Heat Group targets exports as former RBA member Hugh Morgan takes significant stake

Cosmetics group Heat Group says it is hoping to boost its exports business as it welcomes former Business Council president and Reserve Bank director Hugh Morgan as a new investor and chairman and seeks to shore up market share as economic growth slows.

Managing director Gillian Franklin says the key priorities for Heat are narrowing the gap between its distributed brands MaxFactor and CoverGirl against market leaders Revlon and Maybelline, and boosting local and international sales of its own brands Ulta 3 and NYC.

“We’re about to appoint an export manager, which is a first for us as a company, and we’re starting to slowly and carefully build our export business,” Franklin told SmartCompany, nominating Europe, New Zealand and Asia as targets for international expansion.

Franklin says slowing growth presents an opportunity for Heat, which offers lipsticks in the three lowest price points in Australia (between $2 and $20.)

“We’re taking it on as an opportunity because women will always buy cosmetics but as they feel the pinch they may move down in price, and so we cover the three bottom ends of price. You don’t go any longer than our lowest price,” Franklin says.

Franklin, who founded the business after working for Myer and Revlon, also has advice for retailers struggling high costs and low consumer confidence: fight for every sale and don’t cut back too much on stock.

“Unfortunately a lot of retailers are not, I think, paying attention to that right now because it’s very desponding when you walk around stores and you see gaps on stands everywhere. And I just think, ‘Gosh we should all be fighting for every basic sale right now and making sure we’re in stock’.”

Franklin says she was able to get Morgan, the former head of Western Mining, on board by presenting her case and answering weeks of questioning.

A price for Morgan’s 9.5% stake has not been disclosed. Franklin has a 46.2% stake in the Melbourne-based business, which is turning over around $76 million annually but aims to boost its revenue by 8% in the year ahead.

Under sweeping changes to the 11-year-old business, new investors are buying in after the departure of founding shareholders Carol Schwartz and Geoff Morgan, who held 33% each.

Joining Morgan are new investors Michael Story, the senior vice president of Ascent Pharmaceuticals (with a 5% stake); Ashley Waugh, the ex-managing director of National Foods (8%); and Tatts Group non-executive director Lyndsey Cattermole (9.5%).

Heat’s chief financial officer Ruth Richardson-Clark and marketing director Clare Lubrano Di Diego will also invest 5% and 1% respectively.

Franklin says she is “absolutely thrilled” by the diversity she was able to attract in the Heat board restructure, and expects Morgan in particular to bring financial expertise and big-picture thinking.

In a statement, Morgan described Heat as a “very exciting and dynamic company winning the market share game against global giants because of their creativity, passion and commitment to excellence.”

Wednesday: Gillian Franklin explains on her export plans and attracting star investors.