Beauty Direct prepares for growth

Being tarred by the "Business to Consumer" (B2C) brush hasn't helped New Zealand's only listed Internet retail play. Comparable B2C companies in the United States are in some cases down over 90% from their highs before the correction - even market bellwether Amazon.com has been dumped by investors as analysts question its long-term viability and business model.

Yet in the face of an unsympathetic market Bronwen Evans, CEO of Beauty Direct, is optimistic that her company will succeed in the online retailing game. With only eight staff employed by the company (this includes employees in a "bricks and mortar" store in Wellington that the company owns) and a "very conservative" approach to running the business, Beauty Direct does not have the same burn rate as its overseas counterparts (burn rate is dot.com jargon for how fast a company spends its available cash).

Beauty Direct held their Annual General Meeting last Thursday in Auckland - and with their share price down almost 65% from the listing price, a small turnout of shareholders was not too surprising.

Management said that they recognised that the NASDAQ correction was a "clear signal" that shareholders would like the road to profitability travelled down more quickly than what was forecasted in the prospectus. The company also said that it was looking at investment opportunities and potential acquisitions.

Ms Evans wouldn't give an exact timetable for any announcements but was able to confirm that they were discussing possibilities with a number of parties. She said that with the large amount of cash Beauty Direct was sitting on, the company wouldn't have to ask shareholders for more funds - they are waiting for the right deal that will deliver value to their shareholders.

One stumbling block that the company has encountered is that many suppliers prohibit Beauty Direct from exporting their products. With Ms Evans keen to maintain close working relationships with all the suppliers parallel importing is not an option.

Because many companies implement worldwide pricing structures the low New Zealand dollar is a competitive advantage to Beauty Direct. Suppliers therefore do not want to undercut their distribution channels in other countries. Similar overseas websites have the same problem as Beauty Direct Ms Evans said, with major Australian retailer TheSpot.com.au not being able to sell certain products to New Zealand customers.

Beauty Direct has commissioned design firm Hyperactive to help with the monthly website updates. Hyperactive is owned by Commarts, a company with ties to New Zealand Post. Ms Evans says that this will help their direct marketing initiatives.

Beauty Direct's future plans include expansion into the youth market with the introduction of the E-Prepaid card, an online voucher system, the distribution of a physical catalogue, and joint direct marketing ventures with related businesses.

The company is also looking at bringing in other product ranges to their website including Jewellery, Lingerie, Kitchen/Tableware and Linen. Any potential export markets are being closely looked at due to the low NZ dollar.

Until the market warms up again to B2C companies, Beauty Direct may find its share price continuing to languish. Some value investors may find the company an attractive bargain - Beauty Direct has an asset backing of 10.6 cents per share compared to its current trading range of around 9 cents.

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