Honest Co. Faces Big Questions After Lawsuits
March 14, 2016 Leave a comment
When Honest Co. launched five years ago, the Santa Monica firm targeted a market uncommon among start-ups: diapers.
But thanks to its promise of nontoxic products and the allure of its celebrity co-founder Jessica Alba, it quickly built a customer base wary of the ingredients in its larger mass-market competitors.
Honest grew its product line as well, adding shampoos, soaps and cleaning solutions billed as safe for families as it amassed more than $220 million in funding and a valuation of $1.7 billion. With its pledge to “build a culture of honesty,” the company has become one of the region’s biggest venture-backed start-ups.
Yet a pair of class-action lawsuits and a recent report in the Wall Street Journal charging the company’s laundry detergent contained a chemical it pledged never to use risk undermining the principles that have allowed Honest to thrive.
You can’t be honest some of the time. In many ways, they made their own bed by choosing that name.
— Jason Cieslak, global branding firm Siegel + Gale
The challenges now facing the darling of the L.A. start-up scene — which is reportedly eyeing an initial public offering of stock later this year — reveal the risk of promising customers high-minded values and a world-changing ethos while embarking on a rapid expansion, business experts said.
“You can’t be honest some of the time,” said Jason Cieslak of global branding firm Siegel + Gale. “In many ways, they made their own bed by choosing that name.”
That’s all the more challenging, Cieslak said, because of the company’s ambitions.
“You have a dynamic here with a start-up going through rapid growth, having to please [private] shareholders and justify a crazy valuation as you march toward an IPO,” he said.
Honest is standing by its products and dismissed Thursday’s Journal story that said its laundry detergent contains sodium lauryl sulfate, or SLS. The chemical, which is widely used in personal care products but can cause skin irritation, is included in Honest’s list of banned ingredients.
The company is also facing class-action lawsuits in New York and California that accuse Honest of falsely advertising a number of its products as natural, plant-based and free of harsh chemicals.
Honest has dismissed the merits of those suits, which are difficult for plaintiffs to win because there is no regulatory definition of “natural” in personal care products, attorneys said.
“If you ask people what ‘natural’ means, nine times out of 10 you’ll get a different answer,” said Ted Craig, chair of the class-action defense team at Florida law firm GrayRobinson, who is not involved in the Honest lawsuits.
But the lawsuits can still be damaging to a brand, particularly one that’s built a rapport with its customer base for being better for their children’s health.
“It’s a lot easier to overcome a safety issue than a trust issue,” said Melissa Arnoff, a senior vice president at crisis-management firm Levick.
Honest also faced a social media backlash last year after consumers posted pictures of their sunburn and accused Honest sunscreen lotion of being ineffective.
The collective bad news has irked some loyal Honest customers such as Nathalie Nourian, an account director in Beverly Hills who has sensitive skin and has frequently tried different detergents to prevent irritation.
“I’m disillusioned,” said Nourian, 31. “Their whole credo is about honesty and this is really going to affect how I view the company.”
Honest co-founder Brian Lee said he’s confident that the brand’s customers will ultimately stay loyal. The Journal’s report, he said, was based on bad science. Honest uses sodium coco sulfate in its detergent, which when tested shows some of the same molecular markers as SLS but won’t cause the same irritation, Lee said.
“I’m not going to say this will now blow over, but we’re in the right; the Wall Street Journal got things wrong,” Lee said in an interview Friday. (The Journal said in a statement that it stood by its story, which was based on two lab tests the newspaper commissioned.)
Lee also dismissed the notion that Honest was growing too fast to the detriment of its products. Instead, he said Honest wasn’t expanding enough.
“We have a very long road ahead of us to make a difference in the world,” he said. “We need to get to a certain size and we’re not even close to that size. Have we grown too quickly? What’s growing quickly is the community the brand is resonating with. We’re not growing for the sake of growth.”
Although Honest funds some of its own research and development, it outsources its manufacturing, sometimes to other countries. Its baby wipes are made in the China. Diapers are produced in Mexico.
Lee declined to discuss reports of an impending IPO or company revenues, though he said sales were starting to eat away at larger mainstream personal care brands.
Honest, which was named after Alba’s daughter Honor, has resonated at a time when parents have grown fearful of the ingredients in mass-produced products. Alba suffered from painful skin rashes as a girl and suspected they were caused by harmful chemicals around her house.
There is often no definitive science proving that any of a growing list of ingredients in food, medicine or personal care is harmful.
That hasn’t stopped a massive industry from forming as an alternative to ordinary products. The North American organic personal care market is expected to reach $5.5 billion in 2020, up from about $3.5 billion in 2015, according to Grand View Research.
Honest hopes to lead those specialty products into the mainstream without compromising its values.
“Yes it’s a big name to live up to,” Lee said, “and we’re proud to live up to it.”
SOURCE: L.A. Times