Kiehl’s Since 1851, Inc.

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Kiehl’s Since 1851, Inc.

112 Madison Avenue
New York, New York 10016
U.S.A.
Telephone: (212) 901-1100
Toll Free: (800) 543-4571
Fax: (212) 901-1200
Web site: http://www.kiehls.com

Private Company
Founded: 1851
Sales: $40 million (2001 est.)
NAIC: 446120 Cosmetics, Beauty Supplies, and Perfume Stores

Based in New York City, Kiehl’s Since 1851, Inc. is a natural hair and skin care products subsidiary of French cosmetics giant L’Oréal. Kiehl’s has been built up by three generations of the Morse family, and since 2000 L’Oréal has continued to follow the formula that made Kiehl’s products chic and the original store a tourist attraction. The company’s East Village address is the site of a 19th-century apothecary, which is crammed with all manner of curiosities, from family photographs to pictures of Olympic skiers and fighter airplanes, as well as a collection of vintage motorcycles. Despite little spending on marketing and no overt attempts to woo journalists, Kiehl’s has garnered an untold amount of favorable press, mostly the result of unsolicited testimonials from New York’s celebrity makeup artists and hairdressers. Kiehl’s is also known for the amount of time its staff is willing to lavish upon individual customers, as well as its eagerness to give out free samples. Although quite expensive, Kiehl’s products are simply packaged, another enduring tradition of the business rather than a current affectation of minimalism. Long before its present-day rivals, Kiehl’s was producing its several hundred natural products without the use of animal testing and applying such idiosyncratic names as Tea Tree Oil Body Cleanser, Pineapple Papaya Facial Scrub, and French Rosewater Facial Toner. Under L’Oréal, Kiehl’s has opened a second store in San Francisco and is planning for future openings in other major markets.

KiehVs Since 1851

Many years before the Morse family created a line of hair and skin care products, its East Village location was home to John Kiehl. In 1851 he established a small neighborhood apothecary, yesteryear’s version of a drugstore where common compounds as well as more exotic nostrums were prepared onsite. Kiehl sold virility creams, baldness cures, and even a product called Money Drawing Oil. The Morse family connection to Kiehl’s began in the years before World War I, when a Russian Jewish family named Moskovitz immigrated to the United States and adopted the surname Morse. A young son named Irving then found work as an apprentice at Kiehl’s. He would serve in the U.S. Army during World War I and earn a pharmacology degree from Columbia University. In 1921 he bought Kiehl’s, transforming it into a modern, full-scale pharmacy while also adding homeopathic cures and herbal remedies from the old country.

In 1923 a son named Aaron Morse was born. He would also study pharmacology at the Columbia School of Pharmacy, leaving early to join the army as a pilot during World War II. Following the war and the completion of his degree, he started a Hoboken, New Jersey business, Morse Laboratories Inc., to produce a fluoride therapy product called Ostrocal; later in the decade he began making antibiotics. During the 1950s he became active in helping his father run Kiehl’s and by 1961, the same year his daughter Jami was born, he decided to concentrate on Kiehl’s and took over control of the family business. In 1964 he sold Morse Laboratories, which was moved to Paterson, New Jersey, and renamed Biocraft Laboratories.

Kiehl’s soon took on the personality of Aaron Morse. During the 1960s he phased out the pharmacy and the homeopathic products, turning his attention instead to developing and selling the natural care products that would make Kiehl’s famous. In 1964 he introduced the company’s popular acne-fighting Blue Astringent, and in 1969 Musk Oil. A wide array of products were formulated, then mixed by hand and packaged on the premises. Aaron Morse eschewed fancy and expensive packaging, favoring generic containers, to which he affixed simple handwritten labels, crammed with as much information as possible. He assigned imaginative names to his products, such as Castille Grapefruit Bath and Shower Soapy Liquid Cleanser.

It was Aaron Morse who created the Kiehl’s policy of giving out large amounts of free samples. It was less of a business policy than it was a reflection of the man. He was simply more interested in making a friend than a sale, in pursuing a personal ethic than a profit. Years before corporations made a point of instituting “visions and values” programs and formulating mission statements, Aaron Morse took time to produce “The Mission of Kiehl,” writing: “A worthwhile firm must have a purpose for its existence. Not only the everyday work-a-day purpose to earn a just profit, but beyond that, to improve in some way the quality of the community to which it is committed. Each firm—as should each person—contributes to those around it; and by dint of its day-to-day efforts, the message it thereby imparts is a revelation of the quality standard at which its life’s work is conducted.”

In 1983 Aaron Morse told Women’s Wear Daily, “Beauty, quality, health and education are what Kiehl’s is about.” In addition to being idealistic, Aaron Morse was endearingly eccentric. He believed that his customers should be influenced by a visit to Kiehl’s, which allowed him an opportunity to educate by sharing his enthusiasm for pet interests. He provided a small library with books that included a copy of Gray’s Anatomy (and kept a skeleton handy for ready reference) as well as a book on World War II bombers. He expanded the store in order to create a makeshift museum where, among other objects, he would display part of his motorcycle and car collection. He brought in a xylophone and timpani, for use by himself as well as customers. He might have the public address system play an opera or Ella Fitzgerald or patriotic music. His staunch patriotism was evident in the large number of American flags spread throughout the store, which was also decorated with the old-fashioned apothecary bottles of his essential oil collection, photographs of airplanes and Olympic skiers, and other knick-knacks, all of which aroused the curiosity of customers and provided an opening for Aaron Morse to engage in conversation. He claimed to be an expert on any number of subjects, and was equally eager to discuss the workings of the human body as he was the engine of a car. Kiehl’s exotic furnishings, especially its cars and planes, had the added benefit of keeping men amused while women shopped. Aaron Morse also branched into unisex products, adding items for men. As with his store’s hodgepodge décor, he was less ahead of his time than he was simply true to his own personality. Even as Kiehl’s began to gain a reputation for being cool during the antiwar 1960s, he continued to play his martial music and lead his employees waving American flags on impromptu parades through the East Village. According to a New York Times profile, “few will forget the Veterans Day that he turned off the music … and started reading the Emma Lazarus poem inscribed on the bottom of the Statue of Liberty (‘Give me your tired, your poor, your huddled masses …’) in front of incredulous customers.” Indeed, his behavior sometimes bordered on the bizarre: during one phase his constant companion was a chimp.

First Department Store Account: Nieman Marcus, 1975

Aaron Morse was simply not interested in growing Kiehl’s as large as possible, valuing instead the ties between his products and his customers. For years he declined offers to sell to major department stores, finally relenting in 1975 when Nieman Marcus in Beverly Hills became the first account. Even then, it was more personal than business, the result of his playing tennis with the department store’s chief executive. Another department store account, New York’s upscale Barney’s, was due to his friendship with owner Barney Pressman.

After his father died in 1980 and he was later diagnosed with cancer, Aaron Morse convinced his daughter Jami, his only child, to begin the process of taking over the business. Jami’s parents had separated before she was born, but because her elementary school was close to Kiehl’s she often stopped by on her way home and became fascinated with the operation. At the age of 11 she moved to Los Angeles with her mother, and later attended Harvard University before dropping out. Like her father she was an avid skier, and combined that interest with teaching exercise to become a trainer for racecar drivers and the Austrian ski team, ultimately marrying one of the racers, Klaus Heidegger. She was living in Austria in 1985 when her father convinced her to return to New York and help run the business.

While Jami and her father were in agreement on many aspects of Kiehl’s, she found it difficult to make changes. Recalling the early years in an interview with the Los Angeles Times, she said, “Coming into it, I didn’t imagine that it would be as challenging as it was. It was hard to get my decisions accepted and respected. I wanted to make a brochure of all the products. My father thought it was a waste of money. Any little decision like that could become a power struggle. We’re screamers, and we used to have notorious shouting sessions.” She eventually produced the brochure as well as a quarterly newsletter. She also started a mail-order business and began to supply select foreign accounts. She even hired a public relations expert, but the $1 million marketing budget was essentially limited to samples, which were gaining additional distribution in charity gift bags, a practice in keeping with her father’s commitment to giving back to the community. In 1987 Klaus Heidegger retired from competitive skiing and joined his wife in New York to help run Kiehl’s. As Aaron Morse’s health continued to deteriorate, the couple took over complete control in 1988.

Company Perspectives:

We at Kiehl’s are committed to upholding the standards that our founding family originally initiated and that have been espoused and preserved over the years. The fundamental philosophies, product standards and core values that have always distinguished Kiehl’s remain unchanged: Science, Education, Giving, Service, Respect, and Quality.

Klaus was instrumental in computerizing the mail-order business and essentially modernizing the company. Products were no longer produced onsite, and although manufacturing was moved to a facility in Hackensack, New Jersey, products continued to be mixed by hand in the traditional way, albeit in larger quantities. Even lipstick, Kiehl’s only cosmetic, was hand poured and flamed. Jami expanded the company’s mail-order business and added department store accounts: Bergdorf Goodman, Saks Fifth Avenue, as well as Harvey Nichols in England. She did not have to solicit these accounts and, in fact, turned down a number of opportunities. Despite her fights with her father over expansion, she very much shared his vision for Kiehl’s. She was perhaps even more adamant about giving away samples, going so far as to periodically check on Kiehl’s department store accounts to make sure that sales personnel were giving away enough products and spending enough time with customers. She retained the simple packaging and the East Village storefront, devoting individual attention to customers in much the same way her father had. Six feet tall with long dark hair, and often wearing ankle weights to work in order to stay in shape, she developed her own reputation for eccentricity. Like her father she relied on instinct over formal business planning, and believed in personal attention to detail. She wrote all of the company newsletters and dealt with every piece of mail.

Jami Morse, despite lacking the training of her father and grandfather, was also very much involved in product development, often drawing on her family life to find inspiration. With the birth of her first child, Nicoletta, she began to develop baby products for personal use. Her pediatrician was so impressed with her diaper rash cream that it led to requests from his patients and resulted in a Kiehl’s line of baby products, introduced in 1991. By the end of the decade major cosmetic companies would begin to realize the potential for upscale baby care products. Jami and her husband’s interest in sports also led to a line of shampoos, muscle rubs, and skin protectors for athletes. As Nicoletta grew older and took up horseback riding, Kiehl’s even developed some equine products.

After Nicoletta’s birth, Jami and Klaus moved to Los Angeles in order to raise their family in the same outdoor lifestyle that Jami cherished as a child. They continued to run Kiehl’s despite the need for one or the other to fly back to New York in order to address even the smallest issues. Nevertheless, the company thrived, with earnings improving at a steady rate and products spreading to exclusive hair salons and department stores throughout the world. While little had really changed with the Kiehl’s approach to business, the rest of the world seemed to catch up to it in the 1990s. The East Village location was more in vogue than ever. The unusual interior of the store, the natural products, the lack of advertising, even the refusal to cater to the beauty press, made Kiehl’s all but irresistible to the trendy set. While its popularity grew by word of mouth, Kiehl’s gained further recognition from a broad range of celebrities—models, actresses, singers, and stylists—who influenced the press from around the world to write glowingly about the company. The exclusivity and mystique of Kiehl’s was a marketer’s dream. For Jami Morse and Klaus Heidegger, however, it would begin to seem like a nightmare.

During the holiday season of 1999 Kiehl’s received a great deal of press attention, resulting in an overwhelming demand for its products. The mail-order division had particular trouble in dealing with the increased volume and Kiehl’s, which prided itself on the personal touch, now found itself unable to ship its products in a timely fashion or even to match the right note cards with the right recipients. Moreover, new products that were due to be introduced simply could not find room on the factory’s production schedule. Jami and Klaus had already discussed the possibility of cutting back, but now discovered that they could not terminate department store contracts, nor could they control the demand for their products. Jami had wanted to pass the business onto her daughter as it had been passed on to her, but now she came to the conclusion that Kiehl’s could not survive in its present condition. The business either had to grow to the next level or it would simply begin to fall apart under the weight of demand, and the relationship with customers that set it apart from competitors would soon erode. Logistical resources, far more so than money, would resolve the mounting problems with Kiehl’s.

L’Oréal’s Purchase of Kiehl’s: 2000

For years, a number of large companies coveted Kiehl’s, but all offers were rejected. In February 2000, Jami Morse approached Philip Shearer, president of Cosmair Inc., the U.S. luxury products subsidiary of L’Oréal. While its competitors were acquiring a number of other specialty companies, Cosmair targeted just one, Kiehl’s, and quietly wooed Jami Morse for over two years before she called. According to a Fortune interview, she said that Shearer “seemed to be genuinely interested in Kiehl’s. He knew what we were doing; he’d read my newsletters; he knew the ingredients in particular products. I thought he understood who I was and what I was trying to do with Kiehl’s.”

The reported purchase price for Kiehl’s ranged from $80 million to $150 million. No matter how much L’Oréal paid, however, it insisted that it would allow Kiehl’s to conduct business as it always had, with the clear intent of reassuring customers, many of whom expressed concern about the future of the company. Jami Morse and Klaus Heidegger were retained as co-presidents of Kiehl’s, and Michele Taylor, a marketing executive from Lancôme, a L’Oréal make-up and skin care products company, was hired to serve as general manager. At the end of January 2001, Taylor took over as president after Jami Morse and her husband resigned, although they remained as advisors. Satisfied that a transition to new ownership was accomplished, Jami Morse now expressed a desire to step away from day-to-day involvement with Kiehl’s in order spend more time with her husband and children.

Key Dates:

1851:: John Kiehl establishes a Manhattan apothecary.
1921:: Irving Morse buys Kiehl’s, making it a full-service pharmacy.
1961:: Aaron Morse takes over family business, changing focus to skin and hair care products.
1980:: Irving Morse dies.
1988:: Aaron Morse’s daughter, Jami Morse, takes over Kiehl’s.
1996:: Aaron Morse dies.
2000:: L’Oréal acquires Kiehl’s.
2001:: Jami Morse steps down as president; second store opens in San Francisco.

Under Taylor’s leadership, Kiehl’s functioned much the same as before. Taylor even took over the desk used by Irving and Aaron Morse in order to derive inspiration. Most of the changes involved the beefing up of the company’s infrastructure, which allowed Kiehl’s to not only meet demand but to enable the introduction of products that Jami Morse had been unable to launch. Taylor did look to expand into cosmetics, but in a cautious manner, likely focusing on items with skin care benefits. Kiehl’s flagship store in Manhattan, however, appeared sacrosanct. Not only did L’Oréal intend to maintain the store in its current condition, it pledged not to reproduce it as the company began to open new outlets around the world. Many years earlier, Jami Morse and her father had discussed the opening of another store in Los Angeles. In 2001 a second Kiehl’s location opened in San Francisco, housed in a Victorian townhouse that management felt was in keeping with the Kiehl’s sensibility. Other store openings followed, including the company’s first L.A. area store, in Santa Monica, in August 2002. Clearly, the Kiehl’s mystique was a very valuable property for L’Oréal, and the parent company appeared very much committed to maintaining it.