It's a Matter Of... Belief
Creating a Culture Where It’s OK to Fail with Charles DentonSeptember 21, 2020 BeautyMatter
September 21, 2020
Sponsored By Azoya
Turning around a heritage brand is an art form that requires patience and vision. Charles Denton the Chairman and CEO of Erno Laszlo is a heritage brand whisperer who will immediately deflect his success at Molton Brown and Erno Laszlo by crediting his team. That is true leadership. Charles talks with Kelly Kovack about how the secret to success and longevity often lies in the culture that is created and the people that buy into the vision with the same passion as the founder or CEO. This shared commitment, and true belief, sets a solid foundation for growth, navigating missteps, market downturns and yes even global pandemics. Growth requires looking to the future while leveraging the past to evolve.
Charles Denton [00:00:20]: Hi, I’m Charles Denton, CEO of Erno Laszlo, and for me, it’s a matter of belief.
Kelly Kovack [00:00:33]: The intrigue of heritage brands lies in their histories and their stories, but these can also be the downfall. Growth requires looking to the future while leveraging the past to evolve. I’m Kelly Kovack, founder of Beauty Batter. Legacy can be a liability or a unique differentiator, and that distinction is often grounded in the vision of leadership. Every brand has a different history and a different story to tell, but the secret to success and longevity often lies in the culture that is created and the people that buy into the vision with the same passion as the founder or the CEO. This shared commitment sets a solid foundation for growth, navigating missteps, market downturns, and yes, even global pandemics. Turning around a heritage brand is an art form that requires patience and vision, and it’s certainly not for the faint of heart. Charles Denton, the founder and CEO of Erno Laszlo, is a heritage brand whisperer who will immediately deflect his success at Molton Brown and Erno Laszlo by crediting his team. That’s true leadership.
We have with us today Charles Denton, the chairman and CEO of Erno Laszlo, and Charles, I’m so happy we were finally able to figure this out. Every time we try to coordinate schedules, it’s sort of like, “Where in the world is Charles Denton?” because you travel so much.
Charles Denton [00:02:08]: Yeah, well, on this occasion, you’ve got me holed up in Greece, so I can’t get away from you, Kelly.
Kelly Kovack [00:02:12]: Well, that’s good, and I wish I were in Greece, it’s not such a horrible place to be holed up.
Charles Denton [00:02:19]: No, it’s lovely. It’s very accommodating here, very charming people.
Kelly Kovack [00:02:23]: Yeah. So, you know, and I kind of think everything happens for a reason, because I think we probably would have had a very different conversation had we had it in January or December when we had it planned, it seems like a completely different world that we’re living in, but we’ll get to that. I really wanted to start sort of just with a little context and background on you for people who don’t know you. I know you feel like you’ve told your story a million times, but you have a great story, so I would love for you to share it, just to set sort of the foundation, kind of how you arrived in beauty, the time you spent at Molton Brown, kind of leading up to where we are today with your acquisition of Erno Laszlo, I think in 2011.
Charles Denton [00:03:11]: I left school at quite a young age, I was 17 years old, I never went to university. My family had its various issues, I suppose I was slightly troubled as a child, and eager to just get out there and do my own thing. My first experience of business was renovating properties and trying to make a bit of cash and then go off traveling and then come back and do another one, and then I met my first wife, and she didn’t really want to live with someone like that, so she wanted him to have a proper job, I seem to remember. So, I went to the city of London and started in finance, having not completed my university or indeed any real education, the only place I could start was in commodity training, and so I began there. I’m doing okay, but I wasn’t really enjoying the environment. This was the late ‘80s where it was really unregulated, and a lot of the things that were going on around me, I didn’t feel very comfortable with. One day, we were shopping in South Molson Street, and we went into this store called Molton Brown, and I just instantly fell in love. I can’t really explain how or why somebody who is working in the city would go into sort of Aladdin’s cave of beauty, this feeling of mother earth wrapped around you, but I just got it; I understood it, I felt it, and so I started speaking to the lady behind the counter who told me the story of the founders who set it up, and the next day I called one of the founders up and said, “You’ve got an amazing brand, why is it not better known?” He was a wonderful guy, Harvey, he said, “Well haven’t I got enough problems? Why are you calling me with this?” and so I said, “Well, maybe I can help,” and he said, “Well, come and talk to me,” we just clicked, I guess, and within a week, I had left the city and I was working as a marketing consultant for Molton Brown, and then a year later, late ‘80s we’re talking about, the retail recession kicked in pretty badly, and they went through a pre-pack, and the new investors coming into the business asked me if I’d like to stay involved, and I said, “Well, if I can be one of the investors, yes,” and they said, “How much do you want to invest?” and I said, “How much will you lend me?” and long story short, they did lend me the money to buy alongside them, and there was about three or four of us that took the business forward. At that time, I knew nothing, but one of the lead investors, Michael Warshaw, became our chairman, if you’d like, he took me on as his mentee, he was my mentor, and that was my university, my business university, if you’d like. He was basically a businessman, had run many businesses, and he taught me everything there was to know about business, and so I worked my way through the company from the sales and marketing role that I started with, later on, joint managing director, ultimately CEO, and then we exited to Kao Corporation in 2005, so that was a 16-year journey in a vertically-integrated business, had its own labs, manufacturing, wholesaling, retailing, we really were a wonderful place to learn your craft, if you’d life, and I had an amazing time. We pioneered many, many innovative ideas, not least, the concept of sampling, bringing products in hotels, which became our sort of secret to our success, and then 2005, the company, as I said, was sold, and I felt that I’d probably…I didn’t feel that I could stay inside the company under the new ownership, because I felt the culture was going to change. Once they’d changed my email address to the owner’s corporate email address, I was no longer charles@moltonbrown, things started to feel different. And, again, that’s fine, you know, new owners come in, they have their own visions for what they want to do with the business. So, I did something very different at that point. A friend of mine contacted me and said, “I know you’ve always been interested in supporting kids and things. There’s this role at Great Ormond Street Hospital Charity going, to lead it, and they’re looking for someone who can do the following seven things,” and I went down the list and thought, “Well, I can do six of those. The seventh one, I have no understanding of charity law, but I guess I can find someone who does,” and that was it, I joined Great Ormond Street and spent five amazing years there, helping them restructure the hospital and raise much needed funds and so on.
Kelly Kovack [00:08:03]: I have always – I love heritage brands as well, and I know you speak a lot about culture, and anytime, you know, we talk about sort of the success you had with Molton Brown and Erno Laszlo, the first thing you say is “It’s my team,” and I think heritage brands are sort of these rare gems, and for people to really sort of kind of light a new fire and make them relevant, you have to have the passion for it, like that feeling you had when you walked into the store. What was the feeling you had that made you acquire Erno Laszlo?
Charles Denton [00:08:45]: Well, the feeling that I had when we walked into Molton Brown first was this sort of authentic sense of warmth. It’s almost as though the store wrapped itself around you and said, “I care about you,” and that was very powerful, particularly at that time in the ‘80s when everything was a bit bling and fast-moving and lacking any form of care. So, I felt I was in touch with my soul a little bit more in that environment. Erno Laszlo was - bear in mind, I had been out of the industry for five years, doing something completely different, and had coffee – had lunch with a Molton Brown employee of mine who was working at Erno Laszlo, and she was telling me about her plans, and she had three brands, her name is Sarah Rotheram, she’s truly an inspirational business operator, and I would say visionary, and she’s the one who took Penhaligon’s to where it ultimately ended up before it was acquired. So, she had Penhaligon’s, L’Artisan, and Erno Laszlo, and she was talking about all the plans they had for L’Artisan and Penhaligon’s, but Erno Laszlo really wasn’t discussed, and at the end of the lunch I said, “You know, this is an amazing brand. I remember the queuing up at Saks to understand what the hell was going on with this line to this counter, you know, what was this black soap? How come it was so iconic?” Erno Laszlo, as you know, Kelly, was kind of the father of modern beauty if you like, or modern skincare, certainly, and his pioneering ideas sort of set the platform for what we see today. There has not been a huge amount of innovation since then. If you really look at his thinking, yes, there’s been ingredient development, but it’s the same time of products led in, if you’d like. So, I was thinking, there’s this powerful truth to the brand. There’s this unwavering commitment to efficacy first. It was like, the products have to work, that’s the number one thing, and there’s just this extraordinary word of mouth support and this almost cult-ish following for the brand, and I felt that it had been ignored as a has-been. It had its moment, it was big in the ‘60s or the ‘70s or the ’80s, but now it was just waning. It was time for it to be sunsetted, gracefully put out to graze, if you’d like, and I thought, this is crazy, because if you think of all the things that drive modern beauty today, the storytelling, the authenticity, the word of mouth, you know, all of those were what the brand was built on, so surely, there was an opportunity to just repurpose this DNA and talk about it in a way that would resonate with a new consumer. So, the thing that drew me to it was that truth, that sort of…the power in the truth and the honesty of why the brand existed, and of course, Laszlo’s commitment to really solving problems. His whole life was spent around – he was very sort women-first in an old-fashioned, Austro-Hungarian way, clicking his heels and barring himself, if you’d like, but he really did champion women. All of his clients talk about the way he did his best to uplift them emotionally, mentally if you’d like, and so all of that resonated with me, having come from a single-mother family and all of those other issues, so it just touched me, and I felt intellectually, everyone else has said it’s had its day, I don’t believe this, and that became I believe there’s a better way, I believe there’s a different way, and I believe I can find it, and that’s my motivation in life. I always have this, I believe there’s a better way, and that’s what gets me out of bed every day: how do we find the better way?
Kelly Kovack [00:12:42]: Well, you know, it’s very interesting because on one hand, it’s probably, you know, given the experience you had and the context you had, would have been far easier to just start a brand from scratch, but I am like you, it’s like, with these heritage brands, it’s almost like you have a responsibility to them when you make a commitment, and I can remember the history of Erno Laszlo, that discovering the black soap was a step up from the Clinique soap, and it was cool, you know, and then sort of being in the industry, the brand sort of got passed around a little, and it was sort of like, “We’re going to revive it. We’ll just build this really fancy counter at Bergdorf Goodman.” So, it was sort of like throwing money at a brand that really needed a little TLC, and I think heritage brands are, you know, I think sometimes people get enamored with the sexy quality of a heritage brand without realizing how much work it takes to keep them relevant. Can you talk a little bit about how you built the team and the culture from a brand that really had a little bit of – I mean, well, you said it, it has this sort of perception that its time had passed. So, how did you begin to change that, and what were some of the challenges? Because I know it was far more difficult than you even realized once you sort of got under the hood.
Charles Denton [00:14:13]: Well, that’s actually the truth, and far more difficult than our investors realized when we got under the hood. So, I think the first problem is the consumers, our loyal fans, didn’t think our time had come, so they were very happy with the way things were. A little bit disappointed that it had been moved from owner to owner to owner and things had changed along the way. The team that we inherited, they didn’t think our time had come. So, to try and light a fire under your team and under your consumers to say, “Look, if we don’t change,” and, put it like this, Kelly, if we hadn’t done what we did over the last few years, I’m pretty confident that the company, the brand, would have been bankrupt during this period right now. We were 90% - 80% department stores. We traded over, we were in Saks, Niemen’s, Bergdorf’s, all the best department stores, and I took the decision to close them all. At the time, people thought I was crazy. Bear in mind, when we were making these decisions, influencers hadn’t really happened, and online hadn’t really happened. Even Ulta and Sephora were not sort of talked about all the time. So, I had to find a team, or build a team, that was comfortable with change. I think that’s the main point, and could work as a team, and that was comfortable with change, because one thing was for sure: we didn’t know the answer. We knew it was wrong, we knew there was a better way, but I had no idea what the way was at that moment. So, we just needed to try things, constantly innovate, try different ways, go down different paths, if it works, let’s learn from it, do more of it, if it doesn’t work, stop it and move in a different direction. And, I think for the first five years, as we were exiting those department stores, it was all about that, just trialing different ideas, seeing what works, which products resonate and why, what can we say goodbye to without entirely alienating our loyal customer base, what’s going to resonate with a new customer, who is the new customer? A lot of our loyal customer base came into the brand when they were in their 20s, now they’re in their 50s or 40s or 50s or even their 60s, even older some of them. So, how do we retell that story in a new environment with a whole new set of tools? So, I needed a team around me who could believe that we could do this, had the imagination, because at this point, we’re trying to imagine what hasn’t been done yet, and then be comfortable with failure. You have to fail. You have to embrace failure as a management team, you have to embrace failure as an investor, otherwise, you don’t innovate. So, the ability to embrace change and the ability to embrace failure and learn from it were probably the two most important qualities in terms of the team we built and in terms of the culture we built.
Kelly Kovack [00:17:26]: I mean, you have an amazing team, and I know that you’re very hands-on. I remember one of the meetings we had, I guess it was last year, I walked in and you were like in the front doing gift bags to give away, so I know you’re very, very hands-on, and you travel a lot sort of from Asia to U.S. to sort of be very present with your teams and in the market. You know, at what time was there an inflection point? Because during all of this, you sort of had a switch in investors as well. The thing about heritage brands and sort of turning them around is it’s very rarely a three-to-five year horizon, you sort of need a longer-term vision, and you know, at some point, there was sort of this tipping point where, you know, you reached newer consumers, but I think more importantly, the industry started looking at the brand in a different way.
Charles Denton [00:18:27]: Yeah, I think that’s very fair. I think I made some fundamental mistakes when I look back. One of the mistakes I made was committing to this concept of growing up year. So, if you look back to 2011, every single year, up until today, we have grown as a business. Now, if you imagine having to extricate yourself from a channel, and show growth at the same time, and reinvent yourself at the same time, without space, if you like, to allow your revenues to decline for a period or something like that, made it very challenging, and that actually was one of the reasons that it stretched out the timeline. What we could have done in maybe two or three years, we did in six or seven years, because we had to do it in a more methodical, measured way, and of course we had to manage everything within a limited amount of cash – it wasn’t as though we were owned by a strategic with unlimited funds that just said, “This is the trophy asset, make it what it should be.” We had to grow revenue every year and we had to improve our profitability at the same time. So, I think the really “aha” moment that then later became the inflection point was once we were tinkering with the changes, what we need to do here and there with the range and the price point and the architecture and everything we went through, as you can imagine, I recognized that the brand had a very strong and growing following amongst the Asian consumer, and this was very evident in Canada, where we had counters in Holt Renfrew, which we still have today; it’s the one area we didn’t change. We kept our counters in Holt Renfrew and continued to grow them, and we’re a top five brand in Holt Renfrew. So, the question was, why is this resonating so well with the Asian consumer in Canada? And, we investigated that and realized it was a strong connection with our previous distributor who had been in Hong Kong, and the products really worked for this customer, and the word of mouth just was stronger and stronger. And so, the inflection point for us was recognizing the opportunity in China, and saying, okay, from this platform in Canada, reinforce with a platform in Hong Kong, can we get into China? Can we really think about China as our growth engine? And, we did a couple of steps there, we appointed a distributor in the first instance, proved the model, that it’s a low-cost level of investment, we set up our operations in Shang Hai, I now have a team of 30 brilliant operators running that business.
Kelly Kovack [00:21:14]: Well, and you know, that kind of brings us to sort of, you know, kind of an interesting point. You have really been dealing with kind of the uncertainty in the world since last fall, because when we spoke last fall, you had a very nice business in Hong Kong that was kind of decimated by the political unrest; you doubled down in China on Single’s Day. When I was writing that article, the case study we did together, I literally like got goosebumps and adrenaline imagining sort of – I kind of imagined it with a bunch of TV screens in a war room running Single’s Day
Charles Denton [00:21:56]: It was like (unclear 00:21:57), it really was. It’s really cool; it was fantastic.
Kelly Kovack [00:21:59]: But, you’ve really sort of been dealing with uncertainty in the business since last fall: the political unrest, and then COVID in China, sort of the beginning of the year, and then sort of the pandemic sort of turned into sort of a global situation, and then in the U.S. market, we have this confluence now of COVID, sort of economic issues, and sort of this very cultural unrest. So, you’ve sort of…I guess my question is, how have you navigated this as a business? And, you know, perhaps we can start with the fact that there were rumors floating around that there was talks of a sale. It’s very interesting, because at the beginning of the year, also, sort of those brands that were being acquired were kind of those high-flying, venture-backed, unicorn billion-dollar brands, and sort of the legacy brands that were sort of slow, steady, profitable weren’t the sexiest acquisition targets. So, it’s very interesting, fast-forward now, people have sort of changed what they’re looking for. Now, all of the sudden, businesses like Erno Laszlo that have been around and proven and profitable are far sexier.
Charles Denton [00:23:21]: I think that’s true. I think that’s certainly how our investors looked at the situation. So, I mean, you’ve raised a lot of really interesting points there. Still with the navigation issue, I think to some extent, everything we just discussed at the beginning about the culture of the organization set us up very well for this period. We had already begun our pivot to online, so from a model point of view, we were well-structured when in North America, our bricks-and-mortars closed their doors, and not only did they close their doors, Kelly, they said, “We’re canceling on our orders, even the future orders for different anniversary events, etcetera,” which we had committed to, you can imagine, and not only that, they said, “And we need time to pay your bills. We can’t afford to pay you right now.” Now, we’re a small company and these are big, large organizations. And so, fortunately, because we had already pivoted to more of an online model, and because we had this China growth story running successfully, we were able to navigate through that, and you know, I’m pleased to say that we – I don’t want to crow, because a lot of brands and a lot of companies are having very tough times, and I’m very empathetic there; I would hate to be in their shoes with some of the difficult decisions they’re taking, but in our case, we beat our first half budget. So, if you think about it, we budgeted last year, October time, with no awareness of what was going to happen with the pandemic, and we achieved – not only did we beat our revenue targets, we also beat our (unclear 00:25:08) target. So, I was delighted with our performance. How did we get there? Well, we did exactly what we did before the beginning of – towards the end of the year as Hong Kong was struggling; we doubled down further on China, so we accelerated our China plan, we accelerated our pivot to online in North America. People first, so how do we put their safety first? We closed our offices. I think we were the first brand, probably, to close our offices in New York.
Kelly Kovack [00:25:37]: Well, I know you were very vocal on LinkedIn telling people, you need to take this seriously, and sort of sharing your experience of closing your office in New York, and I think it was important because, well, still in the U.S., people are not taking it seriously, but I know that your people matter to you, and that was important.
Charles Denton [00:25:58]: Yeah, I mean, people first is – I always believe the profits follow the people, so you put the people first, the profits will take care of themselves, if you’d like. We had the advantage of seeing what happened in China, so I’m in daily contact with my office in Shang Hai. We had to close there, everybody was locked down, we saw what happened there and how they managed it. I assumed that the American government was going to handle the problem in a similar way – and not just the American government, European governments and so on. I was a little surprised by the lack of direction, if you’d like, and the sort of confusion that was going on at the time, hence, I don’t normally used LinkedIn as a platform, but I was just saying to everybody, in my opinion, and also because I had a few contacts back in the hospital where I was working which I was in touch with, everyone was telling me this is very serious. Hundreds of thousands of people are going to die. This is what I was told – in America, not just worldwide, in America. So, you know, that scared me – that scared me a lot. So I thought, what can I do? You either make sure they can access great medical care, or you keep them as safe as you possibly can. Ideally both, but obviously the medical institutions were overwhelmed – unprepared and overwhelmed. So, we just closed the office in February, and right now, the latest information for our team is that we will not open until at least first of June next year, and I may push that out even further. When the likes of Google have taken that same decision, they have a lot more intel than we do. So, we certainly follow that. But, also, from a point of view from the people. My team doesn’t want to be uncomfortable traveling to the office. And the other point I would make is that our productivity is great. We already had this thing called “work from home Wednesdays,” so we always closed the office on Wednesdays and everybody had to work from home to keep more of a work-life balance, and so you could say we were set up for work from home; we had already road tested this, and it went very, very well. So, people first, close the office, next thing was supply chain mitigation. Obviously, we had issues with our factory in America closing, we had issues with our component suppliers closing, etcetera. I have an extraordinary operations team, and we actually went out of inventory, I think, on four non-popular items, low-level skews. They kept their entire supply chain up and running and kept us in inventory, which is extremely important because we were seeing increased revenues. Our problem was going to be the supply chain, not the generation of revenue, because our pivot to online was succeeding and China, we doubled down, it was moving faster. So, fast-forward, we’re now a virtual team, the culture has, I think, sustained us, the way that we work together has sustained us, we’re very comfortable with that, and our model is proving very popular, and there is one point you just mentioned about the sense…there’s a nostalgia point creeping in as well, the tried and tested, the things you trust. We’ve reconnected with more lapsed Erno Laszlo customers in the last six months than I have connected with in the last five years. It is extraordinary.
Kelly Kovack [00:29:21]: Well, you also had a partnership with the Makeup Museum which was supposed to launch, so there was also this very cool sort of public unveiling of the Erno Laszlo archives, which I love that stuff. So, I mean, it didn’t really pan out very well for the Makeup Museum because obviously they weren’t able to open, but they did an interesting digital pivot as well.
Charles Denton [00:29:50]: Yeah, so we partnered with Doreen on that, and said to our team, you know, what have you got in the archives that we can, if you’d like, share? And so we retrieved Marilyn’s prescription that was typed up in Dr. Laszlo’s office from him, and also the same for Jackie Kennedy or Jackie O, and these stories, I think people really resonated with. Again, they’re truthful, they’re authentic, and they’re pretty insightful in terms of some of the innovation and the pioneering thinking. He was advocating drinking a glass of red wine for its antioxidant value, for example, 50 years ago, and we talk about it today as though it’s almost new news. So, yeah, as you already said, that started to make our history, our heritage, modern in a way, and relevant in a way. We don’t really lead with it, but this moment was an opportunity to lead with it, and what it led us to do was actually bring back one of his beauty products, Shake It, and I kid you not, it’s the most successful product launch we’ve had, ever.
Kelly Kovack [00:31:06]: Really?
Charles Denton [00:31:07]: Ever.
Kelly Kovack [00:31:08]: That’s amazing.
Charles Denton [00:31:09]: Extraordinary. We sold, in probably six weeks, what we would normally sell in six, seven months.
Kelly Kovack [00:31:19]: Well, and you have effectively – I think, you know, when you inherited the brand, I think the average age of the consumer was around 50, right?
Charles Denton [00:31:29]: 55.
Kelly Kovack [00:31:30]: 55. Okay, 55, so older, and now it is 31, early 30s?
Charles Denton [00:31:35]: Yeah, it’s slightly younger in China, so our core consumer is between 24 and 28, probably, in China, and North America, I would say she’s between 30 and 35, on average, but we still – we draw…it’s very interesting looking at our data in the last 12 months. We have successfully recruited new fans, if you’d like, in every band, from 18 up to 80, and obviously there’s spikes in the middle, so we’re more successful in the 25 to 45 area, but we recruit right across, because you know, we’re not really ageist in how we approach our segmentation. We talk about, what is the concern you have and the problem you’re trying to solve? And, we probably have the product that resolves that issue for you, it doesn’t matter what age you are. You might be talking about acne when you’re 18 or when you’re 60, hormonal acne, it has many forms, for example, and anti-aging today, people are thinking about delaying age, or having a more healthy, natural, non-makeup appearance at all ages. It’s not that you’re now waiting until your 50s and saying, “Oh, this is now very serious,” I think people in their 20s are just as concerned with investing in products that are going to give them sort of a sustainable youthful appearance.
Kelly Kovack You know, Charles, everybody’s business shifted because of the shutdown of brick-and-mortar retail, and even though you’ve seen sort of a success, were there changes you had to make? Did you have to furlough people? Did you have to make those hard decisions, sort of people-related?
Charles Denton [00:37:09]: Yeah. So, this is a big topic for me, and you know, I have several arguments on a weekly basis around this with colleagues in other businesses. There’s a short-termism that can creep into situations like this, where people say, “Oh, to protect the bottom line, I had to fire 10% of my workforce, 50% of my workforce.” I spoke to someone the other day who 85%, 90% of their workforce was let go, not just furloughed, but fired, and if I had to give up one or two or even three million dollars’ worth of profit just to keep a team, I would. I decide if just preserving your profits for a year a two, you know, these people, they’ve got families, and it’s not just that you can, oh, fire them and they can go get another job. At this moment in time, there is very little chance, or there’s a limited likelihood, that they can find other employment. So, any decisions you take just to preserve your profits over the short-term – and, the crazy thing about this Kelly, is a year from now or 18 months from now, then there’s this mad rush to re-hire, and you’ve lost all of that talent, all of the time invested in them, developing them, the culture that they helped foster and you succeed with, you’ve lost that, and then you have to start all over again. So, we’ve been totally – and have always been totally against this short-term approach. This being said, I did let some people go, but I let them go for a different reason. I let them go not to preserve profits, but I let them go because we were evolving to this new model, and they were no longer relevant to the new model, and so I was, if you’d like, I accelerated that plan, but it wasn’t a short-term decision to preserve profits, it was a longer-term strategy, and I think every single person knew it was going to happen sooner rather than later. I delayed it as long as I could and helped the best we could, and we gave the best possible severance we could to recognize their personal circumstances, but I didn’t let one single person go, and we didn’t furlough anyone in the states because we have the cash, first of all, and secondly, as I said before, to gain short-term profit for their pain and then longer term then have to rush around to try to find the talent, doesn’t make sense to me.
Kelly Kovack [00:39:45]: Yeah, you know, there’s so much invested in sort of getting the right people. I guess some businesses, it’s a matter of keeping the doors open or not.
Charles Denton [00:39:56]: That’s a different matter. I mean, if you’re in survival mode, that’s a different matter, but if you are, “Oh, I need to keep my investors happy and maintain my profitability,” I’d sit in front of them and say, “Look, this year and maybe even next year, we’re going to have a low level of performance, but I’m keeping my talent, I’m keeping my team, and when we come out of it, they will remember that. They will be even more loyal, even more passionate, even more supportive.”
Kelly Kovack [00:40:21]: I mean, absolutely, I think there’s two different approaches to business: there’s the one where it’s just bottom line and revenues and return for investors, and the other one is focusing on, you know, all the stakeholders in the business, and they’re fundamentally different, because I think some businesses saw this as an opportunity to sort of make cuts that may have been looked down on, or in a different context, and now it was an opportunity to sort of slash, slash, slash to increase profits, which, you know, hopefully, I think…I’m hoping that way of thinking is becoming antiquated, because I think in this period of time where government, at least in the U.S., has failed us in so many ways, brands and business owners are really stepping in to fill the gap, and we see sort of this idea of B-Corps and the idea of really brands having a responsibility that’s larger than just profits and shareholders, and I hope that that’s the way forward. But, it requires sort of leaders like you to have that look. No, really, I know you always sort of dismiss that, but it really takes value and a commitment to people.
Charles Denton [00:41:42]: Yeah, I think, Kelly, that if you go back over history, a lot of the most successful organizations, companies, and so on, family businesses, were built with those values, and perhaps, you know, the driver of those businesses, perhaps, in the past, was creating the best possible product or nurturing our consumers or creating a wonderful work environment for our employees because we treat them as family, etcetera. Some of those things, perhaps, have waned in favor of profitability and performance and, you know, big investors having their needs. There’s a balance that’s required. I mean, there’s no doubt that there were a lot of companies that were past their sell-by date entering the pandemic, and you see them washed up on the shores of the pandemic because they should never have been afloat, you know, they were held up by chief finance or whatever else.
Kelly Kovack [00:42:47]: There’s a bit of beauty Darwinism happening.
Charles Denton [00:42:49]: Well, exactly, and absolutely right, because in many ways, it was a false economy, and that’s not healthy for competition and not healthy for growth, and those who were unable to innovate, or failed to innovate, it just accelerated their demise. So, I don’t think you can criticize that, it’s just what it is, and there’s some things that just change and you can’t innovate, it’s difficult. But, I think there is definitely an element of short-term cost-cutting just to maintain your bottom line, and that’s not driven by survival, it’s driven by satisfying the powers at be, and I think that’s a bit sad, to be honest, and again, probably a false economy, because you end up, as I said, losing all of that valuable resource. Certainly, from our point of view, we have certainly accelerated a number of initiatives, that I cannot deny, but they’re motivated by improving the business to be a better model for the future rather than short-term profitability.
Kelly Kovack [00:43:57]: And, you know, in the midst of all of this as we have dealing with the pandemic, dealing with sort of the economic implications of that, you know, in the U.S., we had this Black Lives Matter movement happening, which is culturally profound, long overdue, but it’s almost, I think, for brands, created this perfect storm: dealing with the pandemic and financial is almost one sort of mindset, where dealing with sort of something that is cultural requires hard conversations, awkward conversations, you know, it requires almost a completely different skill set, and to have manage both of them at the same time, I often think about it, and I’m like, I’m happy to be sitting this one out and not owning a brand.
Charles Denton [00:44:55]: It’s a very interesting moment, isn’t it? My belief is that the Black Lives Matter movement would have been drowned out by the voices of the pandemic if it wasn’t impacting their community as badly as it did. That was the catalyst, if you’d like. Yes, we saw the awful images on TV, but behind that, there was clear evidence in all of the reports that this community was being hardest hit by the pandemic. More people were getting sick, more people were dying, as a ratio, if you’d like, and so the pandemic gave it even more fuel. So, you had these awful images of police brutality, you had these images of white Americans using their power, as a white person, to potential inflict damage on a black person, and then you had the backdrop of “Look at the pandemic. Look at how we’re dying here, we’re dying in the streets,” if you’d like, and so all of that came together, and I agree, it’s a very difficult time to think about how you navigate it. I come back to culture. If, inside your organization, you’re about your team, then you listen to your team. Our approach was we held a group-wide meeting, and we divided the organization up into four groups, and we said, “Okay, look, we have a lot to learn about this ourselves. We haven’t been great at attracting African-Americans, in particular. We’ve got a very diverse group of employees, but as it relates to black Americans, we have attracted a few, and we haven’t held onto them as well as we’d like, and I don’t understand why, and so let’s find out. Let’s all take this out, these four groups, let’s ask ourselves, how do we look from the outside? How do we behave from the inside? What can we do differently? What can we do better?” and the whole of my team came back with what has now become a mandate of 20 different actions that we’re taking, and that’s been divided up across our organization and across a timeline, and it will lead to long-term change inside of our organization for the better, and also, I think, will allow us to use our platform to better inform, better educate others on this extremely important topic.
Kelly Kovack [00:47:38]: You know, we’ve talked a lot about sort of the difficulty of this time, but I don’t know about you, I also think during times of crisis, there’s also amazing opportunity that presents itself. I think I’ve also been sort of blown away by the creativity of people. I have been sort of humbled by how – especially on the professional side of the beauty industry, they immediately stopped everything and showed up for their own and took care of salons and individual stylists. So, I think that yeah, it’s a difficult time, and I think that we have a difficult time ahead of us, but I also am really optimistic about it as well. How do you think the pandemic – and, I suppose, the Black Lives Matter moment, is going to change the beauty industry, both from sort of a customer perspective, but also sort of how businesses operate?
Charles Denton [00:48:40]: So, I think the pandemic will change our behaviors and the awareness around Black Live Matters will change, perhaps, how we think. There’s no doubt that the pandemic – I mean, you take our organization, even when we re-open, if it’s in June, we will not go back to a 9-5, five days a week, type model. A lot of my team, like many other companies in New York, are now working from their family home in Nebraska or wherever else. I’ve told them, and as an executive team, we’ve said provided you get the job done, we don’t mind where you want to work. So, I think that will carry forward. I mean, maybe that’s a bit of a bad thing, because you can say, “Well, the heart and soul of New York is being ripped out a little bit as everyone’s disappearing,” but I think New York is New York, it will bounce back in some form or another, but definitely our way of working will be different. That’s balance that’s come to your life, the sort of re-evaluation of what’s important, I think people are spending time with their kids that they perhaps haven’t had a chance to do, or with their loved ones or friends or visiting places, I think taking up studies and so on, there’s all sorts of things that have changed who we are, and I think those behaviors will carry on. Obviously, the reports around beauty are suggesting that skincare is accelerating, essentials, I think there is definitely, from our point of view, we’re seeing there’s an increase in investment in quality skincare and a decrease in investment in color, but, you know, that may easily reverse itself at some point soon. So, yeah, I think those things will happen, and Black Lives Matter, I think it’s interesting, when you talk to successful black Americans, they have recognized that things have changed a lot. There is definitely – there has been huge success. It’s wrong to say it’s a disaster, nothing’s changed. There’s been lots of success, there’s been a lot of people who have succeeded in their careers, their lives, and so on, and you know, you see a lot of them on LinkedIn now saying, “I bet you didn’t realize I was a NASA scientist,” and there he is in a t-shirt looking like a person you might avoid on the street, you know, that’s the whole point, your pre-conceived ideas would have you behave differently towards these people. But, I think what’s happened, really quite excitingly, it’s going to get an uplift, an acceleration. The change will now be accelerated to the point – it’s almost like it’s going to be thrust out of gravity and into a new place, and I think that’s going to be very exciting. We have some really interesting initiatives that we’re planning, top-down, bottom-up, to better engage, and I’m sure there are thousands of companies like us thinking the same way, planning the same things, and this will have a huge impact, not just across America. I mean, Kelly, I think when the movement took off, it took off all over the world. That was so…the fire was lit everywhere, because the same problems are in England and in France, in Germany, you know, all of these older economies have issues with immigration and integration and so on, and coming back to my “there must be a better way,” I am hopeful, because I do believe that we will find a better way, if we work together. Of course, you sometimes take three steps back, you sometimes get slapped in the face, you sometimes have to wait a decade, it’s not going to happen tomorrow, but it gets there eventually.
Kelly Kovack [00:52:41]: Yeah, yeah. So, just in closing, I have – we sort of ask this question of everyone, but I think sort of given your history and success at sort of turning around and building very successful businesses, but very sort of rich cultures and fantastic teams, there are a lot of entrepreneurs that, you know, this if the first time – sort of young entrepreneurs, where this is the first time they’ve dealt with a crisis. More senior people, we’ve gone through 9/11, we’ve gone through sort of the recession. This is very different, I mean, this is sort of a generational moment that is unlike anything we’ve ever experienced, but I think when you go through and navigate rough patches, at least you have that sort of experience to lean on, but there are a lot of young entrepreneurs that this sort of their first big crisis, and it’s a doozy. What one piece of advice would you give them?
Charles Denton [00:53:45]: I mean, first of all, let’s acknowledge that none of us really – you can divide the world into two halves, those that have some flexibility to navigate and those that have no choice. You know, you might be the best chef or the best restaurateur every, but if you’re banned from operating, you’re banned from operating, end of story, and it’s hard to navigate when that happens to you. I think the – it’s not so much advice, it’s just the thing that has sustained me, there’s two things, probably. Belief, a belief system. Everyone has to have a belief system, and my belief system is this idea that there is always a better way. You can flip that and say, “I’m never good enough,” or “It’s never good enough,” which is part truth, but there’s always a better way, and I’m motivated by the pursuit of that better way in everything that I do in my life, whether it’s how I bring up my kids through to how I run an organization. I think you’ve got to always believe there is a better way and pursue it, and almost disrupt yourself in doing it. As soon as you get somewhere, you know, you almost have to say, “Okay, that’s not good enough now, because anyone else can get there. Let’s disrupt and move forward to the next better way.” And, the other thing I suppose you add into that is imagination. So, if you can have this idea that there is a better way and be motivated by this concept in whatever you’re doing in your life, and then have the imagination to imagine what might be, because you don’t know, necessarily, where you want to get to, you know there’s somewhere better, but you don’t know necessarily exactly where it is, so you have to sort of imagine what might be, and then somehow, your mind connects – creates a pathway, you know, so you’ve got this belief system which is the fuel and the energy, and the determination, and you’ve got the imagination, which is sort of the moonshot, it says, “Okay, somewhere over there,” and then your mind helps you find the path.
Kelly Kovack [00:55:54]: I mean, I love these businesses that are having sort of these clean sheet strategy sessions, where they’re sort of opening everything up to conversations of, “If we could start over, what if?” and there is sort of this moment that…it almost – it allows you to rethink your business, because nothing is the same anymore; it’s never going back to that.
Charles Denton [00:56:19]: Yeah, I think that’s true. I mean, the great thing about America, you know, people criticize America, I’m a champion of America, I think we all have our faults. But, the great thing about America is it accepts failure, it embraces failure. You can try something, fall on your face, if you pick yourself up, dust yourself off and try again, you’ve got cheerleaders around you. Society, in many ways, is a cheerleader sort of philosophy that says, “You can do this,” and that is, I think, very encouraging. America will go through this like any other country is going through this, but it probably will bounce back faster, it will probably bounce back in a fresher, newer ways. In some ways, America is a little bit like a heritage brand, you know, it needed to change, and if you look at the values that America was built on, no different to the values that Erno Laszlo was built on, they’re sort of lost along the way. I think as America bounces back and refreshes itself as a brand and a brand of the future, a model of the future, in doing so, it will probably embrace, once more, those values upon which it was built so successfully, and upon which people, you know, the reasons people aspire to be part of America and look to America for leadership. I think we’ve swung the pendulum so far away from those values that I think it will swing, probably, a long way back, and a lot of people will be reminded why they are proud – not just say, “I’m proud to be American,” but why they actually feel proud to be American. I think it’s a very exciting time, from that point of view.
Kelly Kovack [00:57:58]: I think it’s a very interesting lens to sort of look through – look at the current situation as a heritage brand. I only hope that we find that benevolent leader that loves the country and makes the pendulum swing in the right direction.
Charles Denton [00:58:14]: Well, he’s got to start with a team – or, she’s got to start with the team; get the right team and anything’s possible in America.
Kelly Kovack [00:58:21]: Exactly. Well, Charles, I am so happy we finally got to catch up, and I really look forward to the time when we can be in person and have a drink together – no idea when that’s going to happen, but it will. So, thank you for the time today and the great conversation. I know it’s sort of…going into this, you know, I really love the fact that you’re always sort of very honest and open about the business and very transparent, and I think not a lot of people want to talk about kind of the bad stuff that’s going on in their business right now or the difficult choices, so thank you for having kind of that conversation, because I think it will help a lot of people sort of navigate this difficult time. So, thank you for all of that.
Charles Denton [00:59:08]: Well, thank you for the opportunity. I’ve always believed that there’s nothing more powerful than truth, and you’ve just got to own it. It might be the most pleasant thing, but if you own it, then no one can ever undermine it.
Kelly Kovack [00:59:21]: Wow. Thank you Charles, and I look forward to seeing you soon.
Charles Denton [00:59:26]: Likewise, thanks, Kelly.
Kelly Kovack [00:59:32]: For Charles, it’s a matter of belief. The north star he creates is the belief in the DNA of the brand, what it stands for, the potential of the business, and the ability of his team to make it happen. For him, of course success is important, but so is creating a culture where it’s okay to fail. The beauty category has never been more crowded, and the retail landscape more complicated, and one might argue launching a new brand is infinitely easier than resurrecting a 90-year-old skincare brand. Heritage brands, by their very nature, are the vision of some founder who set out to accomplish something, and if it was noble and important, then it remains unfinished business that deserves attention. Continuing a legacy is like performing brand surgery; it requires taking into account every part of the living, breathing entity, from its people and loyal consumers, through the positioning and products, everything must we weighted and either retained or discarded. Not so long ago, the industry was chasing the shiny, new, venture0backed beauty brands with lots of buzz, limited track records, and sky-high valuations. Fast-forward to our post-COVID world, all of the sudden legacy brands are being given a second look: customers are seeking real experts; retailers are looking to mitigate risk with brands that have proven track records; and, investors shifted focus from venture-fueled growth to profitability. Heritage brands have something to say in the future of beauty. They have a leg up on start-ups because collective memories are long and authenticity is a powerful currency. Erno Laszlo is one of those businesses. Over the past nine years, Charles and his team have turned the brand around in an environment that has been dynamic and unpredictable. They’ve shaken off the industry perception of a brand that’s past its prime, financially, it’s profitable and growing, even through COVID, and Erno Laszlo is innovating and relevant. So, in the end, it’s a matter of belief. I’m Kelly Kovack, see you next time.
Charles Denton [01:01:55]: I’m Charles Denton, and what matters to be is belief. Belief that there is a better way, and that is I feel like what motivates me to get out of bed every day and to pursue this better way. In whatever career one has, role one plays in society, this pursuit in the better way is extremely motivating.
Kelly Kovack [01:02:28]: It’s A Matter Of is a production of Beauty Matter LLC, copyright 2020. You can find more content and insights on www.BeautyMatter.com and follow us on social media @BeautyMatterOfficial.