US - Keeping up appearances

The American beauty market is undergoing massive transformations. Faye Brookman investigates the key moods that are fashioning change

Beauty retailing in the US is changing beyond recognition. Department stores are still clinging to their customers and have been boosted by breakthrough new lines such as Tom Ford’s collaboration with Estée Lauder.

Elsewhere speciality stores are finally hitting the right mark by offering unique merchandise rather than the same products as department stores. Sephora shook up the industry with the announcement that it would open boutiques within JCPenney, and L’Oréal also grabbed the headlines when it acquired The Body Shop, thrusting the company further into the retail marketplace. Meanwhile Kohl’s continued its venture with Estée Lauder’s BeautyBank.

The Limited also started rolling out its C.O. Bigelow apothecary style stores, and Bath and Body Works added brand names to the fold with great success, as well as select salon services within new prototypes. Fruits & Passion, a Canadian brand, moved into the US market with a store in Scottsdale, Arizona.

Direct marketing continued to grow in popularity with QVC leading the charge. The internet started creeping back as a choice for beauty now that customers are more comfortable with cyber-retailing. And for those hard to find beauty items, there is always eBay.

The mass market is trying to keep up by adding its own speciality boutiques, often stocked with brands borrowed from overseas. The question remains whether American shoppers are willing to try products void of national advertising campaigns. Wal-Mart is going in two directions - an upscale laboratory and ethnic specific stores. Much has been written about Wal-Mart’s new, upscale, 217,000sqft laboratory store in Plano, Texas.

During a gathering of investors at a conference hosted by Merrill Lynch & Company, Wal-Mart’s president Eduardo Castro-Wright told investors that the store was one of many tests. “This is not directionally where we are going. This is just an attempt to understand that customer,” he said of upscale shoppers. Incomes in the area surrounding the store average $140,000. “That’s about three times the average for the clientele of Wal-Mart supercenters nationwide,” he told analysts. The store has plasma TVs, sushi and $500 bottles of wine but the chain has saturated many markets and needs to find a way to build cash register rings.

While Wal-Mart went upscale, the celebrity frenzy continued within all trade channels. Celebrity launches have yet to run out of steam and the concept has filtered beyond fragrance into make-up and hair care. Some of the biggest names in beauty such as Avon and Revlon are struggling with this and can’t seem to find the right gear to steer shoppers their way. All of this is punctuated with rising concerns over a slowing housing market and escalating gasoline prices.

There were changes in boardrooms during the year too, including the appointment of John Dempsey as global president for the Estée Lauder and MAC cosmetics brands. Thia Breen, North American president of Estée Lauder, was promoted to president of Estée Lauder Americas and global business development. At Revlon, Paul Murphy departed Revlon from his top sales post.

Colour confusion

Colour cosmetics sales are up in the mass market, but not as high as retailers had hoped. Sales for the 52-week period ended 15 July rose 3.9% to $841.7m (food, drug and mass excluding Wal-Mart). The gains weren’t as high because of slower than expected movement of three major launches. Revlon took a gamble on ageing baby boomers with the launch in 2005 of Vital Radiance. The colour line is designed for women aged 50 plus who need special products to disguise the signs of ageing. Since Revlon was asking for additional footage, the company decided to use a different moniker and forego the Revlon name on the packaging. To date, retailers think that was a mistake. Vital Radiance has yet to zoom out of stores, despite what retailers call high quality products.

Revlon is on a turnaround plan that William B Chappell, an analyst with Sun Trust Robinson Humphrey Capital Markets says would have been aided and reduced to three years with the success of Vital Radiance. Some major retailers are already slicing its space. However, things went a little better for Revlon’s Almay division with the relaunch of the Almay brand that buyers found clever and compelling. However, sales are not living up to expectations.

L’Oréal also unveiled a major initiative - HIP, an acronym for High Intensity Pigment. The idea was to be the MAC of the mass, but when the items hit stores, many consumers deemed the line an ethnic collection. As a result L’Oréal is reworking HIP to add more colours. Other major names had a challenging year too. Procter & Gamble relaunched Max Factor, also as a MAC inspired line, only to find it had missed the boat. Other brands such as NYC and Bonne Bell also lost footage as retailers made room for the major launches.

Many buyers say they plan to give space in 2007 to up and coming lines such as Physicians Formula and Coty’s Rimmel. P&G scored in select stores with a collection of products called Queen after Queen Latifah for women of colour. Buyers are also putting more stock in imported lines. Walgreens yielded major footage in its stores to the Isadora line from Sweden, while CVS continues to embrace Lumene, a Finnish cosmetics line.

In more upscale doors, the old standbys are being challenged by new brands that are often marketed in unique ways. The beauty paradigm is shifting thanks to direct sells such as Bare Escentuals, which respresent a new breed of choice to consumers compared to the Lancômes and Estée Lauders of the world. Leslie Blodgett continues to be the strongest marketing ammunition for Bare Escentuals which filed an IPO in June 2006.

Mineral make-up has become so popular that the mass market has a slew of them readied for 2007. Direct marketing worked for Blodgett and it also worked for make-up artist Mally Roncal who is now expanding on Henri Bendel.

At Avon, the fruits of a turnaround plan are not yet being enjoyed but the company is putting its efforts into a huge advertising and sampling programme in an attempt to finish 2006 on a high note.

Tom Ford summed up what the beauty industry needs at a meeting this year where he effectively challenged the industry. “The beauty industry, just like all fashion related industries, is suffering from an overload of products. We’re devaluing our assets with a constant and never ending sea of flankers, gift with purchase, purchase with purchase, promotional products, spin-offs, derivatives, ancillary, seasonal hits, seasonal flashes...” he said. “All of this is really eroding the value of our core products and the perceived value of our brands. By supplying a constant stream of merchandise, the consumer is left with a feeling that our products are empty and hollow, that there’s too much to choose from and that it’s all too available to have any real value.”

Fragrant comeback

The US fragrance market is $6bn strong across all channels of distribution. Sales had flattened out over the last ten years only to spike up in the last few thanks to celebrity endorsements. It seems Americans were still willing to put down hard earned dollars on celeb scents last year and the trend is filtering to the mass market with new scents, such as fragrance from Antonio Banderas.

Bandaras is not the only celebrity lending their name to fragrance. Jennifer Lopez is now on her sixth scent and Kimora Lee’s Baby Phat is rolling into mass. Rapper P Diddy got in on the act with Unforgivable, while Shania Twain fronts Stetson and Paris Hilton has developed a popular scent wardrobe. Hilary Duff will bring her first to market this fall called With Love Hilary Duff. And of course Britney Spears continues to be a big fragrance revenue driver. Even author Danielle Steele is getting into the scent business with Elizabeth Arden and Coty has added Kylie Minogue to its stable that already includes JLo, Sarah Jessica Parker and the Beckhams.

Some think the next big inspiration could be from TV shows and Coty has fragrances based on Desperate Housewives, while AMC Fragrances has readied a scent based on Fox’s popular The O.C. AMC was also behind last year’s with Fusion and Enchantment linked to All My Children. Other notable fragrance launches include Pure Poison Intense, Burberry London, Polo Double Black and Beyond Paradise Blue.

The quantity of new scents set to launch this fall is daunting and department store retailers say they’ll focus on the link between fashion and fragrance. There are also signs of a weakening in the celebrity façade and designer scents are making a comeback. New for fall 2006 is a fragrance from Juicy Couture that had Bloomingdales taking advance orders. And there’s the success of Bond No 9 named after New York neighborhoods and retailing for $135 and up.

According to NPD, the top women’s fragrances are Beautiful, Euphoria, Pleasures, Chanel No 5 and Romance. The top men’s are Acqua Di Gio, Unforgiveable, Armani Code, Polo Black and Polo Blue. Total prestige fragrance sales increased 3% to $2.94bn in 2005.

Skin care Euro style

Walgreens is betting on European brands to differentiate its stores. The chain will begin showcasing seven exclusive skin care lines in 1000 stores this month. “It’s not just about building skin or beauty. It will brand us for the future,” said Michelle Hobson, Walgreens manager of strategic business development and beauty. The brands include Art Deco, Skincode, Red Water, La Fleur Organic, Oli and Skin Aquatique. The products will be merchandised on a fixture near Walgreens’ service fragrance counter.

Other retailers are adding full boutiques with European brands. In 2002, Brooks decided to break that mould and became the first to install upscale dermatologic centres with brands familiar throughout Europe such as Avene and Vichy. CVS and Duane Reade followed.

The initial forays into dermatological skin care brands appear to be working. All three existing chains are adding more installations, and L’Oréal is adding its even more serious skin care - La Roche-Posay - to the mix. L’Oréal has seen upscale skin care work in European apothecaries as well as in drugstores in Canada. The departments feature illuminated fixtures and trained beauty advisors. The latest innovation from La Roche-Posay is a kiosk that asks women several questions and then makes recommendations about products. The kiosk is currently in use at a Duane Reade store on Manhattan’s upper East Side. What is nice is that the kiosk will move to different stores rather than just permanent locations.

L’Oréal currently has 160 of its Derma care centres in place in America and Philippe Patsalidés, general manager of the active cosmetics division of L’Oréal, says he plans to have 500 by the end of 2006. Most of the current units are in CVS and a spokeswoman for the chain says they are very pleased and are expanding the centres. Target also visited Europe for skin care inspiration, bringing a new department featuring Castelbel, Caldo and Baylis and Harding.

In speciality stores, Bath and Body Works signed Patricia Wexler for a new line, while L’Oréal tapped Diane Keaton to represent the L’Oréal Paris Age Perfect Pro-Calcium skin care line. She joins Jane Fonda who is the face of Pro-Calcium’s sister brand, the Age Re-Perfect Pro-Calcium treatment line.

Splitting hairs

The two dominant trends in hair care were continued celebrity stylist lines and total line overhauls by major players. Salon only hair care products became more accessible to mass marketers this year, even though most chains got them via diverters. Nexxus opened its doors and others are expected to follow suit. Several drug chains scored exclusive lines such as Christophe at CVS and Paves at Walgreens.

Several traditional hair care powers reformatted during the year, including a relaunch of L’Oréal’s Vive and Clairol’s Herbal Essences. Also new to the US is Sunsilk and a new line from Marc Anthony called True Professional. Fructis, which has gained an impressive share in the US, signed Brian Magallones as a celeb stylist to keep the brand at the forefront.

Hair colour was the centre of innovation with new products for in-between formulas such as Clairol’s Root Touch Up and L’Oréal’s Natural Match.

Well-being & naturals

Americans can’t seem to get enough of spa services. More and more day spas are opening up and one of the fastest growing retailers in America is Massage Envy, which sells massage memberships much like health club memberships. Sephora also inked a deal with Klinger Advanced Aesthetics to open attached stores offering services such as facials and skin diagnoses centres.

Consumers have also started showing more interest in naturally positioned products and retailers are supporting these brands. The growth of natural beauty is an offshoot of a growing interest in linking wellness and beauty. According to SPINS, a tracker of sales of natural products, sales of natural hair care alone rose 24% for the

52-week period ended 25 March 2006. Natural skin care sales rose 37% during that same period. More and more naturally positioned stores such as Whole Foods and Trader Joe’s are opening. Natural product manufacturers are getting more aggressive. Many industry observers expect a big showdown between natural lines such as L’Occitane and Body Shop, particularly now that L’Oréal will be pumping more dollars into Body Shop.

Burt’s Bees, a natural line that had limited distribution, is now buzzing into mass stores such as CVS, and Old Navy now sells a specially created line from natural purveyor Kiss My Face.

Consolidation

A review of the year cannot be concluded without mentioning the impact ongoing industry consolidation is having on the business. As Federated continues to absorb May Co many vendors feel squeezed out of having a chance for success. In fact, Federated’s lack of interest caused Revlon to retreat from launching a planned premium fragrance called Flair. In Chicago, shoppers mourned the loss of the famed Marshall Field’s logo - now under Federated’s Macy’s moniker.

The same is happening in mass. Two major regional chains, Medic Drug and Happy Harry’s, were snapped up during the year, both by Walgreen. Albertsons, a supermarket power, also unloaded its drugstores to CVS.

There were also a number of marriages called off during the year. Last January, Alberto-Culver proposed what seemed like a beautiful marriage between its 2,419 Sally Beauty Stores (along with 822 Beauty System Group stores) and Regis Salons.

The union with Regis was designed to alleviate conflicts between Alberto Culver’s distribution businesses - aka stores like Sally’s that sell competitive brands - and its consumer products division. Alberto has many well known brands including Alberto VO5, St Ives, TRESemmé and Nexxus. In January Nexxus opened up its distribution to food, drug and mass stores, which of course were selling the line anyway).

Things got rocky when Regis revised its outlook for 2007. Regis’ share price slipped 14% since the deal was announced and that sliced the value of the transaction by $300m. Regis said the decline in its financial outlook is a temporary issue. The salon business is always linked to the ups and downs of hair styles and some experts think the current trend to longer hair means fewer salon visits. Improvements in home colouring products, especially those that cover grey ‘in between’ salon visits, are also mentioned with reduced salon traffic.

Citing the salon company’s financial vulnerabilities, Alberto’s board withdrew the recommendation to merge. Regis, however, gets a termination fee of $50m. The break-up also delayed the retirement of Howard B Bernick, Alberto’s president and ceo. Finally, the revered Laura Mercier brand was sold in June to Alticor, the parent of Amway.

Will such change in the US C&T market settle for now or are there more developments ahead?