The Honest Company SWOT and PESTLE Analysis

Strength

1. In-House Product Development Capabilities that Power Innovation: Product innovation lies at the heart of the company’s business, having built a high-performance product development team that sets new standards with a proven track record of bringing innovative, award-winning products to the market. To maximize the impact of its product development capabilities, The Honest Company’s direct connection with their community enables them to understand consumer specific needs and alter their product innovation in tandem with those needs to create a sustainable competitive advantage over traditional CPG competitors. The company receives customer feedback to design their products through multiple avenues such as their internal customer service team, website and social media channels. For example, the company created and brought to market a new ‘Stay Safe’ cleaning collection, a complete set of cleaning, sanitizing and disinfecting solutions, in less than six months after the onset of COVID-19. In 2020, 22% of the company’s revenue was generated from stock keeping units introduced in 2020. In addition to using these capabilities to innovate new products to bring to market, the company also regularly redesigns or updates existing products, improving performance and expanding gross margin and has been the recipient for over 100 awards such as the 2020 “Parents” Best for Baby Award and seven Allure Best of Beauty awards.

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Weakness

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Opportunity

1. Introduce new product categories to expand offerings to customers and improve existing products: The Honest company can accelerate its growth by bringing improvements and reformulating existing products to improve customer experience. Introducing innovative products in existing categories through research and development will allow THC to further improve its products. The company is currently reviewing its beauty offering ingredients to further advance in sustainable packaging and clean formulas. It can leverage its team of R&D experts, internal labs, flexible supply chain, direct relations with customers and rapid product development capabilities to introduce new product categories as well to suit customer needs. THC is currently attempting to leverage in-house innovation capabilities to launch new products that disrupt adjacent product categories. With new and expanded offerings, the company can tap into a larger audience in the market. Moreover, the company’s consumer research indicates that the brand resonates in a broad set of adjacent product categories, including new product categories within Household and Wellness and Skin and Personal Care.

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Threat

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Political

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Economic

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Social

1. Rapidly Growing “Clean and Natural” Segment in Large Market: The “clean and natural” segments of the Diapers and Wipes, Skin and Personal Care and Household and Wellness markets are growing at outsized rates, as a result of the increasing shift in consumer demand for clean, sustainable and conscious products. The company’s estimation for the growth of all the segments far outpaced the broader spending in all U.S. Diapers and Wipes, Skin and Personal Care and Household and Wellness markers. The Honest Company’s combined market share is less than 5% of these markets overall, indicative of room for growth and opportunities to grab a larger market share in coming years, as the market segments grow. Certain historical leading brands that have produced products in these categories (Diapers and Wipes, Skin and Personal Care and Household and Wellness) for decades generally focus on single categories and offer products made with conventional and sometimes even harmful ingredients that are not aligned with the increasing consumer preference for natural, sustainable and clean products. Given consumers’ growing focus on health, wellness and sustainability in everyday life, The Honest Company is well positioned to continue to take up market share from these legacy brands. This market shift towards clean and natural products is in its early stages and despite the growth of the clean and natural categories, the implied clean and natural market penetration of the total Diapers and Wipes, Skin and Personal Care and Household and Wellness markets in the United States in 2019 is estimated to be 11%, 14% and 10%, respectively (this estimated market penetration is calculated based on comparing the clean and natural portion of a certain market compared to the relevant total market). This highlights the whitespace opportunity for further market penetration and category growth in the clean and natural segments for the company.

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Technological

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Legal

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Environmental

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