The Honest Company is making its first move to grow outside of North America: Next spring, the non-toxic brand founded by Jessica Alba will launch in Western Europe, the company tells Inc.

But there's a catch: The diapers, wipes, and cleaning products that helped build the brand won't be available. Only Honest Beauty, the company's relatively newer line of makeup, skin care, and hair care products, will be on store shelves there beginning in April 2019.

Honest CEO Nick Vlahos says the beauty line will launch in a few hundred Douglas stores in Germany, France, Spain, Italy, Poland, the Netherlands, and Austria. Douglas is a €2.8 billion ($3.3 billion) cosmetics and perfume chain headquartered in Germany with more than 2,500 stores in Western Europe.

So why is Honest betting big on only cosmetics? 

For one thing, the diaper market in Western Europe is notoriously tough to crack. P&G's Pampers owns 40 percent of the market share there, according to market research firm Euromonitor, and local and private label brands have a strong foothold. Kimberly-Clark, maker of Huggies brand diapers, pulled out of the market in 2012 after more than 20 years of trying to make the margins work. "They're not going to find it easy at all to break in in terms of baby diapers. I just don't think they have the checkbook to go up against P&G," says Robert Waldschmidt, head of consumer research at U.K.-based financial services firm Liberum.

Vlahos said Honest doesn't have any plans in the near future to bring its baby line across the pond, admitting that getting brand awareness for the category "is very difficult to do in the European market."

Beauty is also the massively bigger business opportunity abroad.

The beauty and personal care market in Western Europe was valued at $94 billion in 2017 and is expected to grow to nearly $100 billion by 2022, according to Euromonitor. The diaper market, which was valued at $5.6 billion in 2017, is expected to shrink to $5.4 billion by 2022, thanks in part to lower birth rates.

"Given the gross margins on beauty, I suspect they want to go in and make the most profitable start they can," Waldschmidt says. Gross profit margins on cosmetics can be as high as 70 to 80 percent. If Honest is still looking to become an acquisition target, he added, "in the long run, beauty may be a much better business to be selling than the personal care side of things." Honest Company had been in acquisition talks with Unilever in 2016 but Unilever decided to buy Seventh Generation instead.

Honest Beauty is one of the company's fastest-growing categories, experiencing 34 percent growth in 2017 from 2016, according to Vlahos, who declined to comment on its margins. Honest's diaper sales, he says, are up 10 percent.

March marked Vlahos's one-year anniversary as Honest Company's CEO. The Clorox veteran took over from previous Honest chief executive Brian Lee, shaking up the management structure and shifting the brand toward broader retail distribution.

"We didn't have the experience we needed from a planning and demand perspective--we didn't know how to build out those things. Nick is showing me the ropes," Alba told Inc. in a phone interview in March. "I was in tech and e-commerce school when we launched the brand. Now I'm in full [consumer packaged goods] school."

Vlahos's arrival has also brought more corporate trappings to the startup, which Alba launched in 2011. Honest offices now have an in-house lab for formulating products and a corporate program aimed at nurturing more women leaders in the more than 280-person company.

Published on: May 29, 2018