E-tailer goes for bricks and mortar

By PETER GRIFFIN AND NZPA

Loss-making internet retailer Beauty Direct plans to build a franchise network of retail outlets as it pursues a new business model that leaves its pure-internet roots behind.

The Wellington-based beauty cosmetics and pharmaceuticals e-tailer lost $493,000 in the year to March 31, but hopes more sales - which were up 33 per cent for the year at $778,000 - and cost-cutting will bring the company into the black early next year.

Managing director Bronwen Evans said an owner-operator franchise model could be used to establish a chain of stores, some of them in Auckland, its largest market.

"The winners in the US are those that have the bricks-and-mortar model where the website is just another channel. Our suppliers are also preferring that model," she said.

Beauty Direct has a physical presence in Wellington through the pharmacy of Gordon Ritson, a 26 per cent stakeholder in Beauty Direct.

Ritson said changes to the Pharmacy Act that would help Beauty Direct's expansion plans could still be up to two years away.

Changes to the act would allow non-pharmacists to take minority stakes of up to 49 per cent in several pharmacies, compared with the previous limit of 25 per cent in just one pharmacy.

They would also let pharmacists own more than one pharmacy, with holdings as low as 51 per cent compared with the limit now - one pharmacy and a minimum stake of 75 per cent.

That would mean Beauty Direct could build a pharmacy chain by taking 49 per cent holdings. A larger physical presence would see the company increasingly competing against cosmetics chains such as the Body Shop, department stores and pharmacies.

Evans said Beauty Direct's online membership base was close to 20,000, and many were loyalty club members winning credits by recruiting friends as members. The average customer order through the site topped $100.

Beauty Direct would not need fresh capital for now.

Beauty Direct