Jessica Alba, perhaps most famous for playing the Invisible Woman in the Fantastic Four superhero movie franchise early last decade, recently channeled her star power into building a natural consumer products empire. Alba, 34, may have pulled back from Hollywood, but now shes embroiled in a highly conspicuous drama that holds some lessons for investors.
In 2011, Alba co-founded Honest Co. in Los Angeles. Known at first for its diapers and wipes, Honest branched out into tampons, laundry detergent and sunscreen. After a couple of years, it began to attract venture capital from the likes of Boston-headquartered Wellington Management Co. and General Catalyst Partners, based in Cambridge, Massachusetts. The company, which reached a valuation of $1.7 billion in 2015, is said to be weighing an initial public offering.
But last summer photos of sunburned children started popping up on social media posts that tagged Honest, charging that its new and less greasy SPF 30 sunscreen formula didnt work. In an August blog post, Honest said its representatives had called many worried parents; it also offered a phone number for people to express their concerns.
Then in March the Wall Street Journal reported that two independent lab tests of Honest laundry detergent had confirmed significant amounts of sodium lauryl sulfate (SLS) a suds-creating ingredient that the company promises to avoid because its a potential skin irritant. Honest denied the accusations, saying that it uses sodium coco sulfate (SCS), which it bills as a gentler alternative. Chemists told the Journal that theres little difference: SCS cant be made without SLS, and neither compound can be considered natural, they noted.
Honest, now the target of several class action lawsuits alleging that its sunscreen and various other products fraudulently contain synthetic and toxic ingredients, responded with a blog post deriding this account and explaining the makeup of its detergent in scientific terms. Alba published her own post a few days later, expressing disappointment with the Journals version of events and noting that she launched the company after she and her daughter suffered reactions to products with nonnatural ingredients. The newspaper followed up by reporting that although Honest claimed that its supplier tested for SLS, the supplier said that wasnt the case.
I think theyre trying to do the right thing, but they havent worked out their business process, says Melissa Arnoff, senior vice president at Washington-based public relations firm Levick. The companys response to the Journal investigation was horrible, Arnoff adds: The tone of it was completely wrong. Rather than simply reassure customers, Honest took a clinical route that seems to have turned many people off, if blog comments and social media are any guide.Honest has its own internal processes and reviews to ensure that its products live up to their own high standards, the company said in a statement. Additionally, the brand works closely with a trusted network of manufacturers and ingredient suppliers who further verify that the products are being manufactured up to The Honest Company standards.
Experts say brands that fly the natural or organic flag must learn to address and validate customers concerns without taking blame, especially as testing equipment becomes more sensitive, making it increasingly likely that traces of unwanted ingredients will show up.
For investors, the way a company handles a PR disaster like this can have big implications. As of mid-March, after a harrowing series of food safety problems at Chipotle Mexican Grill locations across the U.S., the restaurant chains stock had plunged 36 percent from its October 2015 high of $757. Chipotle, which has long touted its focus on sustainable food sources, has added a safety promise to its brand. Like pledges to avoid or include certain elements, such a move can be dangerous, says Kathryn Winsted, a marketing professor at New Yorks Pace University who studies brand recalls and new-media advertising.
Once you establish yourself as better for you, when you call yourself Honest and all of your promotions talk about what you dont have and how your products are better than competitors, youve got to know what youre talking about, Winsted says. If I were going to go for an IPO, I would have somebody investigating this.
Investors should be wary of any company that claims to sell safe, sustainable or natural products, Winsted adds. Unless a brand has commissioned independent testing and is transparent about the results, not even the Invisible Woman can save it from potential blowback.