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Mass Retailers Report Ho-Hum Holiday

Mass market beauty retailers caught a glimmer of green during the holiday season..

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NEW YORK — Mass market beauty retailers caught a glimmer of green during the holiday season. Unfortunately, it was the fleeting image of the Grinch, not the greenbacks they’d hoped to see.

This past holiday, it seems not even a slight last-minute shopping surge could make most beauty retailers — save for e-tailers — jolly about the 2007 holiday season. E-tailers — including QVC and Beauty.com — seemed to have success encouraging shoppers to tune in, log on and, most importantly, buy throughout the holiday selling season.

“The bottom line is we had a strong December,” said Allen Burke, director of beauty merchandising for QVC.

Mass market retailers were not as gleeful. As chains pore over the numbers, most felt let down by perennial staples that helped them make their numbers in past years. With results still being crunched, few buyers wanted to go on the record, but most said it was one of the slowest seasons in the past five years. And many lamented sluggish sell-throughs.

The scorecard? Sales were up only 1 to 2 percent; sell-throughs were stuck in the low 80 percent range.

Their thoughts echoed what department store and financial analysts said, too, causing many retail stocks to drop.

But, CVS Caremark Corp. chairman, president and chief executive officer Tom Ryan, speaking prior to a health care conference, suggested December sales are not the sole bellwether of overall drugstore health.

Referring to last month’s sales, Ryan told the group: “I think there was a significant overreaction to those numbers.” Speaking of CVS specifically, he added: “I think there was a significant market overreaction” to CVS’ December same-store sales, which rose just 1.8 percent from the previous year. CVS shares dropped 7 percent Thursday after the report.

Ryan agreed that the front of the store, which is led by beauty, was weak because of “cautious consumers.” The season was also impacted by a weaker-than-usual flu season. He added drugstores will not feel as much of a pinch as non-pharmacy retailers. Only 3 percent of the company’s profits come from front-store discretionary items, he said.

CVS’ divisional merchandise manager for beauty care, Sherry Saffert, named value bath and cosmetics sets — including the Essence of Beauty Spa Tote, an oversize makeup bag filled with bath products from CVS’ private label line valued at $80 but priced at $14.99, and Markwins International’s Makeup Gallery, an array of eye shadow, lipstick, blush and nail polish shades — as bestsellers.

Saffert added that recent introductions in both cosmetics and skin care spurred impulse purchases and helped grow category sales. For instance, the drugstore launched its exclusive antiaging line, 24.7 Skincare, in mid-November. “New items within our exclusive brands will continue to be a focus for the new year,” said Saffert. She also anticipates that natural and organic beauty products will continue to grab consumers’ interest this year.

Many mass market beauty buyers, speaking not for attribution, are bent on returning their departments to the holiday profit centers they once were. This is paramount as they must show management their mettle, as space is at a premium. Beauty buyers said they don’t want to show weakness in the category for fear of losing space to other categories, including mini health clinics.

With that in mind, they are using lessons from 2007 to rebuild planograms for this year. Several buyers said they are packing their bags and going on a road show to their stores as new departments are set up for 2008. As they prepare for the next holiday season, gift sets may get less space. Also, they will be more judicious with beauty gift sets, about which one buyer said: “The bloom is off the rose.” Store visits revealed that many gift sets were left over, even after markdowns. Target even featured beauty items in its 90 percent-off holiday sale. Some said they’ll buy less for holiday and just do a better job of selling their traditional lines over the season.

“As long as I can remember, you could bank on those mass fragrance gift sets to sell — even to a man at the last minute,” recalled one source. “That didn’t happen this year. That last-minute shopper bought something else.”

Coty Beauty suffered with slow-moving fragrance gift sets, according to buyers, but the company had luck with its designer scents and its trial sizes marketed as stocking stuffers. However, retailers said the designer gift sets eroded business from basic designer fragrance sales. For Christmas 2008, some retailers said they’d decrease mass fragrance gift sets to clear space for designer options.

The gift sets poised to get attention in the next few months and into Christmas 2008 are tween-targeted beauty products featuring popular licenses. The few lines that buyers said sold-through above 90 percent were those bearing the hot logos of Hannah Montana, High School Musical and a few other key icons.

Rebecca Killian, senior vice president of Boom, said the firm’s Disney-branded product moved exceptionally well. “We experienced high 90 percent sell-throughs across the board, which included both Hannah Montana and High School Musical.” She said Boom has more programs and product introductions under its Disney licenses planned for this year. Buyers want to avoid repeating mistakes made with licensed merchandise in the past, but see these youth brands as money makers for the next few months.

Mineral cosmetics provided a flash of excitement, too, with shoppers buying these items either as gifts or for themselves. Lisa Yarnell, president and ceo of Jane Cosmetics, said the firm’s Be Pure Mineral Makeover in a Box and Makeover in the Round had an 89 percent sell-through.

Beauty’s sister categories, jewelry and hair accessories, showed a slight bump for at least one national retailer. A $10.99 gift set of 20 pairs of earrings in a tin box sold well, said the drugstore chain’s category manager.

“It’s not the cheapest item, but the customer sees a value in it. There has to be value, no matter the price.” Also selling well was a promotional Scunci head scarf, with a $9.99 price point.

Another chain store buyer agreed that fashion accessories were a bestseller, while “fragrance was weak, and products by Markwins and Bonne Bell had the best sell-through.”

Markwins International had planned for a fairly conservative year over last year, said Matt Allen, the company’s senior vice president of sales. “It’s good that we did,” he added. “From a sell-in standpoint, we slightly exceeded our expectations. From a sell-through standpoint, we slightly missed them.” The subprime mortgage crisis and rising oil prices had retailers feeling jittery last fall, a feeling that intensified as the holiday season wore on, observed Allen. “We were hearing stories about people giving away gas cards for Christmas.”

Markwins’ senior vice president of marketing and global brand development, Shawn Haynes, said retailers that bought narrow and deep in favor of creating merchandising stories fared better. Markwins had success with its Bratz gift sets, which top out at $25 in price, and its youth-tailored ACT line. Haynes reported that the Bratz gift set housed in a hinged hatbox had a 90 percent sell-through, and ACT’s beauty product-filled duffel bag yielded a 92 percent sell-through. Markwins is still analyzing its holiday sales data, but Allen said it appears that items above $10 sold as well as items below $10. Haynes said, “To me, that tells you it’s about the item, not the price.”

The executives said Markwins — which has branded lines Wet ‘n’ Wild and Black Radiance in its portfolio — is well positioned to serve the value shopper, particularly in light of a weakening economy. Referring to brewing economic troubles, Haynes said, “The consumer may have to make some tough choices. She may not be able to buy a $10 lipstick, but she can buy a $3 one.”

Industry consultant Allan Mottus declared, “In a world where $60 is needed to fill a gas tank…a $10 drugstore lipstick or a $20 department store lipstick is not an affordable luxury.” He added that beauty prices hit too high a ceiling, and this past holiday some consumers chose not to buy products because they were too expensive. “Manufacturers have so many embedded costs tied to distribution that they’ve been forced to go to price levels that are unattractive,” said Mottus.

Despite the gloomy end to 2007 for some mass market players, some positive sales emerged from the glow of shoppers’ computer screens.

Joseph Shamah, ceo of E.L.F. Eyes Lips Face, said Internet sales of the dollar brand gained 50 percent over last year, boosted by gift sets and its new bath-and-body and mineral lines.

Online beauty player Beauty.com — which is owned by its partner site, Drugstore.com — revamped its site in late September, putting a greater emphasis on customization tools in the windup to the holiday season, said Kathleen McNeil, vice president of beauty for Drugstore.com/Beauty.com.

The site’s personality gift finder tool — first tried during the holiday 2006 season — was so successful that Beauty.com plans to make it a year-round fixture. “It’s a cute, fun way to shop,” said McNeil, referring to the tool, which recommends product according to six personalities, including Glamour Girl, Earth Angel — or someone who opts for natural products — and Jet Setter. During the holiday, Beauty.com also offered a gift-with-purchase — a purple bag filled with generously sized samples from its vendors — to customers who spent $75 or more. She hinted that Beauty.com is looking to partner with designers to create bags for future gift-with-purchases.

As for bestsellers over the holiday, McNeil named Clarisonic — the $195 skin exfoliating device, designed by the makers of the Sonicare toothbrush — as a standout item, as well as basic skin care products. The focus for this year is on building its fragrance and color cosmetics businesses. To that end, Beauty.com added Stila to its site today. The company also has some more technical updates planned, including a feature on its personalized skin care analysis tool that will highlight the active ingredients in a formula. It then allows users to click on the ingredient for a complete glossary.

Consumers also tuned into TV retailers to complete their shopping lists this year.

QVC’s Burke said the TV retailer had a strong December, with color cosmetics — such as Bobbi Brown — and treatment items faring particularly well. He noted that the treatment category — occupied by N.V. Perricone M.D., Borba, Dr. Denese, Kate Somerville and Philosophy — continued to show growth. QVC will add the Procter & Gamble skin care brand Doctor’s Dermatologic Formula, or DDF, to that category with a show slated to air on Jan. 21. As for why treatment products continue to gain momentum, Burke said: “As the technology improves, the results improve. An aging population is getting better benefits from these products. That’s a formula for success.”

The QVC shoppers seem to show little hesitation when it comes to price. Burke said more expensive items are selling exceptionally well. For instance, Dr. Perricone’s Neuropeptide Facial Cream for $240 is “a huge success for us,” he added.

Two of QVC’s stalwart brands — Philosophy and Bare Escentuals — also helped fuel sales during the holiday season. “They continue to amaze us,” said Burke.

Fellow TV retailer the Home Shopping Network also had a strong December, beating its plan for the month by 4 percent, said Michael Henry, HSN’s senior vice president of beauty merchandising. Henry said that items offering value with an element of surprise raised sales. In particular, he named Perlier’s collection of eight body lotions and gel scents as a standout item. The kit came with gift bags and tissue paper to create multiple gifts, and a 2008 calendar featuring scenes from Italy. In mid-December, HSN first aired No! No! Professional Hair Removal System for $250. “There was absolutely no price resistance,” said Henry, who jokingly called the “showstopping” device that tripled expectations, “Yes! Yes!”

A mere two days after Christmas, HSN hosted a spring beauty preview event, featuring new additions to the skin care lines Complexions by Dr. Watts and Earth to Skin Care. Henry said HSN will give shoppers more previews to spring beauty trends throughout the month.

— With contributions from Andrea Nagel

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