NEW YORK -- Once purely an art, cosmetics merchandising is becoming a science.
The advent of scanner and point-of-sale data has armed cosmetics buyers and merchandisers with tools to determine which items in their departments are producing optimal turns and a significant return on investment.
In the past, buyers relied on gut instincts, warehouse inventory withdrawal statistics, gross margins and manufacturer-provided information that wasn't always accurate to determine space allocations on the peg wall.
"Before we looked at margins, and ambience was a buzzword," said Sheri Ralston, buyer for PayLess Drug in Wilsonville, Ore. "Now we're strictly looking at turns, gross profit return on investment and space-to-sales analysis. When you change the grading system, cosmetics does not perform well."
The true profit picture for cosmetics has not been impressive. "Unfortunately, no one is making any money," lamented one leading manufacturer. "The reason is the abuse of inventory. It costs retailers money to tie up dollars and it costs manufacturers money to make the product, especially in smaller quantities."
Another obstacle is that many leading cosmetics firms provide free fixturing and other benefits to retailers who must commit to specified footage -- making it difficult for retailers to bite the bullet and reduce space. However, once retailers started scrutinizing turns, they found the cosmetics category turns as slowly as 1 to 1.5 times per year instead of the 3 times per annum and more -- a rate they'd prefer. Many buyers said top management is putting greater pressure on them to shore up turns and profits or to cut back on space devoted to beauty.
"Increased competition, better data available to management to analyze turns and profitability and cosmetics-vendor reductions in allowances all contribute to increased management focus on the profitability of the cosmetics category," said Donna McManus, buyer for K&B Inc. in New Orleans.
McManus said K&B is engaged in space management analysis of its stores and each category as it relates to turns and profitability. "Long term, better turns are needed to maintain present space allocations of the cosmetics category," said McManus.
Keeping the space devoted to cosmetics is critical for preserving the business, according to Larry Aronson, vice president-sales for Procter & Gamble Cosmetic and Fragrance Products, Hunt Valley, Md.
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