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One of the most buzzed-about speakers at the WWD Beauty CEO Summit, held in May at The Breakers in Palm Beach, was someone few in the industry had even heard of two years ago: Michael Dubin, the founder and chief executive officer of Dollar Shave Club.
This story first appeared in the June 20, 2014 issue of WWD. Subscribe Today.
Dollarshaveclub.com sells razor blades for as little as $3 a month and as much as $9; in the two years—two years—it’s been in existence, the company has grabbed about five percent of the U.S. blades market and is projected to hit $60 million in revenue this year.
The rise of Dollar Shave Club and other companies like it represents the absolute transformation wrought by the digital revolution and changing global dynamics and demographics on the beauty industry. As Cedric Prouvé, the group president of international at the Estée Lauder Cos. Inc., told attendees during his keynote presentation, “The kind of change we are experiencing now, the degree, the magnitude, the speed is unlike anything we have experienced before.”
The resulting revolution is shaking traditional marketing precepts to their very core, as was outlined by Michele Scannavini, the chief executive officer of Coty Inc. The traditional four P’s of marketing—namely, product, price, promotion and place—have given way to the advent of the four C’s. “Where we used to have product, today we have content. Where we used to have price, today we have a much broader concept of convenience,” explained Scannavini. “Where we used to have promotion, we have the influential power of community, and where we had point of sales, today we have a curated environment with a blend of physical and digital experiences.”
Those dynamics, which Scannavini summarized with a fifth C—connection—proved to be the recurring motifs of the Summit, as, collectively, the presenters pointed the way forward for beauty. Here, five key ideas from the three-day conference:
“It is no longer survival of the fittest, but rather the survival of the adaptist,” declared Lynn Tilton, chief executive officer of Patriarch Partners, which owns Stila and Jane Cosmetics. “And if you hold on tight, you will die. So we have no choice but to let go. To dream the dream, to close our eyes and build the vision that we see.”
In other words, companies who choose to do business as usual, who exist in a state of denial about the radical shifts taking place, will quickly become extinct. “How many of us really, in terms of our businesses, will be here in five years time?” asked Chris Sanderson, ceo of The Future Laboratory. “The expectancy of most businesses is less than a human lifetime, and so that sense of understanding of what we need to do to survive has never been so important.”
Lest this sound alarmist, know that even behemoths like L’Oréal and Procter & Gamble are radically rethinking the way they create, market and sell beauty products. “At the end of the day,” said Frédéric Rozé, L’Oréal’s executive vice president of the Americas and president and ceo of L’Oréal U.S., “our success comes from our capacity to transform ourselves, to metamorphose ourselves.”
“We either do what’s right, what’s exciting,” agreed Shelley Rozenwald, senior vice president and general merchandise manager of beauty at Hudson’s Bay and Lord & Taylor, “or we’re not going to be around.”
At P&G, that has translated into a new way of thinking about the consumer. While consumers have always been top of mind at P&G, the way the company thinks about them, studies them and involves them in the product-development process is changing dramatically. “The world is changing fast and the consumer is changing with it,” said Deb Henretta, group president of global beauty at P&G. “The consumer is no longer a passive recipient of brand innovation and messages. She is much more active and much more in control….And her influence is growing stronger as the 21st century takes hold. She is disrupting selling models with crowdsourcing. She is replacing traditional products with inventions of her own. She is using her powers to positively enforce change in the world. The new consumer is the new force of change.”
In a world where people are subject to broadcasting from multiple platforms, narrow-casting a finely honed message to an equally targeted group of people will drive growth for companies big and small. Many of the emerging brands that presented attributed their success to focusing on a single aspect of the business, rather than trying to be all things to all people. Dubin’s singular goal, for example, is to own the men’s bathroom, while Drybar offers only blowouts—no cuts, no color. “We focus on just one thing,” said Drybar founder Alli Webb, “and we do it better than anybody. The biggest keys to our success are personality and passion, our attitude, our attention to detail, our spirit that permeates through every single thing we do.” Although the four-year-old company now has more than 37 salons, 2,000 employees and performs 100,000 blowouts a month, plus a product line, Webb’s laserlike attention on providing the ultimate blowout has never wavered.
Such clarity of vision is how emerging brands compete effectively with the big guys. “The first rule is don’t follow anyone else’s rules,” said Gail Federici, today the ceo of Federici Brands, who cofounded John Frieda hair care with the star stylist in 1989. “Our mantra became ‘We must outthink because we can’t outspend.’” Back then, they started with one star product, Frizz-Ease Serum, which was the result of a “BGO” in Federici-speak, or blinding glimpse of the obvious. “It’s a blatant gap in the market that, for whatever reason, has been overlooked,” she said. “And when you find a hole in the market, you obviously have no competition, at least at first. Really helpful when you’re a startup.”
In 2002, Federici and Frieda sold their company to Kao Corp. for $450 million, but Federici found herself inescapably drawn back to beauty and last year launched Color Wow hair care. “Personally, I think the big ideas are going to come from small companies,” she said. “When you are faced with a seemingly endless tsunami of change, it’s amazing how inventive you can become.”
That point was reinforced by Rozé, who spoke of the correlation between size and focus, noting that niche can be big. “We must recognize that we see more and more niche products—brows, oils for skin, oils for hair, etc.,” he said. “At L’Oréal, we think that niche can be big with tenacity, resilience, passions.” As an example in the fragrance business, he cited Viktor and Rolf’s Flowerbomb, which, though in limited distribution, is one of the top-three sellers in the U.S. “It has become very, very big,” said Rozé. “Food for thought.”
When Flowerbomb launched in 2004, it lived up to its name with an explosive launch strategy—from the packaging to the in-store presentation to the juice itself—that broke new ground in the fragrance category. That level of meaningful innovation has become increasingly rare in today’s cluttered landscape, lending even more currency to products and brands that truly break new ground. “You have to have vision and you have to have ideas,” said Carisa Janes, the founder of Hourglass cosmetics. “When we develop products, we always ask the question, ‘Is this from the future?’ If the answer’s no, it doesn’t make it.”
Janes called her method “intuitive innovation,” and cited as an example Hourglass’ Ambient Lighting Powders, which mimic the effect of flattering light on the skin. “We’re very focused on product driving the marketing, not marketing driving the product,” she said. “It’s not based on trend, it’s not based on what’s happening in the industry. It’s really based on ideas or products that don’t exist that we think women don’t even know they need or want, but they will.”
It’s a strategy that has worked well for the U.K.-based nail brand Ciaté, too, which is posting triple-digit comp-store sales growth in a category that has slowed down dramatically. “Creativity is not a process that is delivered to us. It is created by us,” said brand founder Charlotte Knight. “We forever look for white space and ask, ‘How can we realize our blue-sky thinking and translate it into a commercial commodity?’”
At Le Labo, a similar approach means the brand’s founders eschew quantitative research and focus groups. “We truly believe that if creation was a country, it wouldn’t be a democracy,” said cofounder Eddie Roschi. Added his partner, Fabrice Penot, “Great brands don’t chase customers. Customers chase great brands. And a great brand, in order to be chased, needs a strong personality, like a human being.”
That commitment to innovation is what it takes to win with consumers today, said Future Laboratory’s Sanderson, who warned, “We have to be really, really mindful that we don’t just start paying lip service to the word innovation. Use it at your peril, because if you use it cheaply, you use it at your cost.”
Innovation isn’t just relegated to the product realm. The digital age has fundamentally transformed consumer engagement, giving rise to a new generation of disruptors who are rewriting the rules of beauty when it comes to capturing consumers. “The digital disruption that Google has been talking about is happening in front of our eyes,” said Patrick Bousquet-Chavanne, executive director of marketing and business development at Marks and Spencer. “You cannot ignore it. You have to participate.”
Bousquet-Chavanne ticked off three key points—that mobile, not desktops, is now the first port of call for search; that the amount and type of video content being watched online is radically changing, and that consumers see online as a place for entertainment, browsing and learning. He then outlined three ways in which Marks and Spencer is responding. First, the retailer is doubling its digital media spend from 10 to 21 percent; second, it is broadening its presence on social media, and third, it is bringing new people into the organization to beef up its content-producing prowess. “Beauty is a content-hungry category,” said Bousquet-Chavanne. “Our customers are 24 percent more likely to convert if they read content before they actually go on a product landing page. So whether it’s in fashion, beauty or in food, we are responding daily with our own perspective on what consumers are telling us they want to talk about.
“When you look at our new Web site,” he continued, “content is king and conversation is happening every day.”
As Dollar Shave Club’s Dubin pointed out, it’s not just what you say, though. It’s how. “We inserted ourselves creatively and humorously into a conversation that was already happening,” he said, after screening the brand’s “Our Blades are F–king Great” video, which garnered 12,000 orders for the site in its first two days online. The brand voice that Dubin created for the video spills over into every area of customer interaction and engenders loyalty. After reading out some social media–generated customer feedback, Dubin said, “Notice how these guys talk to us. They want to be part of the brand. They want to be engaged. And they speak our language. It’s a language we’ve given them. And we really have a deep emotional connection with our guys, loyalists and champions.”
Engaging consumers goes beyond the digital realm. Amy Errett, the creator of the online hair-color concept Madison Reed, which has one of the most advanced apps in beauty, reported that when a hair colorist from the brand’s call center consults with a customer over the phone, the conversion rate is 70 percent. “High touch has to be integrated into everything we do,” she said. “We don’t believe businesses can be built in one channel alone. They have to have lots of support.”
Corporate social responsibility is no longer something that companies can afford to pay lip service to. “There is a tremendous amount of value in a share price that has grown over 100 percent in five years, but it will never equal the value we see in partnering with brands and nonprofit organizations to save lives,” said Shannon Curtin, group vice president and general merchandising manager of beauty and personal care at Walgreens, who told of the retailer’s “Get a Shot, Give a Shot” campaign, in which it partnered with the United Nations to vaccinate three million children in need. “These are the stories that the new generation of customers will want to know to insure that their hard-earned dollar is being spent wisely,” she continued. “Where the pre-Boomer generation spent their life fighting for their country, the Gen Z generation will spend their life saving the world.”
Unilever’s president of personal care, Dave Lewis, used his presentation to explicate how the element of care is built into the DNA of its business, be it personal care or care of the planet. He told of the company’s life-saving educational program about washing hands that has thus far touched 180 million people, as well as Unilever’s goal to reduce its environmental footprint across all aspects of its business. “It’s about responsible capitalism, it’s about sustainable living,” said Lewis. “That’s the footprint of our business, how do we together take the big calls that make sure there’s responsible profitable growth within this industry and that we don’t try to gloss over the problem.”
Brazil’s Natura has also made sustainability a core tenet. “We put this in the middle of our strategy, our products and our corporate behavior,” said Alessandro Carlucci, chief executive officer. In fact, bonuses at the company are contingent on reaching certain economical, social and environmental targets.
“Beyond value,” said Henretta, “the consumer also wants values.”
• Unilever is focusing on premiumizing its personal-care business, with brands like Ioma skin care, Tigi hair care and investments via a $500 million venture fund. “An element of metamorphosis for us has been looking up the pyramid, looking at what we can do in a more-premium way,” said Lewis. “That is a huge opportunity for us and has driven quite a lot of growth.”
• Great customer service is still elusive, said Walgreens’ Curtin, who cited a study by Bain & Company that surveyed 362 large companies. More than 80 percent of the companies said they provide a superior experience for customers, but when customers were asked if they were getting superior service, only 8 percent said yes. “This is a real reality check for all of us,” said Curtin.
• While growth in Brazil’s cosmetics, fragrance and toiletries market has slowed from the past 10 years, when it was as high as 20 percent, the market should still post significant gains of 8 to 10 percent annually, said Natura’s Carlucci. “Most of you see Brazil as a big market,” he said, “and I believe that Brazil has the opportunity to become a big country that is also a big market.”
• Subscription-based models are working, as evidenced by the success of Dollar Shave Club, Madison Reed and Rodan + Fields. “The most important part for subscription sales is to make sure the customer understands and believes in why they should commit,” said Amnon Rodan, chairman of Rodan + Fields, who said that subscription sales account for 56 percent of the company’s revenue.
• Marks and Spencer is aggressively expanding its global footprint, and has opened 39 stores in India, 15 in Shanghai and 40 in Russia. Additionally, it has opened about 100 beauty concept stores, ranging in size from 500 to 4,000 square feet.
• Avon’s ceo, Sheri McCoy, is looking at ways to maximize its geographic portfolio (more than 85 percent of its business is outside of the U.S.), expand through strategic partnerships and reenergize its legions of representatives. “If they are not energized, they don’t feel that they have the earnings opportunity,” she said. “So we always have to be on the mark to make sure that we’re doing the things that are helping them make a difference in their life.”
• Emerging markets continue to flourish, noted Lauder’s Prouvé, who said that four years ago, total annual consumption in emerging markets was $12 trillion, a figure that is expected to hit $30 trillion by 2025, accounting for nearly half of the world’s total consumption.
• Amore Pacific is on a fast track for growth, particularly via international expansion. According to vice chairman Jeonggy Baek, the worldwide craze for Korean pop culture has created a new phenomenon called K Beauty, or the craze for Korean products, helping Amore Pacific achieve double-digit growth annually and increase its market capitalization by 40 percent since 2000.