The Honest Company Sees Digital Boom Amid Pullback in Traditional Retail

The Honest Company is seeing digital drive sales growth at a time when consumers are pulling back on spending at traditional retailers.

The consumer goods company, which began in baby care and now also sells merchandise in categories such as beauty, personal care, wellness and household care, shared in its fourth-quarter and full-year 2023 earnings results Wednesday (March 6) that revenue from its digital channel rose 28% year over year in the three months that ended Dec. 31, while revenue from its retail channel dipped 3%.

The digital channel is comprised of both its direct-to-consumer (D2C) site and its presence on third-party pure-play eCommerce marketplaces, with the latter spearheading this growth.

“We are looking at the future with a balanced [omnichannel] model that does reflect some of the success that you just saw in the fourth quarter,” The Honest Company Chief Financial Officer Dave Loretta told analysts on a call. “Digital was a strong driver for us, and that was a lot of growth that we got from Amazon, which continues to have some big opportunity for us. … It’s really about maximizing those opportunities that we see driving the growth for us in 2024 and beyond.”

In the quarter, the brand grew its digital mix from 43% the prior year to 50%.

Consumers are increasingly turning to eCommerce channels for these kinds of purchases. The 2023 PYMNTS Intelligence study “Tracking the Digital Payments Takeover: Catching the Coming eCommerce Wave,” which drew from a survey of nearly 2,700 U.S. consumers, revealed that 39% of shoppers were very or extremely likely to increase online purchases of health and beauty products going forward.

Plus, another PYMNTS Intelligence report from last year, “Changes in Grocery Shopping Habits and Perception,” found that two-thirds of shoppers purchased the majority of their personal and healthcare products outside of physical grocery stores, suggesting a widespread shift to digital.

For The Honest Company, the brand’s digital growth contributed to a 10% overall year-over-year revenue increase in the quarter at a time when many consumers were pulling back. A PYMNTS Intelligence study from last year, “Consumer Inflation Sentiment Report: Consumers Cut Back by Trading Down,” found that 69% of consumers have reduced nonessential spending on retail products because of high inflation, and 35% have switched to cheaper, lower-quality goods.

Despite this belt-tightening behavior, The Honest Company has been able to grow its audience even amid price increases.

“[If] you’ve been watching what’s happening in the consumer products space, that is such a great indicator for us that our consumer really values not only the distinctiveness of the brand, but that when they’re making these choices about which brands best serve their needs, even as we have delivered price advances over the last year, year and a half, our consumers are actually still growing with us,” The Honest Company CEO Carla Vernón said on the call.

Much of this brand loyalty may come from the company’s success at building a following on social media channels — likely in large part due to its being co-founded by celebrity Jessica Alba with 1 million Instagram followers and 2.2 million Facebook followers.

These efforts can go a long way toward discovery and engagement. The “Monetizing Social Media” edition of PYMNTS Intelligence’s “Tracking the Digital Payments Takeover” series found that at 43% of consumers browse social media to find goods and services.

As the company looks to drive digital growth, it is focusing its efforts on its Amazon business.

“Our marketing effectiveness will be more tailored by activating cutting-edge paid media, revitalizing our creative images, and leveraging our content creators to amplify key campaigns,” Loretta said on the call. “We have already started to see benefits of these enhancements by quadrupling the number of new households that are new to our brand at Amazon in Q4.”

Many eCommerce shoppers seek non-direct-to-consumer options. The PYMNTS Intelligence report “The Online Features Driving Consumers to Shop With Brands, Retailers or Marketplaces,” which was based on a survey of more than 3,500 U.S. consumers, found that 32% definitely or probably prefer shopping online from a retailer over making purchases from a brand’s app or website, while only 28% prefer the reverse.

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