Thia Breen, Federated Merchandising Group, provides an overview of beauty retail.

The seminar, Counter Culture: Where is Beauty Retailing Headed?, sponsored by the FIT graduate program in Cosmetics and Fragrance Marketing and Management, was well worth the 5:00 am wake up call necessary to be at the Fashion Institute of Technology, New York, in time for the timely, information-packed program held on Oct. 8.

Thia Breen, senior vice president, beauty, Federated Merchandising Group, led off the morning with a keynote address that gave an overview of beauty retail and explained how Federated is answering today’s challenges.

Pointing out that the world beauty market is worth approximately $87 billion, Breen stressed that there is still great opportunity in the industry. Among the changes since she started in beauty, she said that the number of channels of distribution has grown to at least 13, according to NPD, which reported that department stores now own 19% of the U.S. beauty market.

In a world that thirsts for newness, speed-to-market is more important than ever, Breen stressed, saying, “The Donald Trump The Fragrance launch is a prime example. They (Estée Lauder Companies and Donald Trump) went from deal to shipment in three months.

Providing past, present and future details, (l-r) Wendy Liebmann, WSL Strategic Retail; Dorothy C. Foster, International Cosmetique News, The Informationist and Beauty Business News; and Peter Born, Women’s Wear Daily, share views on beauty retail.

“The Britney Spears’ Curious launch is another example. Elizabeth Arden got the license in May and shipped product in September. Curious is now the number one seller at Federated stores, even beating the Jennifer Lopez Glow launch,” she added.

Targeting ethnic consumers is also becoming more important, as 30% of surveyed shoppers recently referred to themselves as “ethnic” and only 50% of American shoppers will be “Anglos” by 2050, according to Breen.

Emphasizing the importance of brand names and consistency, Breen explained that in 2005, Federated will operate under its two major names: Macy’s and Bloomingdale’s. By the end of January Bon-Macy’s, Goldsmith-Macy’s, Lazarus-Macy’s and Rich’s-Macy’s will have been converted to the Macy’s nameplate. “Brand must be relevant to its customer base,” Breen stated.

Other elements in the works to improve Federated stores include: assortments will be edited to maintain diversity, but minimize clutter; service will be improved; fitting rooms will be modernized; pricing will be simplified with Price Check machines on the retail floors allowing customers to check for an item’s most current price.
An ongoing project that teams Macy’s and Estée Lauder Companies seeks to find ways to court and serve their core customer, who visits the store more often and spends more each time than the average shopper. Surprisingly, it was found that the core customer was not visiting the store necessarily during the gift-with-purchase promotions. Because these GWP’s are a significant cost, a test was devised in Sacramento and Orlando to see if VIP mailers sent direct to the core customer would draw her into the store to purchase ELC products in greater numbers. In both test sites, the response was very positive, underscoring the notion that paying special attention to the core customer directly is a good strategy.

Breen also noted another key change in today’s retail reality. “Brands can successfully market in a range of channels-online, TV, traditional department stores, specialty stores. To be successful,” Breen advised, “Give you customer more of what she wants; be better in everything.”

How We Got Where We Are
The first panel discussion, titled, Where is Beauty Retailing Headed?, consisted of presentations by Peter Born, associate publisher, vice president and executive editor – beauty, Women’s Wear Daily; Professor Dorothy C. Foster, U.S. correspondent for International Cosmetique News, The Informationist and Beauty Business News; and Wendy Liebmann, president, WSL Strategic Retail.

A 30-Year Snap Shot of Beauty
Peter Born set the stage by providing an industry recap that identified key events in the beauty business in the last 30 years. In terms of fragrance products, he noted that the launch of Opium in 1977 was the beginning of fashion brands with provocative names and in 1987, there was a spate of celebrity launches, of which only Liz Taylor survived.

On the retail side, Born observed that 1970s specialty stores were playing a key role because emerging brands such as Estée Lauder couldn’t get into the department stores.

In 1987, with the stock market crash and ensuing merger and acquisition activity, the retail scene changed dramatically. “America was ’over-stored.’ There was a huge merge and purge. The credit card explosion, which allowed shoppers to take their shopping anywhere and the development of computer systems that allowed stores to be managed across distances, also contributed to a realignment,” Born explained.

“In the effort to cut costs in the surviving stores, service was taken out (in many department stores) along with a lot of categories of product,” Born said, which has contributed to the rise of specialty stores in the 1990s that offered service and products no longer available in department stores.

“The trend has now evolved into multi-brand specialty stores, such as Sephora and Ulta,” he added. “There is a new phase of celebrity fragrance, including Jennifer Lopez, Celine Dion, Britney Spears and Donald Trump and the skin care/treatment category is also growing.”

Recent Changes in Retail Landscape
Professor Dorothy C. Foster presented a score card of retailers then and now, which graphically illustrated the changes in distribution. According to Foster, since 2000:

Store Closings

Store Openings

Commenting on other forces in motion today, Foster said, “Wal-Mart is now four times larger than its closest competitor, and as a category, dollar stores are currently growing faster than any other type of retailer. Television is becoming much more important. QVC had cosmetic sales (all beauty products) of $300 million in 2003.”

Trendsetting beauty retail experts, (l-r) Lynn Kirby, Ulta Salon, Cosmetics and Fragrance Inc.; Jane Hertz Hudis, BeautyBank Inc./The Estée Lauder Companies and Jill Granoff, Victoria’s Secret Beauty, share views on how to do it right.

In terms of New York City, “It will be interesting to watch the retail development for the World Trade Center space, since the stores that were there prior to 9/11 were the top sales producers for many chains,” Foster noted.

The Light at the End of the Retail Tunnel
Answering her own question, “Where is beauty retail headed?” with an only half-joking quip, “Down a long dark tunnel,” Wendy Liebmann gave a bad news/good news presentation. Starting by dispelling a favorite beauty myth, Liebmann emphasized, “Beauty is NOT immune to economic change. The consumer today is making totally different choices. It’s not between one type of mascara and another, but between a mascara and a CD or a lipstick and shoes.”

Today’s shopper is also taking her business to different places, according to Liebmann, who noted, “Catalog and direct sales are growing as are specialty channels, including spas and salons.”

And today’s consumer has different faces. There is an important “male peacock shopper and the younger female consumer to consider,” she explained.

The next new thing at beauty retail is likely to be exemplified by “beauty leaps,” such as beauty products offered at a “Wellness Café,” or an Aveda boutique at the grocery store or a L’Oreal counter in a department store.

Other new approaches to consider, according to Liebmann, include: Holistic, combining health, fitness and beauty; Beauty alliances such as CVS offering an exclusive line of European products; Spas for men and teens; the Starbuck model of offering customizable products in a wrap around experience, while creating a sense of community.

The ‘True Truth,’ according to Liebmann, is that today’s shoppers go to many different channels, from mass to prestige and everything in between, to buy what they want and need.

The essential question is, “How do you create brand loyalty in today’s retail environment?” she asked and answered, “The brand must be relevant within the broader consumer market.” To achieve relevancy, “Ideas for new products should come from product developers talking to consumers.”

As an example of a category that is listening to consumers, Liebmann pointed to hair care. “Hair has become a way to make a statement in so many ways,” she said. And there are a host of new products, for men and women to help create the latest styles.

While the Internet is still only generating 1% of all beauty sales, Liebmann predicted that, as more consumers become more comfortable with purchasing online, it will grow. “Already sephora.com is that retailer’s biggest store in sales terms,” she explained. “Online retailing is growing in significance. It will also broaden opportunities for choice and is a way for retailers to decrease costs-it’s mushrooming.”

Strategies That Work
The second panel, on the topic Specialty Retail Channels: Controlling Your Own Destiny, featured presentations by: Jill Granoff, chief operating officer of Victoria’s Secret Beauty; Jane Hertzmark Hudis, president of BeautyBank Inc./The Estée Lauder Companies; and Lynn Kirby, president and chief executive of Ulta Salon, Cosmetics and Fragrance Inc.

The Victoria Secret Beauty Phenomena
Noting that the overall specialty store category has grown 12% annually since 1998 and direct marketing is next with 7.6%, Jill Granoff stressed that the growth is best in those channels that are closest to the consumer.

While 39% of body care sells through specialty, there is opportunity for other kinds of beauty product as well, as proven by Victoria’s Secret Beauty (VSB), according to Granoff. VSB has tripled its fragrance business, which now includes 12 prestige fragrances, since 1999. The company will also sell 50 million units of body care products in 2004 and now has color cosmetics in half its Victoria’s Secret stores. “We added two hair care lines in 2004 as well as the skin care lines from the Aura Science brand,” said Granoff. In addition to stores in U.S. malls, VSB now markets its products in a catalog and a website, as well as such alternate channels as military stores, Duty Free shops and the Middle East.

Granoff explained, “Victoria’s Secret Beauty’s advantages are that the brand has 99% awareness among consumers and over 50% of women think of it as ‘for me.’ We send out over 400 million catalogs and there are over 1000 Victoria’s Secret stores (500 of which also carry VSB products). There are another 500 beauty only stores (425 of which are adjacent to Victoria’s Secret stores). Our website is one of the top ten most visited sites. We have a large, loyal customer base of more than 17 million names and are able to leverage the brand with super models and special events.”

Catering to the New Beauty Shopper
Lynn Kirby said that at Ulta the big advantage is that the store presents shoppers with mass and prestige products so customers can buy all their beauty products under one roof.

With 25 years of beauty industry experience, Kirby said she’s seen a paradigm shift. “It’s become consumer focused. It’s an indulgence business, but how the consumer defines ‘indulgence’ has changed. Beauty retail used to be about esthetics, escape, education and entertainment. Now it is more about convenience and providing one stop shopping for mass and prestige products, appliances and salon services,” she explained.

Ulta now has 150 doors across the U.S., where the retailers understands that today’s shopper is both a mass and a prestige customer. “At Ulta, 60% of our customers shop across mass and prestige departments. During holiday, it’s 70%, and 50% of our shoppers said they would prefer to buy their prestige brands at Ulta,” Granoff said.

Ulta is breaking other traditional beauty retail rules. Rather than locating in large malls, Ulta stores are placed in convenient locations, where customers can pull up to the front door. “70% of our customers live close to the store they shop at,” added Granoff.

Rather than a commissioned sales staff, the Ulta service team is not commissioned by brand. There are 3 million active Ulta shoppers in the U.S. now and they shop 13 times a year. “Brand is no longer king at retail,” Kirby said. “Experience is becoming king. Follow, don’t lead the consumer,” she advised.

BeautyBank Breaks the Mold
Set up by Estée Lauder Companies to develop new brands for mid-tier department stores, BeautyBank is the newest of ELC’s 23 businesses. “BeautyBank has been set up to operate differently,” said Jane Hertzmark Hudis, president of the division. “BeautyBank is an entrepreneurial think tank that is set up to quickly identify and create beauty products for new channels. Our first venture is with Kohl’s, a mid-tier department store with 600 stores,” Hudis explained.

BeautyBank’s good skin brand uses color-coded packaging for easy identification.

With $10 billion in sales, Kohl’s had no beauty department until its partnership with BeautyBank. The stores are located in strip malls near family neighborhoods and are popular for their convenience, brands and value, according to Hudis. “There is a lot of foot traffic, which can reach 10’s of millions of customers in a single day,” she said. “The Kohl’s audience offered an ideal target for BeautyBank as well as an opportunity to break the rules while creating a whole new cosmetic department.”

Seeking to mimic the way a woman shops, BeautyBank decided to “develop multiple brands, each with a distinct point of view and price point, that would appeal to a modern, middle class consumer in her quest for affordable luxury,” Hudis noted. “BeautyBank created skin care and trendy, fun color lines that are designed to be aspirational, but at accessible prices, that are presented in a warm, easy to shop, self-sell environment.”

The three beauty brands launched in Kohl’s stores on Oct. 10. Hudis said, “The American Beauty line focused on unique American beauty icons—elegant yet relaxed, glamorous yet casual—for inspiration.” Actress Ashley Judd was chosen as the embodiment of American Beauty. The brand includes skin care and makeup. A lipstick retails for $12.50; treatment products are approximately $27.

Dubbed ‘good skin,’ the second brand is a high performance skin care line developed with Dr. Doris Day, a dermatologist. Including basic and special care products, the good skin products are presented in color-coded packaging for easy identification. Priced to offer skin care that is effective and affordable, prices range from $10 to $25.

The third brand, Flirt! is all about having fun with color. “Not a makeup artist brand, it will feature different celebrity guest creators twice a year from music, movies and pop culture,” Hudis explained. Flirt! includes over 250 shades and will offer new looks each season. The first guest creator is pop recording artist, Michelle Branch. Flirt!, which is also available on the 5th floor at New York City’s Bergdorf’s, launched in 288 Kohls’ stores on circular fixtures in October. A lipstick ranges from $10 to $14.

“All the brands will have web sites and all were created in the last 17 months,” Hudis stressed. Setting a speed-to-market record, she added, “There are 600 SKUs.”

The American Beauty line reflects an image that is elegant yet relaxed, glamorous yet casual.	The third BeautyBank brand, Flirt! is all about having fun with color.