Garden Botanika seemed the model for success: quality cosmetics, fragrances, cleansing gels, creams and shampoos sold in airy shopping-mall boutiques at prices below what department stores were charging.
The products bore a classic GB logo over a stylized flower, signaling customers they were buying cosmetics derived from plants, not from synthetic or petrochemical materials.
For a time, the company blossomed. Its stock soared from an opening price of $20 to $35. But the fortunes were short-lived. Today, the stock trades around $1.50 a share, sales have slowed, losses have widened and the company is closing some of its stores.
Investors are asking what went wrong with the company whose backers include Costco founder Jeffrey Brotman and former Eddie Bauer President Michael Luce. Company officials, meanwhile, are struggling with how to turn a profit in the hypercompetitive, $20-billion-a-year, personal-care products industry.
"Figure that out and you've got a job," said Brotman, Garden Botanika's chairman, whose shares in the Redmond-based company have plummeted in value from roughly $5 million to $250,000 since stock was first sold to the public in 1996.
Although Brotman remains optimistic the company will right itself, others say they see no clear plan and question whether Garden Botanika's concept will ever work.
"The company is in a hunkering-down mode. . . . The question is, now what?" said Kenneth Thomas, an analyst with The Red Chip Review, a research firm in Portland that says it may drop its coverage of the company.
1996 was a pivotal year for Garden Botanika. Not only did it go public that May, it reported hugely mixed results for the year. Sales climbed 67 percent to a record $92.5 million, but losses amounted to $4.9 million on the heels of an aggressive national rollout.
The company, which began in 1990 when natural products were coming into vogue, cut back on store openings last year and declared 1997 a time for focusing on profitability. It brought in new products and expanded its popular Color Studio stores, which feature a larger lineup of cosmetics, makeover stations and trained makeup artists.
But losses continued to widen, and in February Garden Botanika said it would close 12 of its 280 stores around the U.S. The company said that with January sales down 19 percent at stores open a year or more, fourth-quarter profit would be lower than analysts' estimates.
Garden Botanika is not alone with its problems. As boutiques proliferate and department stores add their own natural products, competitors are battling for market share.
The Body Shop, the pioneering natural skin- and hair-care chain begun by Anita Roddick in England in 1976, saw its U.S. sales at stores open a year or more slip 1 percent this past year, compared with a 3 percent rise in Great Britain. Steen Kanter, The Body Shop's U.S. president and chief executive, who had been hired to boost sales, resigned in February.
"The category is just stupidly overstored," said J'Amy Owens, president of The Retail Group, a Seattle-based design and retail consulting company. "We've got too many body lotion, potion, ointment, tincture and soap stores."
Paulette Cleghorn, The Body Shop's director of public relations in the U.S., counts 33 "copycats" that have sprung up since The Body Shop began selling natural cosmetics 22 years ago.
Even the so-called knockoffs are getting knocked off.
Lush, the hot-selling bath and cosmetics chain in England, Australia, Croatia, Sweden and Vancouver, B.C., said competitors are now copying its trademark Bath Bomb, a baseball-sized concoction that fizzes and softens bathwater like a giant Alka-Seltzer tablet.
"The quality of the (Garden Botanika) product clearly was the differentiating aspect of the company. But that in and of itself obviously hasn't been effective . . ." Brotman said.
From rethinking its advertising approach to placing its products in tony Westin Hotel rooms to considering the possibility of wholesale sales, Garden Botanika is examining all its distribution options, Brotman said.
It sold gift packages last Christmas through Costco and opened its first clearance store in November at the Supermall of the Great Northwest in Auburn.
"This is a classic Harvard Business School case study of what do you do when you have all of the things you have to get done. You just do them one at a time," Brotman said. "Sometimes they kick in faster than others and sometimes they don't work, and you just keep plugging along until the combination of things that you do builds momentum in the company."
Luce, Garden Botanika's president and chief executive officer, declined to be interviewed or reveal details of the company's plans.
Brotman said he understands the angst of shareholders, some of whom trade messages on Internet bulletin boards expressing their disappointment and questioning whether the company will be able to hang on.
Those who track the company cite possible weaknesses in everything from its marketing strategy to how it lays out and lights its stores.
Owens says part of the problem is Garden Botanika's failure to set itself apart in any meaningful way.
"There is no big message," said Owens, whose Retail Group has done store designs for Sears, Baskin-Robbins and M&M/Mars, among other clients.
Lush, by contrast, has created a buzz with its Bath Bombs and huge blocks of soap from which bars are cut on the spot and cosmetics that are so fresh they have to be kept on ice, Owens said.
The Body Shop actively promotes environmental, animal-protection and human-rights causes and self-esteem, and Bath & Body Works, with its gingham-checked straw baskets and farm-fresh image, "absolutely knows its target customer, and they are a great retail organization," Owens said.
Bath & Body Works, which with Victoria's Secret is part of Intimate Brands, reported a 31 percent jump in profit on sales of $1.06 billion last year.
Although some stores try to bring in customers starting as young as 8, Garden Botanika keys on working women 30 to 45 years old. It has sought to position itself between the high-priced designer brands found in department stores and the lower-priced products sold in drugstores and supermarkets.
Patricia Negron, an analyst with the Adams Harkness & Hill investment bank in Boston, said Garden Botanika's products appeal to women such as herself, who find synthetic ingredients bad for their skin. But its stores, brightly lit and carrying items such as colored soap, aren't drawing the traditional department-store shopper it is seeking. "It doesn't look promising for the moment, for sure," she said.
James Vandeberg, former general counsel to the Carter Hawley Hale department store group, whose holdings included Neiman Marcus, questioned whether Garden Botanika's concept of selling a limited line of private-label goods "makes a lot of sense."
"With Garden Botanika, people have to really like your product to come into your store. With a department store, you have a broad range of brands to choose from," Vandeberg said.
But Tim Girvin, head of the Seattle design firm that developed the Garden Botanika image, said that is exactly what he and the company were hearing from customers.
"The key message was the people were willing to purchase, for less, pure, botanically derived products that were different from the cosmetic and body-care products in the market," he said.
Girvin said Garden Botanika's business plan was to offer less-expensive products made of natural plant oils and botanical extracts such as corn starch. It would stay away from animal byproducts, synthetic substances and petrochemical oils. So he played up the botanical aspect of the company's name. To differentiate it from the dark green colors of The Body Shop, he chose lighter, almost Scandinavian tones for Garden Botanika's outlets. The classic lettering of the logo was intended to convey quality and sophistication. Younger customers saw Garden Botanika as offering "reliable, no-nonsense" products "done a little nicer," he said.
Although Girvin said he has had no second thoughts about his work with Garden Botanika, he said all retailers need to evaluate how they are getting their concept across, a process he is sure the company is now going through.
Indeed, Brotman said no aspect of the company's operations is being overlooked.
Last year Garden Botanika increased its line of higher-profit color cosmetics and cut back on its blanket catalog mailings. Although it has eschewed print and TV advertising in the past, Brotman said, "We are rethinking everything."
Still, analysts are wary about the company's long-term prospects. Thomas, the Red Chip analyst, recently lowered his rating of Garden Botanika's stock to a D, Red Chip's lowest mark.
"Given its low cash reserves, the heightened level of competition and its rocky fiscal performance, we would suggest a wait-and-see approach on this stock," Thomas said.
Lee Moriwaki's phone message number is 206-464-2320. His e-mail address is: email@example.com