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Critical Mass: Beauty Firms Amp Up Exclusives

Asking for exclusive merchandise is nothing new for retailers, but the heat is on as store chains demand to have their own.

Walgreens, in conjunction with Disney, offers a co-branded cosmetics line called Villains Palette Collection from e.l.f. Cosmetics.

NEW YORK — Retailers today want something that only they can have, and it is causing a battle for exclusives.

This story first appeared in the August 24, 2012 issue of WWD.  Subscribe Today.

And that’s creating a race for beauty manufacturers to launch new items in one chain or create a special stockkeeping unit or display for a specific retail partner.

A case in point: Next month Walgreens will offer, in conjunction with Disney, a co-branded cosmetics line called Villains Palette Collection from e.l.f. Cosmetics, available exclusively in 5,000 of its doors and priced at $10. That comes on the heels of a new proprietary end-of-aisle display in Walgreens for L’Oréal’s derm brands, Vichy and La Roche-Posay.

The quest used to be to roll out new items to thousands of doors at once. Manufacturers once feared legal issues if special deals were offered to one and not others. But then, rampant sku rationalization three years ago created a problem when all planograms started looking identical.

“With every chain selling the same stuff, you need to give a reason to come to your store at a time when people are less inclined to come in any door,” explained Wendy Liebmann, founder and chief executive officer of WSL Strategic Retail.

The situation is exacerbated by the compression of retailers all fighting for the same shoppers. “There are only a few big players left,” added Liebmann, noting the drugstore and discount store industry are dominated by two major players.

Explained one industry veteran: “In the drug channel, Walgreens and CVS’ rivalry has become a Coke versus Pepsi situation where, if you are a smaller brand, you essentially are forced to choose between one or the other. They are so big and dominant that they can dictate these terms to you. They are looking for brands and programs to differentiate themselves, and exclusivity certainly does that. They also know the opportunity that they are giving a brand and demand huge margins, zero-liability programs.”

Retailers know the power that first to market has over consumers and suppliers. “We have six million customers a day. We want to give them more reasons to shop our stores,” said Joe Magnacca, Walgreens president of daily living products and solutions. “We are very committed to beauty. We felt it was important to bring beauty to her, and we focus on taking leadership positions with the right mix in each store.”

He added that, since Walgreens has such a large network of stores in varying markets, the chain can test-market in select types of stores.

Exclusivity can do myriad things. It can net a brand-new entry point into the country, which was the case for Lumene, which launched exclusively in CVS, but, after initial success, is now expanding to other chains in the U.S. Hard Candy became a Wal-Mart proprietary line driving shoppers who used to find it in specialty doors to the mass market. And Physicians Formula got a boost in skin care with its Wal-Mart-exclusive line in the category. Target has certainly shown the power of exclusives through initiatives including Shops at Target, which helped introduce the country to the chic Cos Bar. CVS puts great effort behind its Salma Hayek collection, and the chain also was the starting ground for hair removal guru Cindy Barshop’s entry into mass with Completely Bare.

Ulta has become an incubator, much like Sephora, to launch new lines first, as it did with the Red Carpet Manicure, an at-home gel system now being picked up by others after a limited-distribution rollout in Ulta.

In the cases of e.l.f. and Red Carpet Manicure, being exclusive with one retailer helped each brand draw the attention needed to gain entry to other stores. “This gives e.l.f. the opportunity to step to the next platform,” said industry expert Allan Mottus. “And for Walgreens, it can help attract younger customers to a chain that’s had an older customer base.”

While it may seem that linking with one chain is best for small beauty firms, Liebmann sees the trend for the big guys to step up, too, perhaps offering a special sku for one chain that drives shoppers to that store. She also thinks exclusives can help retailers create a dynamic in-store experience, which is lacking in mass today. Many used Macy’s and its exclusives as an example of what could be duplicated at mass.

A final benefit in working out deals is that the product can become the private label for a chain, since most mass retailers have found it too difficult to be acting as marketing mavens behind their own launches. “They need to focus on selling, not creating,” said one private-label resource.

While it all seems win-win for one-of-a-kind offers, there are pitfalls, experts warned. The ongoing case over Martha Stewart between Macy’s and J.C. Penney is one example of legal wrangling. But there’s also danger in becoming too associated with one chain, as Sinful nail colors found when, according to market reports, other retailers didn’t want to take on the brand because it was so dominant in Walgreens. Revlon, Sinful’s owner, purchased another edgy color line called Pure Ice to remedy the situation.

“The good news [about an exclusive deal] is that it instantly puts a smaller brand into business, but with an exclusive relationship you have no fallback in case the retailer loses interest or you have a disagreement in direction. The retailer will always dominate the relationship,” said one industry expert.

There’s also the question of whether customers actually go to stores for the proprietary names. Liebmann’s How American Shops research finds consumers don’t always know a brand can only be purchased at the exclusive merchant. “Does an exclusive always bring a shopper back to your store?” asked Liebmann.

Concluded a manufacturer: “All this, of course, is predicated on the sell-through of the products. When products sell, everyone is in love….It’s when there are sales performance issues [that] the trouble begins. The vast majority of these relationships have not worked out for the long term in the past.”