Wake-up Call for AM Cosmetics

November 8, 2005

After years of falling sales, this mass market cosmetics fiirm may have found the right chemistry

With new management in place, back room operations in order and marketing strategies set, AM Cosmetics is ready to grow again. It’s been nearly four years since the company was formed after a string of acquisitions by Morning- side Capital. But when the Westport, CT financial firm devoured such well-known mass market brands as Wet ‘n’ Wild, Sweet Georgia Brown and Black Radiance, it suffered from a bad case of indigestion. Four years ago, annual sales totaled nearly $190 million, but by the middle of last year, sales for the 52-weeks ended May 11 had dropped more than 20%. According to one executive, sales fell as former management became more interested in financial issues rather than brand support.

As firms were acquired, key brand teams were eliminated and retailer support waned. At one point, in fact, retailers were receiving promotional information just three weeks prior to shipping. All that began to change, however, when Arnie Zimmerman joined the company in January, 1999. He restructured agreements with banks and brought in a management team with experience in the cosmetic industry, including Stephanie S. Hayano as executive vice president of global marketing.

“The brands had great equity despite the upheaval,” recalled Ms. Hayano. “We had seven brands, but they were all promoted to retailers as appealing to teens.”

Besides confusion in brand positioning, back room operations also suffered. Each brand used different computer systems, making tracking and forecasting operations difficult. “Now all of our brands are on the same platform in terms of tracking orders and forecasting. We’re ready to move forward,” said Ms. Hayano.


Target Marketing
While revamping the company’s operations, AM executives began toying with the notion of positioning brands to appeal to a particular lifestyle and consumer attitude. Relying on gut instinct and backed up by data supplied by Spectra, a Chicago-based market research team, AM Cosmetics executives learned that some brands may appeal in one store location and not in another. For example, some stores within a chain are perfect for Wet ‘n’ Wild which appeals to women with household incomes of $40,000 and higher. In contrast, Artmatic appeals to older women in more rural settings who have household incomes of $20,000. As one might expect, the Artmatic brand does best in dollar stores.

This year, the Wet ‘n’ Wild lineup has been bolstered by several new formulas such as a lip-plumping pencil which contains yeast extract to make lips appear fuller. Capitalizing on another trend, Wet ‘n’ Wild has also introduced a body gel with glitter.

“They’re great products with the latest technology at a great price,” insisted Ms. Hayano. “We have all the technology that the prestige brands have.” The company is also a major player in the ethnic cosmetics category with its Tropez and Black Radiance brands. According to Ms. Hayano, Spectra data revealed that the Tropez brand also appeals to Latin and Asian consumers.

At the same time, the Sweet Georgia Brown line is targeted at preteens and teenagers, while the Lord & Berry brand is AM’s version of “class in mass.” Ms. Hayano noted that this year Lord & Berry will concentrate on expanding its share by introducing new products such as a long-wearing eyeshadow and a 3-in-1 pencil.


Nailing It
Prior to joining AM Cosmetics, Ms. Hayano had been with Del Laboratories, which has a big presence in the nail care category with its Sally Hansen franchise. Given her background, it should come as no surprise to learn that AM is making a big push into nail care this year via its Jonel brand. Although nail care sales are flat, Ms. Hayano insisted Jonel should be able to make in-roads in a category where consumers are always willing to try new products.

According to A.C. Nielsen data, nail care sales total $1.1 billion. Nail enamel accounts for 38% of that total, followed by abrasives and implements (26.9%), artificial nails (23.5%) and treatment (11.6%). According to Ms. Hayano, Sally Hansen was the only brand to address all four segments of the nail care category. “But the brand is vulnerable because it’s not trendy and is recognized more for nail treatment rather than color or beauty,” she insisted.

Working with the theme, “Beautiful nails for the real world,” company executives believe Jonel can create a buzz with new products such as Moisturize It and Grow It, names that allow women to easily choose the correct product. “Nail care has become very confusing,” insisted Ms. Hayano. “Women are product loyal but not brand loyal. They’ll buy one brand of top coat and a different brand of enamel.”

Unlike other AM Cosmetics brands, Jonel is not positioned as a budget line. Although some SKUs retail for just 99 cents, nail kits retail for as much as $5.99. And, unlike Wet ‘n’ Wild, Lord & Berry and the rest, Jonel will be supported with ads in leading women’s magazines.

With its new emphasis on brand management, Ms. Hayano said the company projects an aggressive growth pattern, although she wouldn’t reveal specific estimates. But in an intervew with Women’s Wear Daily last year, Mr. Zimmerman said he hoped to double AM Cosmetics’ sales by the end of this year to about $300 million. If he can pull it off, Mr. Zimmerman and his team may create the fastest makeover in the history of the cosmetics industry.

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