Having set a scorching pace with its Skinny Tan bronzer and sculpting product, the company has had to reset expectations after number one customer Superdrug cut back on its requirements.
Why the chemist chain made the decision is not clear, but in the short term it has blown a hole in InnovaDerma’s projections.
Guidance of £13.9mln (£8.9mln) sales in the current year and an adjusted pre-tax profit of £2.4mln have both been reined back, with profits now set to be flat at £1mln.
Of course, how companies and managements adjust to setbacks is a good test of any business and executive chairman Haris Chaudhry is confident about InnovaDerma's robustness.
It has acquired a number of new brands, including the Stevie K makeup line and Charles + Lee, a men’s skincare range.
At the same time, Skinny Tan is going global with a launch in Korea and a roll-out in Regis salons.
The firm has also launched its hair loss/hair care brand Roots both direct and via Superdrug.
“InnovaDerma continues to perform strongly and profitably,” he said.
“Our online engagement continues to grow daily which is driving revenue through to our DTC (direct-to-consumer) platforms.
“We are in discussions with several new retail distributors and product innovation remains on track.
“The business remains robust with several products and market launches expected in the coming months to generate further growth."
Direct sales still doing well
Independent data group IRI estimates Superdrug’s Skinny Tan's revenue (including sub-brand Body Glow) grew by 210% for the 52 weeks to February24 but by 60% in the last 12 weeks of the period.
Direct sales are still going well, said the company, which is looking for new distributors for the product.
New hair care range Roots is also powering ahead with sales 254% higher in the 12 weeks to February.
How DTC works
Skinny Tan is already also available in Boots, GNC, Woolworths, Target and Chemist Warehouse.
Gaining shelf space in these outlets provides third-party validation, and appeases the City, which wants to see the firm’s goods stocked in bricks and mortar establishments.
But the real magic has been woven online with its direct-to-consumer approach. It has become a marketing machine.
In the past, if you had the money (it required a big budget) you could dominate Google Adwords and buy web banners and skyscrapers on high traffic sites.
Chaudhry and his growing team of innovators, which now includes Amy Newman as head of sales and marketing for the UK and Ireland, have eschewed the traditional approach by creating an international brand.
Going toe to toe with the big brands
“You don’t have to be a L’Oreal, Coty or Rimmel to have a really good product.
“You can have a really good product and articulate the message, find a core audience, have them as the lead adopters and then build on those campaigns.”
In other words, the InnovaDerma DTC team has turned the marketing via social media from an art-form into an exact science.
InnovaDerma’s customer conversion using DTC channels is high with the company earning £4 for every £1 it spends on campaigns.
To get to this level required creating campaigns that engaged and resonated with the likely buyers of Skinny Tan, a self-tanning product that also claims to “contour and reduce the visible appearance of cellulite”.
It was quickly realised the content had to be relatable and that women, the core market for the product, buy only when they receive a recommendation from another female they trust.
Fine tuning the model
The team struggled early on finding its core market. They had assumed, wrongly as it turned out, that the main body of buyers would be young women. In fact, they turned out to be a little older: in the 44-55 years age bracket.
Finding that core market took time, experimentation and money, but the effort was worth it in the long run.
That’s because the cost per acquisition plummeted once the company found the right demographic and was able to create multiple campaigns that appealed to that audience.