Fraser Smeaton, co-founder of MorphCostumes

With the festival season and stag and hen dos taking off, sales of 1980s outfits and lederhosen are picking up at MorphCostumes, founded by Fraser Smeaton, 45, his brother Ali and friend Gregor Lawson. In 2009 their test order of 200 costumes sold in 10 days, through posts on Facebook.

Fifteen years on, costume sales number 2mn a year. Turnover in 2023 was £42mn. With headquarters in Edinburgh, and 68 staff, the company offers 1,200 designs, from Halloween witches to inflatable lobsters. Eighty-five per cent of sales are on Amazon in 12 countries, 15 per cent through US retailers Walmart, and Target.

And the costumes most in demand? Spider-Man, hippies and ninja warriors.

Did you think you would get to where you are?
At school I assumed I would work for a corporation like my dad. He was in the farm machinery industry. I had no idea I would sell fancy dress, and neither did he. At the outset our plan was to sell 20,000 costumes, as we wanted to make some extra money for skiing holidays.

It was incredible how this venture took off so quickly. The 20,000 costumes cost £35 each and sold over nine months, making £700,000. As our margin then was 50 per cent, we made £350,000 profit between us.   

The idea came from a boys’ weekend in Dublin in 2006 when one of our friends wore a head-to-toe spandex suit. Suddenly there was a crowd of people taking pictures and asking him where he had bought it. We bought more spandex suits on eBay, and every time we wore them to stag dos and parties, the reaction was always the same.

In summer, business is frenetic. Halloween is even busier. During October we sell a costume every five seconds.

Was your first £1mn profit a major milestone?
We made our first £1mn profit in the third year, 2012, when turnover was £10.3mn. We were so busy, there was no time to celebrate, as orders were flooding in.

Spandex body suits have been available in the past, but nobody knew what to call them. We branded them as Morphsuits and protected that as a trademark. On the backside of every costume, we write our name, so we became the Hoover of the category. Our trademark meant nobody could compete with us in the search engine.

What impact has inflation had on your business?
We felt the impact of every rising cost, from warehousing and logistics to higher wages. Fortunately, fancy dress is not a price sensitive market. You don’t know if a hippie costume should be £20, £22 or £25, unlike a bottle of milk.

We have good pricing power and can put our prices up, but we have to offer a better product at better value than our competitors. That is what we have done.

What was your lowest point in the business?
For five years we were only selling Morphsuits. By 2014, demand began to dwindle because the product was a bit of a fad.

We had hired too many people to cope with sales that did not come. By 2015 our revenue had fallen to £6mn, and we made a loss of £1mn. We had to make 17 people out of 35 redundant. To get out of this hole, instead of selling just Morphsuits, we began to design hundreds of traditional fancy dress costumes, such as fairies, pirates, firefighters and nurses.

We took control of our distribution and started selling direct to the consumer. Until that point, we had focused on wholesale. 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 recruit staff in recent months?
We haven’t had a big problem for two reasons. Partly because of the fallout from the pandemic four years ago, people with online experience were in huge demand.

However, since the pandemic, the growth of online businesses in other categories has slowed, as employers realised that they had hired too many specialists, so people with online experience were becoming available.

The other reason is that we hire for potential and train the people to have the specific skills we need. The one role we have found it hardest to recruit for is staff with European language skills, following Brexit.

How did you fund the business? What did you have to sacrifice?
As part of our ethos to test things quickly and cheaply, we only put in £1,000 each. Once we knew the idea was going to work, we put in our life savings, roughly £7,000 each, to fund our second order. The real sacrifice we made was in time. Throughout 2009 we would come home from our day jobs — Ali in banking, and Gregor in marketing — at seven o’clock, then work until one in the morning.

In 2012 we took a £4mn 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 caddie taught me how to build relationships quickly. Each day you would have a new client, and you had to work hard to maximise your tip. The engineering degree gave me a methodical approach to solving problems.    

The Mars training gave me experience in sales, marketing and finance. At BT I experimented with early Facebook advertising, so I already knew it was the right channel to launch MorphCostumes.

Did the pandemic have a lasting effect on your business?
Yes, initially at least. It is tough running a party business in a world with no parties. We acted quickly to reduce our costs as much as we could.

After the first three weeks of lockdown, when sales decreased by 85 per cent, they came back to 50 per cent down, as people started buying costumes for Zoom quizzes and to entertain their kids.

We furloughed six of our 30 staff, but within two months had brought them back, to work on improving our systems and processes.

The big growth we were experiencing tailed off sharply in 2020 but we turned over £14mn that year, the same as in 2019. Sales would have been much higher, but they increased to £19mn by November 2021, and £33mn in 2022.

What is your basic business philosophy?
Find out what works cheaply and quickly, then get behind what does work, and scale it up. You can have lots of ideas on paper, but you can never be sure if they will work unless you test them.

Do you want to carry on until you drop?
I am not aiming to retire. I love the challenges that business brings. We have plans to increase our range to 5,000 costumes, including wigs, and to sell further afield. Last year we added Canada, and for Halloween 2024 will be selling in Mexico. I will carry on for as long as I can, though we would expect 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 of my age. I believe in pensions and would be worried if I did not have anything planned for my old age, because every business carries some inherent risk.

Do you believe in giving something 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 Californian children’s hospital.

Do you believe in leaving everything to your family?
No, I don’t. I made a will when my first child, Finlay, was born eight years ago, and because the kids are still young, now everything goes to the family. If we make serious money in the future I would have a different view.

Our profits are healthy, around £3mn, but rapid growth means we currently must reinvest everything in inventory. For a turnover of £42mn we need to have £13mn in inventory. I am rich in costumes, but I cannot use them to pay school fees.