A Strategic Point Of View


January 7, 2011

ACCORDING TO FOLKLORE in this beauty business of ours, there are a number of different indicators as to whether things are on the up—in terms of popular economics—or whether more doom and gloom is just around round the corner. Leonard Lauder’s famous lipstick indicator is a case in point. But another is whether ladies are still going to the beauty shop—or as we say in Europe, to the hairdresser— and when they get there, are they still treating themselves to a full color service or are they making do with a quick wash and cut?

Are gains in the salon segment merely wishful thinking on the part of brand owners?

At the time of writing, both of the major players in the professional hair care market have been busy telling analysts what a successful time they’ve been having. The global president of P&G’s salon professional division, Robert Jongstra, said recently that his North American business is doing very well and had notched up high single digit gains in both 2008 and 2009 in a market where sales fell 8% in 2009. Similarly bullish statements have been coming from L’Oréal’s professional products division, which posted sales up 4.5% for the first nine months of 2010, in a worldwide market whose estimated growth is between zero and 2%.

Hard numbers for the global professional hair care market tend not to be in the public domain, unless from time to time some “fall off a truck…” So, given the two industry giants, P&G and L’Oréal, together account for well over 50% of the world professional category, one must conclude that either ladies are indeed returning to the beauty shop with a vengeance, and spending more money when they get there, or that the industry is whistling past the graveyard. We suspect that it’s a bit of both. P&G has had to restructure its portfolio in order to cater to the value-for-money segment as well as the premium customer. The portfolio now includes Wella, Sebastian, Sassoon, Nioxin and Kadus/Londa/ Clairol. “We now have a stable of five brands that is designed to talk to every hairdresser segment in the market,” said Jongstra, adding “that will make the market grow.” Nicolas Hieronimus, the outgoing president of L’Oréal’s professional products division (who will move to head up L’Oréal’s luxury products this year), told journalists “when everybody was cutting and disinvesting, we did what had not been done for 20 years, which was put advertising on TV, in newspapers magazines and the internet to tell women that there was a new hair color revolution, called Inoa, and go ask your salons about it.”

Colin Hession Colin Hession Consulting

Colin Hession is managing director of Colin Hession Consulting, a specialist consultancy that focuses exclusively on Personal Care in Europe, in terms of commercial & marketing development.

Tel: +44-1202-710377
Fax: +44-1202-710399
e-mail ch@hessioncosmetics.com
web site www.hessioncosmetics.com

He went on to say that Inoa was now in more than 76,000 salons worldwide, of which 20% had never worked with L’Oréal before, and that sales of L’Oréal’s permanent hair color applications were growing by double digits.

“We’re trying to help stylists reinvent the salon because at the end of the day, in mature countries, what will make this market grow is new ideas, new places,” said Hieronimus. “I think that salons have not evolved enough, and we thought that it could be interesting for us to brainstorm and work with trend scouts to study what women love and did not like so much about their salons.”

He went on to point out that there was also growth potential for men’s hair products in the professional channel, highlighting L’Oréal’s Kerstase Capital Force, being launched in the U.S.

Strategic point to note here is that (even) the beauty shop, or humble European hairdresser, has not been immune to the winds of recession, but that they too have been changing and adapting, and theA Stylish Comeback in France Another indicator—albeit a small one—of better times, perhaps, is the fact that hairstyling products have been making a modest comeback in the French mass market. The last couple of years have tended to be all about value-for-money products, but recently the market has seen the re-emergence of added value lines such as those promoted by Franck Provost, L’Oréal’s hair designer spokesman.

Franck Provost is adding value to mass market hair care in France.
Coty Splashes Out

At the time of writing, it looks as if privately owned Coty is about to splash out on three separate acquisition deals. In these difficult times, it’s certainly a positive sign when a major player is sufficiently confident to put its money where its mouth is. The logic of Coty’s three deals seems reasonably clear. Get more critical mass in the core category of its mass division in Germany by buying Dr Scheller’s Manhattan nails and makeup. Move into high-end nails with OPI in the U.S., where professional nails are (sort of) akin to professional hair, in that it tends to represent the fashion end of the category. And make a move into prestige skin care—although one has to ask whether U.S.-based Philosophy is a sufficiently distinctive franchise to provide a meaningful expansion route beyond prestige fragrance? Either way, Philosophy’s previous owners, the private equity firm Carlyle, must be very pleased with life.

Strategic point: wonder who else in mass nails may think about backing up into the (small) professional channel to gain fashion trickle down?

Interesting, too, to note in passing how Dr Scheller’s previous owners, Russian company Kalina, has effectively acted like a private equity business in that it only acquired Scheller’s Manhattan in 2007 and, having stripped out excess costs, has lost little time in selling it on to Coty. Was this the Russians’ intention all along, or was it a case of needs must, or just opportunism?

Walmart’s Comfort Zone

We listened to an interesting conference call the other day organized by banking giant UBS, which seems to have a firm grasp of our industry. The subject was all about how Walmart has been deftly rowing back from what Bentonville apparently called Project Impact. This was a strategic initiative started in 2007, which involved among other things moving away from Every Day Low Pricing (EDLP) toward multiple pricing, giving more emphasis to Walmart’s own brands, prioritizing certain specific categories, and moving some merchandising initiatives from local store management to the center. It seems that Walmart has decided to move back to its comfort zone, winning back lower income shoppers with good old EDLP and, inevitably, piling more margin pressure on suppliers.

In the UK, meanwhile, Walmart’s Asda subsidiary has been moving inexorably toward its parent company’s U.S. comfort zone, with HBA pricing that has been giving its competitors, Tesco and Boots, a pretty hard time. The table below gives a small snap shot of the situation. As Schlecker Branches Out If Walmart has returned to its comfort zone, Europe’s largest drugstore chain, Germany’s Schlecker, is leaving theirs in an effort to stem falling sales. The traditionally hard-nosed company has moved its total store base down from 11,000 outlets at its peak in 2005 to approximately 7,800 today, and revenues and staff numbers have fallen even more significantly. In 2009, sales fell 8% to $9.9 billion, and were expected to fall further in 2010 to below $8.9 billion. The company is privately held, but normally well-informed sources maintain that operating losses over the past three years have grown to $178 million.

Source: Colin Hession Consulting

Now, tough talking owner Anton Schlecker (66 years old), has commissioned his two children, Lars and Meike Schlecker, to take charge of his Fit For Future program, which apparently involves a complete corporate restructure over the next 18 months designed to modernize the company’s store base, cut its assortment and brighten up store ambience. The latter ought not to be difficult, since Schlecker stores are notoriously dim and dowdy, with less than inviting interiors as well as exteriors. Lars and Meike claim that things are going to change, although some commentators wonder whether their dad’s Fit For Future may be too little too late.

Right Guard Hits Bottom

When faced with the possibility of acquiring someone else’s brand, it’s always easy to argue along the lines of “we could do it better” especially, that is, when that someone is an industry giant. But it ain’t necessarily so. Consider the case of Right Guard in UK. Henkel acquired the famous deodorant brand from P&G, when the latter had to divest it in order to win Gillette. We note that Right Guard is now to be seen on the bottom shelf in Boots, as our rather sad picture shows (at left).

Strategic point: some brands inevitably do better with their original parents, rather than with adopted ones.
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