The Rush to Exclusivity

By Faye Brookman, special to GMDC

Proprietary cosmetic brands are hardly new to the retail industry, but their appearance on retailers’ shelves has blossomed in the past few months as retailers put more and more emphasis on them. This reinforces the flood of exclusive items being added to shelves in high-end categories including skin care and cosmetics over the past couple of years.

For example, Walgreens has just introduced their drug-channel exclusive Weleda line of naturally rich skin and body care products, and this follows hard on the heels of the intro of mass-market exclusive Zeno skin care products earlier this year.

The growing flow of retail exclusive products is a big reversal from just five years ago when few women would be willing to apply a cream to their face that didn’t bear a well-known brand name. Now shelves are stocked with lines with little or no national advertising in the United States, such as Lumene, Boots, IsaDora, and Dr. Dover’s Skin Effects, as well as Weleda and Zeno.

Retailers also have imported skin care lines from all over Europe that are known there but not to Americans. Several chains also have salon hair brands that are sold exclusively through their doors.

What’s changing? Experts point to several factors. “For one thing, shoppers now have a drugstore on every corner so they have a choice,” says Allan Mottus, industry consultant. Exclusives can encourage a shopper to pick one over another. If a shopper really likes one of the exclusives, they have to make that store their main shopping venue.

Another market dynamic is that specialty stores have shown proprietary lines do work and mass market retailers like drug chains have become more and more eager to cash in. One need only peruse the aisles at Sephora or Ulta to see that each company is making its mark with its own line in everything from blush to cosmetics bags. Ulta even has a hit with its own version of the hot new mineral makeups. Also, shoppers became accustomed to buying special concoctions at their local dermatologist or spa and like the idea of something that isn’t “mass marketed.”

With the move toward natural brands, some chains want bragging rights to a name associated with natural retailing. Walgreens, for example, has a two-year deal with Weleda for drug chains.

Beyond exclusivity, retailers like the extra margin points they can nab via exclusive lines. Without marketing costs eating away at gross margins, these lines give retailers more cash in their pockets.

According to the Private Label Manufacturers Association, store brands now account for one of every five items sold in U.S. supermarkets, drug chains and mass merchandisers. They represent more than $65 billion of current business at retail. Of course much of that is in diapers, toothpaste or paper towels – but more and more of sales are coming from lines merchants are using to make their mark with consumers. And, this total doesn’t take into account the dollars spent on lines imported and sold exclusively at one or two chains in America.

There is a downside to the exclusive and that is the notion that retailers must also be marketers – a tough balance. Some chains, rather than try to manage that feat, turn the exclusive over to third-parties to move the items. And, there are signs in stores that not all European brands are hitting the market with shoppers. Target, for example, has already edited the lines it imported in skin care last year.

Discussion Questions: How should national brand manufacturers react to the surge in retail exclusive brands? What tactics would work? How powerful are retail exclusive brands as competitors? Can retailers continue to be merchants and marketers at the same time and be competitive?