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Beauty Stores Re-Configure



By Colin Hession, Colin Hession Consulting



Published May 3, 2011
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Major changes are afoot in terms of how prestige cosmetics, skin care and fragrances will be sold in the future. On both sides of the Atlantic, existing retailers are busy trying out all sorts of new configurations.


In Europe, department stores do not play as important a role in sales of prestige beauty products as they do in the U.S. While they are important, of course, it is perfumeries that have, until now, played a dominant role in most continental European countries. For those of our American readers who may be unfamiliar with perfumeries, these tend to be small stores in town and city centers, stocking almost solely prestige lines, with a few masstige brands near the door to “pull people in.” They are a little bit like very small Ultas, if you will, but without Ulta’s innovative approach to store layout, impact, or product spread from prestige to mass, and without Ulta’s salon facilities. Indeed, many of Europe’s perfumeries have not really changed in style or innovation for years.


But now, things are changing. By most retail standards, perfumeries have never been heavily shopped, and recession has meant that footfall, and therefore sales, have dropped significantly. As a consequence, the two largest European players, German-based Douglas, and French-based but Chinese-owned Watson’s Mariannaud, have been desperately reconfiguring in order to stay afloat. Each of these leading perfumery chains owns around 1,200 stores across Europe, compared with Sephora’s rather different looking 750 European units.


Douglas perfumeries have just announced a re-configuration into three store types: mainstream, high-end and trend. Mainstream will apparently highlight masstige fragrances such as Coty’s Halle Berry, ranging up to Chanel products. High-end stores will have more of a boutique feel, and will include luxury brands such as La Mer and Tom Ford fragrances. Trend shops will be aimed at the younger consumer, and will include popular lower cost cosmetics, along with M.A.C. and Bobbi Brown. Shoppers are promised virtual makeovers and computerized skin analyses, and can add comments to an e-guestbook that transmits on two large screens around the store.


Meanwhile, Europe’s drugstores, which sell mainly mass and are led by Germany’s DM, are busy trying to figure out how they can do better with prestige lines, which they currently tend to obtain on the gray market.


It seems there is some interesting retail experimentation on both sides of the Atlantic. Clearly, the size of the prize is considerable for those retailers who come up with a new model for selling the whole spectrum of beauty products, from prestige through to mass—which works. We reckon the Watsons group will be watching Ulta’s model in the U.S. with particular care, since there can be little doubt that this ambitious Chinese group wants to enter the States before too long.


The strategic implications for prestige suppliers are clear.They should monitor the situation closely, and if one particular retailer’s model looks to be breaking away from the rest of the pack, then they should consider investing heavily in that retailer. Interesting times.


Retailer Alliances


Meanwhile, it seems that retailers are forging a series of alliances in an effort to maximize their reach, both geographically and in terms of shopper profiles. We’ve already started to see Sephora shop-within-shop units springing up within department stores in various countries, not least in Spain’s El Cortes Ingles chain. The latter is patronized by a good cross-section of Spanish shoppers, and already has prestige counters as well as a strong mass showing, so Sephora must have been successful in persuading them that their addition would increase footfall at the top end of the scale.


Now Sephora has announced a new partnership with L’Oréal’s The Body Shop, whereby The Body Shop will develop exclusive skin and body care items for Sephora to roll out in 170 of the retailer’s 230 U.S. stores. Initially, the new partnership will be limited to the U.S. only, but if positive results are forthcoming, an international rollout could be envisaged.


Also worthy of note is Alliance Boots’ recent deal with Carrefour, whereby Boots’ contract manufacturing business will take versions of Boots’ cosmetics, hair care, bath and skin care products and produce these for Carrefour, albeit under the Carrefour label. Up to now, Boots has always stopped short of making private label for other retailers, but times are changing. Indeed, in the UK, Boots has a trial with upscale supermarket chain Waitrose for the sale of selected products in each other’s stores, with Waitrose private label food in some Boots stores and Boots healthcare private label ranges in Waitrose.


Strategic implications for branded suppliers: take private label (more) seriously!


Private Label:Savior or Slippery Slope?


On the other hand, if you are a retailer—especially one in the beauty arena — there is a danger in taking private label too seriously and expecting it to be the answer to all your revenue and margin problems. Earlier this year (see Happi, January 2011) we wrote about the tough time that Germany’s largest drugstore chain, Schlecker, was having and how it had been cutting back stores and reducing inventory.


We noted how owner, Anton Schlecker, had appointed his two adult children to oversee a new Fit For Future program of store refurbishment. Now the chain has said it wants to increase the amount of private label products it sells, in order to help offset declining sales, and is aiming to grow private label to up to 30% of total sales from its current 17%.


We think that such a near doubling of private label is likely to be the start of a slippery slope. There is considerable evidence, albeit mostly anecdotal, of retailers who have over-emphasized private label to the detriment of brands, and then come unstuck in terms of shopper footfall.


The fact is that in HBA particularly, where brands often represent “mums little indulgence,” if she can’t find it in your store, she’ll go somewhere else. In recessionary times private label has a stronger role to play, in terms of being given more fixture space in-store, certainly, but we still think there are risks in overrating its overall share.


So, Schlecker beware!


Botox In-Store


All sorts of things are being trialed in-store these days. In the UK, Superdrug has established beauty clinics that offer, among other things, anti-wrinkle Botox injections. The latter will apparently be administered by doctors from an existing London firm, called a little disarmingly “Cosmedoctor.” and will cost some $210…that’s something we don’t think we’ll be bothering to afford!


Tesco’s Click-and-Collect


Tesco has had considerable success with its online operation in the UK, using the slogan “You shop, we drop!” (a variation on the popular phrase, “shop till you drop”). But it seems research has shown that more people might be persuaded to order online if they could turn up to a local store and just collect the goods, rather than wait for hours at home until the delivery arrives. So Tesco is reportedly considering a plan to allow customers to pick up their internet orders from their extensive network of convenience stores, under the slogan “Click-And-Collect.”


Where’s the Referee?


A year ago (see Happi, March 2010), we reported on the UK’s Competition Commission having developed a Groceries Supplies Code of Practice, in an effort to placate smaller suppliers who were complaining, as they have done for years, of being bullied by those wicked chain retailers. The Commission said it was going to establish a body to oversee the new code, and draft legislation was to be put in place. However it seems that the UK government has had other priorities and that a so-called Groceries Code Adjudicator has still to be appointed. So Britain’s National Farmers Union has recently branded the whole thing as “toothless,” a clear case of where’s the referee?


P&G To Push Gucci


Since acquiring the Gucci fragrance license in 2006, P&G says it has nearly trebled the business. Industry sources estimate the Gucci beauty brand could now be worth some $500 to $600 million worldwide. Now P&G’s president of Global Prestige Beauty, Patrice Louvet, has indicated that the company intends to put a major push behind building the brand’s fragrance business during the coming years. Strategic point to note: P&G intends to be really big in prestige fragrance, too…watch this space!


Swapping Sides


Interesting that some chain retailers are now hiring senior executives from their leading suppliers to run their beauty businesses. First there was Paulo de Cesare, who in May 2007 left his position at the top of P&G’s global skin care division to join fellow Italian financier Maurizio Borletti, who had recently bought the French Le Printemps department store chain, as Borletti’s CEO.


Now another P&G executive, Christopher de Lapuente, who had been heading up P&G’s global hair care division, is to become global president and CEO of Sephora. Generally speaking, when this has happened the other way around and retailers joined suppliers, it hasn’t always ended happily. But the signs are that supplier-to-retailer moves are looking a better bet.

 

Colin Hession is Managing Director of Colin Hession Consulting, a specialist consultancy that focuses exclusively onPersonal Care in Europe, in terms of commercial & marketing development.Tel: +44-1202-710377•Fax: +44-1202-710399; e-mailch@hessioncosmetics.com; web site www.hessioncosmetics.com



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