Some say Horst Rechelbacher's beauty products firm struggling

  • Article by: JACKIE CROSBY , Star Tribune
  • Updated: May 24, 2010 - 5:45 AM

He says his "happy little company" is about to break even.

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Horst Rechelbacher, founder of Intelligent Nutrients, with his new Harmonic shampoo in his Minneapolis headquarters.

Photo: Glen Stubbe, Star Tribune

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It was big news in October 2006 when Aveda founder Horst Rechelbacher decided to team up with Regis Corp.

Rechelbacher had high hopes of putting his new line of organic products, Intelligent Nutrients, in as many as 11,490 Regis-operated salons around the country.

Regis had high hopes as well. The Edina-based hair care giant sank $10 million into the partnership, anticipating that the all-natural skin and hair products, which cost twice as much as a haircut at some of its salons, could boost sales by upwards of $100 million within a few years.

But the much-ballyhooed venture has soured, leading some to question what the future holds for Intelligent Nutrients and Rechelbacher's quest to transform the beauty industry with USDA-certified organic products that are safe enough to eat.

In December, Regis Corp. took a $7.8 million loss and gave the reins back to Rechelbacher. Only about 100 Regis-operated salons ever carried the hair care products, which sell for $32 to $45.

"We gave it a shot," Regis CEO Paul Finkelstein said. "I don't regret it."

In regulatory filings, Edina-based Regis blamed Intelligent Nutrients' "inability to develop a professional organic brand of shampoo and conditioner with broad consumer appeal."

But there were other problems, including disputes over control of the company. The original deal was a 50-50 partnership, but Rechelbacher took 1 percent back within the first year. Shampoo and styling creams were recalled or destroyed at the warehouse because they separated or decomposed. And the timing of the rollout was cursed.

"He had high price points right in the middle of the recession," Finkelstein said. "You can't swim against the tide forever. To come up with a $30 shampoo in these times is almost an exercise in futility."

Rechelbacher downplays the failed partnership as a mere bump in the road.

"We took a little bit longer to make the products than we anticipated. We ran into some challenges," he said. "It's happened before. That's how one learns."

Regis, he points out, last year sold off its PureBeauty and Trade Secret salon concepts, more than 600 locations where Rechelbacher had planned to sell not only Intelligent Nutrients hair products, but skin care and aromatics as well.

"They were my partner," he said. "It didn't work. I said, 'Give it back to me.'"

In the past year and a half, Rechelbacher has laid off more than half of the nearly two dozen people at the company and replaced two presidents. He now has three key leaders, including a New York-based sales manager who oversees a national sales force of nine.

In addition to beauty products, the company also manufactures essential oils, vitamins, chocolates and teas.

"We were wasting a lot of money," he said. "I'm ashamed how much money we were wasting. I thought my partner was taking care of it. I kept the people I needed to build the brand. And things have totally turned around. We are a happy little company."

Former employees who said they respect Rechelbacher but didn't want their names used say Intelligent Nutrients is on life support. Rechelbacher dismisses it.

"We are doing something unusual -- making everything out of food-grade, organically grown materials. It gets more complicated because you can't use all the diverse chemical components to make perfect emulsions, etc."

Rechelbacher admits he has "a lot of money" to keep Intelligent Nutrients alive. He sold Aveda Corp., the eco-friendly beauty products company he founded in 1978, to Estée Lauder for a reported $300 million in 1997.

For Rechelbacher, 68, the Austrian-born and self-made son of an herbalist mother, Intelligent Nutrients is more than a rich man's folly.

"It's my life's mission," he said, during a recent tour of the art-filled headquarters on East Hennepin Avenue in northeast Minneapolis.

He has gotten USDA certification for the ingredients used in his products and has pushed the Department of Agriculture to clamp down on personal care companies that label their goods as "organic." Some of the plants used in Intelligent Nutrients products are grown at Rechelbecher's 600-acre organic farm in Osceola, Wis.

While declining to provide specific sales data, Rechelbacher predicts the company will break even this year.

Intelligent Nutrients products are sold in 62 salons and 13 Whole Foods Markets, mostly in Southern California, Texas and Chicago. Barney's, the luxury retail chain, carries Intelligent Nutrients in all eight of its stores. In the Twin Cities, nine salons sell the line.

Rechelbacher is pushing beyond traditional retail. The Henry Ford West Bloomfield Hospital in Michigan carries the entire array of products and supplements at the gift shop. The company also is talking to Children's Hospital in Minneapolis as well as hospitals in Boston and New Jersey, sales manager Kate Martin said.

By Oct. 1, Intelligent Nutrients will be available at salons in Japan, Hong Kong, Norway, Germany and the United Kingdom, she said.

"Last month, we made our [sales] numbers for the first time in three years," Martin said. "And we came very close -- by a couple thousand -- in January, February and March."

Erika Maschmeyer, an analyst with Robert W. Baird in Chicago, said that while the higher end of the hair care industry has been harder hit by the troubled economy, "organics have been a huge trend. Ulta, Sally Beauty and Regis all are adding them, so there's going to be a lot more competition."

The U.S. cosmetics market fell 2.4 percent last year to $61.8 billion, according to market researcher IbisWorld. But the organics sector expanded by mid- to high single digits, accounting for about 7.3 percent of total sales. Sales of natural cosmetics are expected to reach $4.5 billion in 2010.

Rechelbacher said he's poised to grow. A new shampoo that foams up -- apparently a difficult feat with all-natural ingredients -- is in its second production. His chemists are busy concocting and testing new oils, aromas and formulas. And the next big thing may be on the horizon: a technique developed in Austria that keeps oil and water from separating.

"We are an underground company," he said. "I love that state. It's so romantic."

Two weeks ago, Rechelbacher took over the salon at headquarters from Accolades owner Brad Schlaeger, a former Intelligent Nutrients vice president. Rechelbacher is calling it Horst & Friends, the same name as the salon he opened in the mid-1960s when he first arrived in Minneapolis.

"I don't live in the moment of doubt," he said. "I have patience. I'm very optimistic."

Jackie Crosby • 612-673-7335

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