October 19, 2006
Cosmetics: Can the Potential Be Realized?
By Laura Klepacki, special to GMDC
Cosmetics can be an alluring category. The department drives traffic and offers attractive margins.
But if supermarkets want to hold on to a piece of this pie, they will have to find their own way to do it – and quickly.
In the past two years retail competitors in both the drugstore and discount store channels have made forward leaps in creating unique beauty destinations for their consumers.
For example, both CVS and Target are testing 16 to 20 foot linear sections featuring a host of brands from Boots the Chemist, including the top selling No. 7. That initiative, now in 167 doors, is expected to multiply in 2007.
Separately, Target continues to leverage its proprietary Sonia Kashuk Professional Makeup Artist collection; CVS has made Finnish brand Lumene its store exclusive while Walgreens presents Swedish brand IsaDora. Even regional drugstore chain Duane Reade introduced a color line with Apt. 5.
More than ever, supermarkets are positioning themselves as the one-stop shop for consumers, providing not just foods, but everything from healthcare to upscale food service to banking and postal services, just to keep abreast of cross-channel competition.
Yet when it comes to cosmetics, there has been little distinction. Sales have been soft for several years. In the 52 weeks ended September 10, the nation’s 34,000 supermarket-doors rang up $468 million in cosmetics sales. That follows three years of declines or limited growth of under 1 percent. In fact, the supermarket industry is way down from the 2003 sales of $489 million, according to data provided by Information Resources Inc.
Meanwhile, the 39,000 U.S. drugstores had cosmetics sales of more than $1.86 billion in the current year, up from $1.76 billion in 2003. The drug store growth trend has been steady, albeit limited in percentage increases, and the dollars are substantial. The discount sector, excluding Wal-Mart, inched up slightly to almost $700 million in the rolling 52 weeks to September 10.
There are supermarkets that have been spicing up departments, so some supermarket executives do believe in this category and its potential. For example, some Shop Rites have added a Burt’s Bees end cap near the health food section. Giant Foods of Carlisle, Pa. unveiled its Neighborhood Drugstore concept where cosmetics is tied to pharmacy and other HBA categories under the “Relax, Renew, Revive” banner. In some Stop & Shop stores cosmetics is located in an HBC valley, which features special, lower profile, fixturing.
There are many issues plaguing cosmetics – slow turns, high pilferage and the issue of service. It’s a difficult category too because it follows fashion trends that call for seasonal shade collections. Cosmetics is image-driven and, because of the high stock keeping-unit count, is labor intensive. It may require a good, knowledgeable distributor to oversee it. But if done right, it can keep women coming back. Indeed, there is plenty of potential in cosmetics for a supermarket; high margins (25-40 percent is feasible), a large category which every woman buys, as well as being a huge draw for women shoppers (still the most important customers for supermarkets).
Discussion Questions: How can the many issues with
cosmetics in supermarkets be addressed? How should retailers and their supplier
partners go about deciding what role they want the department to play? How important
is a top down commitment to making cosmetics work in a supermarket environment?
BrainTrust
Recent Discussions
Discussion Questions
Poll
Obviously top down is critical to success in the category! An opportunity that I see is more store clustering around the categories. Most grocery retailers have the data to see where the potential for sales and merchandising increases are. The key is to dedicate the resources to be more creative and use the data to compete. This can result in destination sections and merchandising in some stores, price competing in others on key categories or lines, and potentially utilizing a brand to differentiate themselves.
The potential of cosmetics in the supermarket channel really depends on management’s view of its mission in the store. Is it merchandised as a “convenience” category adjacent to HBA, with mass national brands priced above discount store competitors? Or is it merchandised as a “destination” department with a stronger commitment to unique product development?
Traditional department stores and rising specialists like Sephora continue to capture a great deal of market share based on exclusivity, customer service and breadth of assortment. At the same time, Target, in particular, has managed the cosmetics category as a “destination” with exclusive merchandise typical of the store as a whole.
So grocery management needs to look in the mirror and make the cosmetics department consistent with its overall positioning. It can and should play a completely different role in a Whole Foods store (for example) than in a “traditional” warehouse concept, where a tightly merchandised selection makes the most sense.
Service, service, service departments. Have you walked through a department store cosmetics department lately? Suggestive selling is what sells higher priced and higher margin products.
I know that mass market brands like Cover Girl have been around for years and moving quite well. However, you might want to look at what Target is doing with Boots and other celebrity lines. There’s always someone hovering around to tell you about it or make a suggestion about what would work with your skin tone. They are getting very adept at the business of beauty.
As the multi-million-dollar debacle that was Revlon’s Vital Radiance launch proved (in skin care this time), a discussion of expectations and timeframes between retailer and supplier is always the first step. That particular program was unceremoniously yanked (by Revlon) within three months of set based on early lackluster sales at Target and Wal-Mart. Some drug chains on the distro were left with gaping holes as a result — a double whammy for Revlon.
The cosmetics and personal care categories are in a huge transition right now as J.C. Penney, with its unprecedented “partnership” (NOT “license” or “lease department”) with Sephora, Kohl’s gorgeous Estee Lauder-run, mini-Estee Beauty Bank presentation, this month’s major European beauty launch at Walgreen’s (a collection of seven brands from five countries)… the competition within mass-to-middle is heating up rapidly. Most interesting is the trend to move away from national brand “captains” in favor of giving a shot to pre-existing concepts or European niche brands. Retailers aren’t going to P&G and saying “Give me something French.” Watching the Boot’s folks lovingly attend to the Target program at each and every store early in that program one can see why this has continued.
Given the pilferage, need for sampling, and lack of any connection to their core mission, cosmetics aren’t a natural profit center for supermarkets. Yes, it’s true that women buy cosmetics and women shop in supermarkets, but that isn’t enough to expect profitability. Women buy all sorts of things. And supermarkets can’t be the site for “one stop shopping.” No store, not Wal-Mart, not Target, no one is the true one stop shopping place. Imagining it exists, claiming it exists, attempting to aim towards it: it doesn’t exist and likely won’t. Even the internet isn’t the place for one stop shopping. Great retailers edit their categories and assortments to be meaningful, which automatically means they don’t try to sell everything to everyone or anyone.
There are two stages of cosmetic sales: Trying and buying. “Trying” involves a service counter, two or more female friends, some “safe samples” (to avoid transmission of herpes simplex), and ample giggle time. “Buying” involves knowing what you want and purchasing it. Supermarkets can only participate in the “buying” part of cosmetic sales.
Supermarkets don’t care what’s going on in cosmetic departments at Target, JCP, Kohl’s, or even Wal-Mart, Carol. They’re not positioned to compete in the “trying” stage of cosmetic sales. And Shaun, there is really no such thing as a “high-end retailer” in the supermarket bidness. After all, this is about supermarkets.
Maybelline (part of L’Oreal) once dominated (and still does in some areas) cosmetic sales in supermarkets along with their parent brand. Revlon also plays. Itty-bitty products easily pilfered, and no “trying.” Neither suppliers nor retailers are willing to enlarge the packaging to discourage theft, due to cost and shelf-space allocations. So suppliers are asked to accept count-and-recount movement figures instead of actual scan data and provide discounts and incentives based on that information. This increases costs and either increases retails or decreases margins — choose your poison — which wreaks havoc with price positioning. Additionally, new lines that are not established or “tried” in service-oriented stores have no hope in supermarkets. Girls want to try it on, and we love them for it.
Buying cosmetics in a supermarket is like ordering them on the internet. You have to know what you want. My ex orders her Erno Laszlo stuff from the Bahamas because it’s cheaper and she knows what she wants. If it were available at Safeway for the same price, she’d buy it there. Supermarkets need to feature proven products, and be flexible enough to display the latest ones.
Channel blurring is really adding intense pressure on retailers in order to sell products and categories previously considered alien to them.
When introducing and investing in new categories, retailers have to work at a more granular level to really understand what consumers require and make sure these needs are met. A category such as cosmetics is extremely demanding and can lead to high costs if not planned, managed and executed correctly.
In my opinion, I believe that high-end retailers should identify which clusters of stores offer the greatest chance of success and target them. This model can then be expanded to other stores if required. This strategy should lead to the greatest level of success and mitigate the risk of failure to some degree.
It is also key that the retailer works very closely with the manufacturer/distributor to ensure a detailed level of consumer insight is conducted. It’s also important to work with store teams to understand the difficulties of implementing and maintaining these categories in-store.
In addition, cosmetics can be a gift purchase for example, supermarkets have to understand that they are competing not just with the product offering and price point, but also the level of customer service provided in the major department stores. This will be one of the biggest challenges for the supermarket to face.
I think supermarkets can absolutely participate in the cosmetics arena. As we know, the cosmetics department can drive traffic and be a destination. It can also contribute to the gross profits of the retailer.
Retailers need to be cautious though. Not all demographics shop cosmetics the same way. When managing this category it is essential to cluster stores so the assortment is tied to the overall consumer for the given cluster. I like to think of cosmetics as similar to the Total Alcoholic Beverage department–you don’t sell Old E 40 ouncers in every market but it is a top 10 in some.
Also, cosmetics can be the “anchor” in the beauty destination. During my time at a top 3 retailer we developed a concept we called “renaissance.” The methodology was to merchandise the beauty care categories according to category affinities and usage all surrounding the cosmetics department. When done right, a retailer can grow their cosmetics sales while increasing purchase frequency on other categories such as skin care, shaving, toiletries, hair care, etc.
More Discussions
Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?Should IKEA Be Flattening Management?
Should IKEA be trimming down its management headcount?Is Legislation the Answer on Visa, Mastercard Swipe Fees as ~$200 Billion Record Is Set?
Is lawmaking the way forward on swipe fees?
Obviously top down is critical to success in the category! An opportunity that I see is more store clustering around the categories. Most grocery retailers have the data to see where the potential for sales and merchandising increases are. The key is to dedicate the resources to be more creative and use the data to compete. This can result in destination sections and merchandising in some stores, price competing in others on key categories or lines, and potentially utilizing a brand to differentiate themselves.
The potential of cosmetics in the supermarket channel really depends on management’s view of its mission in the store. Is it merchandised as a “convenience” category adjacent to HBA, with mass national brands priced above discount store competitors? Or is it merchandised as a “destination” department with a stronger commitment to unique product development?
Traditional department stores and rising specialists like Sephora continue to capture a great deal of market share based on exclusivity, customer service and breadth of assortment. At the same time, Target, in particular, has managed the cosmetics category as a “destination” with exclusive merchandise typical of the store as a whole.
So grocery management needs to look in the mirror and make the cosmetics department consistent with its overall positioning. It can and should play a completely different role in a Whole Foods store (for example) than in a “traditional” warehouse concept, where a tightly merchandised selection makes the most sense.
Service, service, service departments. Have you walked through a department store cosmetics department lately? Suggestive selling is what sells higher priced and higher margin products.
I know that mass market brands like Cover Girl have been around for years and moving quite well. However, you might want to look at what Target is doing with Boots and other celebrity lines. There’s always someone hovering around to tell you about it or make a suggestion about what would work with your skin tone. They are getting very adept at the business of beauty.
As the multi-million-dollar debacle that was Revlon’s Vital Radiance launch proved (in skin care this time), a discussion of expectations and timeframes between retailer and supplier is always the first step. That particular program was unceremoniously yanked (by Revlon) within three months of set based on early lackluster sales at Target and Wal-Mart. Some drug chains on the distro were left with gaping holes as a result — a double whammy for Revlon.
The cosmetics and personal care categories are in a huge transition right now as J.C. Penney, with its unprecedented “partnership” (NOT “license” or “lease department”) with Sephora, Kohl’s gorgeous Estee Lauder-run, mini-Estee Beauty Bank presentation, this month’s major European beauty launch at Walgreen’s (a collection of seven brands from five countries)… the competition within mass-to-middle is heating up rapidly. Most interesting is the trend to move away from national brand “captains” in favor of giving a shot to pre-existing concepts or European niche brands. Retailers aren’t going to P&G and saying “Give me something French.” Watching the Boot’s folks lovingly attend to the Target program at each and every store early in that program one can see why this has continued.
Given the pilferage, need for sampling, and lack of any connection to their core mission, cosmetics aren’t a natural profit center for supermarkets. Yes, it’s true that women buy cosmetics and women shop in supermarkets, but that isn’t enough to expect profitability. Women buy all sorts of things. And supermarkets can’t be the site for “one stop shopping.” No store, not Wal-Mart, not Target, no one is the true one stop shopping place. Imagining it exists, claiming it exists, attempting to aim towards it: it doesn’t exist and likely won’t. Even the internet isn’t the place for one stop shopping. Great retailers edit their categories and assortments to be meaningful, which automatically means they don’t try to sell everything to everyone or anyone.
There are two stages of cosmetic sales: Trying and buying. “Trying” involves a service counter, two or more female friends, some “safe samples” (to avoid transmission of herpes simplex), and ample giggle time. “Buying” involves knowing what you want and purchasing it. Supermarkets can only participate in the “buying” part of cosmetic sales.
Supermarkets don’t care what’s going on in cosmetic departments at Target, JCP, Kohl’s, or even Wal-Mart, Carol. They’re not positioned to compete in the “trying” stage of cosmetic sales. And Shaun, there is really no such thing as a “high-end retailer” in the supermarket bidness. After all, this is about supermarkets.
Maybelline (part of L’Oreal) once dominated (and still does in some areas) cosmetic sales in supermarkets along with their parent brand. Revlon also plays. Itty-bitty products easily pilfered, and no “trying.” Neither suppliers nor retailers are willing to enlarge the packaging to discourage theft, due to cost and shelf-space allocations. So suppliers are asked to accept count-and-recount movement figures instead of actual scan data and provide discounts and incentives based on that information. This increases costs and either increases retails or decreases margins — choose your poison — which wreaks havoc with price positioning. Additionally, new lines that are not established or “tried” in service-oriented stores have no hope in supermarkets. Girls want to try it on, and we love them for it.
Buying cosmetics in a supermarket is like ordering them on the internet. You have to know what you want. My ex orders her Erno Laszlo stuff from the Bahamas because it’s cheaper and she knows what she wants. If it were available at Safeway for the same price, she’d buy it there. Supermarkets need to feature proven products, and be flexible enough to display the latest ones.
Channel blurring is really adding intense pressure on retailers in order to sell products and categories previously considered alien to them.
When introducing and investing in new categories, retailers have to work at a more granular level to really understand what consumers require and make sure these needs are met. A category such as cosmetics is extremely demanding and can lead to high costs if not planned, managed and executed correctly.
In my opinion, I believe that high-end retailers should identify which clusters of stores offer the greatest chance of success and target them. This model can then be expanded to other stores if required. This strategy should lead to the greatest level of success and mitigate the risk of failure to some degree.
It is also key that the retailer works very closely with the manufacturer/distributor to ensure a detailed level of consumer insight is conducted. It’s also important to work with store teams to understand the difficulties of implementing and maintaining these categories in-store.
In addition, cosmetics can be a gift purchase for example, supermarkets have to understand that they are competing not just with the product offering and price point, but also the level of customer service provided in the major department stores. This will be one of the biggest challenges for the supermarket to face.
I think supermarkets can absolutely participate in the cosmetics arena. As we know, the cosmetics department can drive traffic and be a destination. It can also contribute to the gross profits of the retailer.
Retailers need to be cautious though. Not all demographics shop cosmetics the same way. When managing this category it is essential to cluster stores so the assortment is tied to the overall consumer for the given cluster. I like to think of cosmetics as similar to the Total Alcoholic Beverage department–you don’t sell Old E 40 ouncers in every market but it is a top 10 in some.
Also, cosmetics can be the “anchor” in the beauty destination. During my time at a top 3 retailer we developed a concept we called “renaissance.” The methodology was to merchandise the beauty care categories according to category affinities and usage all surrounding the cosmetics department. When done right, a retailer can grow their cosmetics sales while increasing purchase frequency on other categories such as skin care, shaving, toiletries, hair care, etc.