With festival season and stag and stag parties taking off, sales of 80s suits and leather trousers are rising at MorphCostumes, founded by Fraser Smeaton, 45, his brother Ali and friend Gregor Lawson. In 2009, their test order of 200 costumes sold out in 10 days, via Facebook posts.
Fifteen years later, costume sales are up to 2 million a year. Turnover in 2023 was £42 million. Based in Edinburgh with 68 employees, the company offers 1,200 designs, from Halloween witches to inflatable lobsters. 85 percent of sales are made on Amazon in 12 countries, 15 percent through US retailers Walmart and Target.
And the most in-demand costumes? Spider-Man, hippies and ninja warriors.
CV
Born: May 1979, Brussels. Grew up in East Lothian
Education: 1991-97: North Berwick Grammar School, East Lothian
1997-2001: University of Edinburgh, BEng Hons, electrical and electronic engineering
Career: Ages 14-23: Student job as a caddy at Gullane Golf Club
2003-06: Management trainee at Mars Confectionery
2006-10: Head of Broadband Marketing, BT Consumer
2009-present: Co-founder and CEO of MorphCostumes, with his brother Ali, COO, and Gregor Lawson, Director of Sales and Innovation.
Lives: Clapham, south London, with his wife Fiona, who works in the film industry, and their children aged eight, seven and four.
Did you think you would get to where you are?
In school I assumed I would work for a corporation like my dad. He was in the farm machinery industry. I had no idea he would sell costumes, and neither did he. At first our plan was to sell 20,000 suits, as we wanted to earn some extra money for ski holidays.
It was incredible how this venture took off so quickly. The 20,000 costumes cost £35 each and were sold over nine months, generating £700,000. As our margin then was 50 per cent, we made a profit of £350,000 between us.
The idea came from a boys’ weekend in Dublin in 2006, when one of our friends was wearing a head-to-toe spandex suit. Suddenly there was a crowd of people taking photos of him and asking him where he bought it. We bought more spandex suits on eBay and every time we wore them to bachelor parties and parties, the reaction was always the same.
In summer, business is hectic. Halloween is even busier. During October we sell a costume every five seconds.
Was your first £1m profit a major milestone?
We made our first £1m profit in year three, 2012, when turnover was £10.3m. We were so busy that there was no time to celebrate as orders were pouring in.
Spandex suits were available in the past, but no one knew what to call them. We branded them as Morphsuits and protected them as a trademark. On the back of each costume we write our name, so we become the Hoover of the category. Our branding meant that no one could compete with us on the search engine.
What impact has inflation had on your business?
We feel the impact of every cost increase, from warehousing and logistics to higher wages. Fortunately, the costume market is not price sensitive. You don’t know if a hippie costume should cost £20, £22 or £25, as opposed to a bottle of milk.
We have good pricing power and can raise our prices, but we have to offer a better product at a better value than our competitors. That’s what we’ve done.
What was your lowest point in the business?
For five years we only sold Morphsuits. In 2014, demand began to decline because the product was a fad.
We had hired too many people to deal with the sales that were not coming in. By 2015 our revenue had fallen to £6m and we made a £1m loss. We had to lay off 17 people out of 35. To get out of this hole, instead of selling only Morphsuits, we started designing hundreds of traditional costumes, such as fairies, pirates, firefighters and nurses.
We took control of our distribution and began selling directly to the consumer. Until then, we had focused on wholesale trade. This period was terrible for the three of us. We were often awake at night, wondering if we had lost everything.
Have you found it difficult to hire staff in recent months?
We haven’t had a big problem for two reasons. Partly due to the fallout from the pandemic four years ago, people with online experience were in high demand.
However, since the pandemic, online business growth in other categories has slowed as employers realized they had hired too many specialists, leaving people with online experience available.
The other reason is that we hire for potential and train people to have the specific skills we need. The position we have found most difficult to recruit for is staff with European language skills, post-Brexit.
How did you finance the business? What did you have to sacrifice?
As part of our ethos of trying things out quickly and cheaply, we only put up £1000 each. Once we knew the idea was going to work, we invested our life savings, around £7,000 each, to fund our second order. The real sacrifice we made was in time. Throughout 2009, we would return home from our day jobs (Ali in banking and Gregor in marketing) at seven o’clock and then work until one in the morning.
In 2012, we made a £4m investment from the Business Growth Fund (BFG) to support future expansion.
What was your best preparation for business?
I had considerable preparation. Being a golf caddy taught me how to build relationships quickly. Every day you had a new customer and you had to work hard to maximize your tip. An engineering degree gave me a methodical approach to problem solving.
The Mars training gave me experience in sales, marketing and finance. At BT I experimented with early advertising on Facebook, so I already knew it was the right channel to launch MorphCostumes.
Has the pandemic had a lasting effect on your business?
Yes, at least initially. It is difficult to run a partisan company in a world without parties. We acted quickly to reduce our costs as much as we could.
After the first three weeks of lockdown, when sales were down 85 percent, they were down 50 percent again, as people started buying costumes for Zoom quizzes and to entertain their children.
We laid off six of our 30 employees, but after two months we brought them back to work on improving our systems and processes.
The huge growth we were experiencing slowed dramatically in 2020, but we turned over £14m that year, the same as 2019. Sales would have been much higher, but rose to £19m in November 2021 and to £33m pounds sterling in 2022.
What is your basic business philosophy?
Find out what works cheaply and quickly, then support what works and scale it. You can have many ideas on paper, but you can never be sure if they will work unless you try them.
Do you want to continue until you fall?
I don’t intend to retire. I love the challenges that business brings. We plan to increase our range to 5,000 costumes, including wigs, and sell them elsewhere. Last year we added Canada and by Halloween 2024 it will be sold in Mexico. I will continue as long as I can, although we hope to sell the company at some point in the future.
Have you made any pension provision?
I have two pensions from my corporate days and contributions from MorphCostumes. The total amount is a decent six-figure sum for someone my age. I believe in pensions and I would be worried if I didn’t have anything planned for my old age, because every business carries some inherent risk.
Do you believe in giving back to the community?
I do, and I’m sure we should do more. We sponsor Musselburgh Rugby Club and several years ago donated 2,000 costumes to a children’s hospital in California.
Do you believe in leaving everything to your family?
No, i do not do it. I made a will when my first son, Finlay, was born eight years ago, and as the children are still young, everything now goes to the family. If we made a lot of money in the future, I would have a different opinion.
Our profits are healthy, around £3m, but rapid growth means we currently have to reinvest everything in inventory. For a turnover of 42 million pounds we need to have 13 million pounds in inventory. I am rich in costumes, but I can’t use them to pay school fees.