future product development.

Will it grow to become Honests largest revenue stream? Its too soon to know, and if Honest gets acquired any time soon, we may never find out.

Still, faced with lawsuits over some of its other, household-related products suits that Honest has described as baseless and having no merit its easy to imagine that its having morefundeveloping lipsticks and hair sprays rightnow, and looking for new waysto ensure that for everyone concerned, 2017 is a better year for the companythan 2016 proved to be.

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