Brands’ Dilemma: Target Elbows Way Into Upscale Beauty World

Target bids to plump its ever-in-flux beauty business.

South Plainfield, N.J. — On April Fools’ Day, two shoppers tossed six beauty products into a large, red shopping cart at the Target store here, racking up a bill of more than $205.

This story first appeared in the April 4, 2008 issue of WWD.  Subscribe Today.

A glance inside the shopping bag — containing Clarins, Kiehl’s, Origins, Bare Escentuals and Bumble and bumble products — revealed the hefty register ring was not an April Fools’ prank, but evidence of Target’s move to go upscale by aggressively plucking department store brands in a bid to plump its ever-in-flux beauty business.

The prestige brands mentioned above are vigilantly guarded by their firms, and contained to high-end retailers, replete with high-end service. Their leakage to downstream retailers could undermine the sizable marketing budgets designed to telecast their luxury positioning to consumers. That said, a number of industry experts surmised that Target does not have a direct relationship with these brands, and that the products have been diverted from legitimate sales channels. The rapid consolidation of departments stores, which in addition to shuttering hundreds of doors, seems to have thrown ample amount of product into the gray market.

Executives from the Estée Lauder Cos.-owned Origins and Bumble and bumble brands, the Klein-Becker-owned StriVectin, and Clarins said they have no business relationship with Target.

Target signaled its intentions to move upscale to shoppers by merchandising these brands, along with the Finland-born brand Lumene, in a 4-foot planogram display called “Professional Skin Care.” On each of its four shelves, matching signage further punctuated Target’s climb toward luxury. For instance, a sleek, black sign alongside the Origins items read, “A holistic approach to skin care” and another next to Clarins and StriVectin products proclaimed, “A breakthrough wrinkle treatment.” Above the products hung a large photo of a model with glowing skin. The graphics match the decor that Target has recently added to other categories, including hair color and premium hair appliances.

That same afternoon, a shopper on the opposite coast spotted an identical Professional Skin Care display in Target stores in Culver City, Calif., and West Hollywood, Calif.

Target Corp. declined to comment on the presence of luxury brands. But another mass market vendor, speaking on the condition of anonymity, remarked that Target is said to be testing the Professional Skin Care display — positioned alongside Procter & Gamble’s Olay lines — in 300 to 500 units across its 1,589-store chain.

The display was found in three of the 11 Target stores visited by WWD this week in Pennsylvania, New Jersey, Texas, Illinois, Georgia and California. The skin care products are not on Target’s Web site, although one Bare Escentuals kit and several Bumble and bumble products are. In a number of stores visited, Bumble and bumble products were found in the hair care aisle.

The luxury skin care displays were spotted one month after Bare Escentuals acknowledged unauthorized mineral makeup kits had appeared in Costco Wholesale Corp. and Target stores. During a quarterly earnings call with analysts on Feb. 26, Bare Escentuals Inc.’s chief executive officer Leslie Blodgett declared, “To be clear, Bare Escentuals does not have a business relationship with either retailer and as such, we are aggressively pursuing our legal rights with respect to sale of Bare Escentuals products through unauthorized channels. At the same time, we are taking proactive steps to develop methods to better track our products through the supply chain and prevent future occurrences.”

In nine of the 11 stores visited by WWD, Target merchandised an array of Bare Escentuals kits on a prominent end-of-aisle display and at the base of Physicians Formula’s planogram. The kits included Crown Jewels for $52, 100% Pure Moxie for $54, Beyond the Basics for $49 and Get Started Eyes for $49. Target’s prices matched Bare Escentuals’ retail prices.

Bare Escentuals declined to comment further, said a company spokeswoman, citing an ongoing investigation into the matter. A person familiar with the situation noted that Target will likely be protected from legal action as long as the retailer can prove it legally obtained the products from a distributor.

SunTrust Robinson Humphrey analyst William Chappell, who follows Bare Escentuals, said the presence of multiple high-end brands seems to indicate the products are diverted.

“It’s ironic that a good Midwestern retailer is using backdoor tactics to get ahead,” said Chappell. “Target has decided it’s going to go upscale whether [prestige beauty firms] like it or not.”

According to sources, executives at least one of the brands included in the Professional Skin Care set noticed its products at Target four weeks ago, and has since been able to track the source via the product’s bar coding.

Target has built its business on venerable names in other categories and has been hungry for the same cachet in beauty to add to its successful Sonia Kashuk cosmetics franchise. Over the years, shoppers have become accustomed to seeing luxury brands in mass market hair care aisles and fragrance counters. But high-end skin care lines had been more difficult for big-box stores to come by. Mass retailers began stocking upscale designer fragrances in the Eighties, first via diversion and in the last 10 years, for the most part, through established partnerships. Salon hair care brands also started infiltrating the market through the backdoor in the Nineties.

Kline & Company Inc. research indicates that 18 percent of prestige fragrances in the U.S. are sold through mass channels, and 11 percent of salon hair care moves through the U.S. mass market. The firm estimates less than 1 percent of prestige skin care and cosmetics are sold in the mass market.

Industry consultant Allan Mottus said he’s not surprised by the Target initiative, given shoppers’ demand that retailers stock the items they want and they are in the driver’s seat. With channels blurring, there is little luxury mystique behind brand names. “If you think you can put the genie back in the bottle now, you are mistaken,” he added. Another source said the Target merchandise must be authorized by some source because the retailer has scrupulous policies on accepting products. Many of the items have separate inventory stickers suggesting they come via a third party.

“There is clearly something going on,” said Wendy Liebmann, founder of WSL Strategic Retail in New York, who has tracked Target shoppers in her yearly report, “How America Shops.”

“The question is, to what degree of formality? It would be a big leap [for prestige brands] to open to Target. Not that some of them wouldn’t like brands at the masstige level, but doing it directly could put them in a difficult position,” said Liebmann. In her research, she’s described Target customers as those who would appreciate finding upscale skin care at the retailer since this “shopper does it all, home, family, career…and still shops a lot,” according to WSL research.

Others said it was not unlike Target to test a new product initiative before rolling it out chainwide. In 2006, the store here was used as a trial for European bath and body brands, a test that has been dramatically scaled back.

The prestige brands are fighting back. A statement issued by Origins acknowledges the product has seeped into mass market doors: “We are aware of the fact that Origins products are being sold in the mass market. These are unauthorized sales of our products and we are taking strong action to address this problem.”

Bumble and bumble president Peter Lichtenthal said Target is not authorized to sell the salon hair care brand, nor is any other mass retailer.

“We became aware of this matter only when the products appeared on shelf,” he said. “Bumble and bumble is committed to prestige hair salons as our primary and overwhelming channel of distribution….Through Bumble and bumble’s advanced coding system, along with dedicated surveillance on ordering patterns, we have been able to intensify our ‘zero’ tolerance policy against any Bumble and bumble partner that diverts our merchandise to an unauthorized retailer. If someone diverts, we will shut them down.”

Jonathan Zrihen, president and ceo of Clarins Group USA, said, “The Clarins skin care brand has no business relationship with Target.”

A L’Oréal spokeswoman said, “We at Kiehl’s encourage consumers only to obtain Kiehl’s products from those stores that we have designated as authorized partners in order to ensure that the products available at a particular establishment are genuine.”

StriVectin marketing director Gina Daines acknowledged that she was surprised to hear the brand was selling at the mass retailer, noting that Target is not an authorized distributor.

She said, “Unfortunately, diversion of luxury goods has become a serious problem worldwide and one that StriVectin takes seriously. As a high-end brand, we have invested an incalculable amount of research and resources into finding the best ingredients and formulas to make our products safe and effective. As a result, we believe that our products should be sold at the finest retailers.”

A number of shoppers might have been surprised to see luxury beauty brands at Target, as well. But other customers have become accustomed to blurred retail channels. Target customer Robin McNamara commented, “Those brands are all on HSN or QVC. Shoppers know them from there. It isn’t that illogical to sell in Target.”