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Revlon, Walgreens Grow Market Share

News of the beauty company's acquisition of Mirage Cosmetics and the retailer's purchase of drugstore.com broke Thursday.

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NEW YORK — Revlon is digging its nails into the hotter-than-ever nail polish market with the acquisition of Mirage Cosmetics, owner of the Sinful Colors brand.

Along with another major deal, the $429 million purchase of Drugstore.com by Walgreen Co. announced Thursday, the purchase signals beauty firms’ neverending desire to get bigger and grab more market share.

The Walgreens move was interpreted by many as the chain’s next step in getting access to more prestigious beauty lines. “I think Drugstore.com fits really well with the higher-end Look Boutiques,” said industry consultant Allan Mottus. Added another industry observer, “It is a foot race between CVS and Walgreens to get a brand like Clinique.”

News of the Revlon deal began percolating at Bologna’s recent Cosmoprof beauty trade fair, and on March 17 Revlon filed an 8K with the Securities and Exchange Commission confirming the speculation. With distribution in Walgreens, Rite Aid and Target, Sinful has become a best-selling value brand (items cost $2) and has surpassed Revlon’s nail business, according to sources. Revlon, buyers said, was seeking an avenue into value nail and decided to buy its way in with a brand that ended 2010 with an estimated $30 million in revenues. Beltsville, Md.-based Sinful was ranked as the fastest growing makeup brand in Kline & Co.’s Cosmetics & Toiletries USA 2010 report, with sales growing 91 percent for the year. The company is best known for its speed to market with the hottest nail polish shades, maintaining 14 promotions a year.

Alan Ennis, chief executive officer of Revlon Inc., said Sinful will operate as a stand-alone business unit.

“After a strong 2010 for Revlon, we are carrying terrific momentum into 2011, and we have a keen focus on delivering on our strategic goal to profitably grow our business. This acquisition enables us to add Sinful Colors to our portfolio of businesses,” Ennis said.

Terms of the transaction have not been disclosed but further information regarding the deal will be included in Revlon’s first-quarter 2011 Form 10Q, planned for some time in April.

Nail polish has certainly become the crown jewel of beauty brand portfolios. Just in the last year, OPI was acquired by Coty Inc. for an estimated $1 billion and Essie snapped up by L’Oréal for an estimated $100 million.

The rapid rise of Sinful Colors was attributed to more chains giving the brand footage in just the past few years. Mirage’s roots date back to 1991 when president Chris Chon began distributing to professional stores. He soon decided to give a trade show called Exclusively HBA a try. Steve Lubin, Walgreens’ divisional vice president and general manager of marketing for non-mainland operations, known for spotting promising items, saw the on-trend nail color line and introduced Chon to Walgreens’ beauty buyer and a retail venture was launched.

“That show helped kick off our retail business,” recalled Chon in an interview last year with WWD. Reached Thursday in Beltsville, Chon said he had been courted by several companies over the past year as the nail category became hot.

“I got some calls. Let’s leave it at that,” said Chon.

The Revlon news emerges as Walgreens is purchasing the online merchant of beauty, consumables and health care, in a transaction with a total enterprise value of about $409 million, according to Walgreens. The purchase price was about $429 million, just above its valued price. In 2010, Drugstore.com generated more than $456 million in sales, ranking it as the eighth-largest e-tailer in the U.S., according to Internet Retailer magazine. Combined, Walgreens and Drugstore.com will become a $67 billion company in sales. Walgreens will maintain Drugstore.com’s corporate office in Bellevue, Wash., after the transaction is completed. Drugstore.com employs about 1,000 people at its offices, call center and distribution centers.

“Our acquisition of Drugstore.com today significantly accelerates our online strategy to leverage the best community store network in America by becoming the most convenient choice for health and daily living needs whether customers shop online or in our stores,” stated Walgreens president and ceo Greg Wasson. He added the deal will give Walgreens access to its three million online customers and add about 60,000 products to its online offering. Drugstore.com’s Beauty.com, SkinStore.com and VisionDirect.com online sites will dovetail with the Walgreens’ strategy of pushing multichannel merchandise initiatives.

Under the terms of the deal, Drugstore.com stockholders will receive $3.80 in cash for each share of stock. The price per share is a premium of about 102 percent over Drugstore.com’s 30-day average closing stock price, and a premium of about 113 percent over the closing price of Drugstore.com’s common stock on March 23, the last trading day prior to today’s announcement.

Walgreens and CVS Caremark Corp. don’t disclose how much business they do online. However, Internet Retailer said Walgreens is the 68th-largest online retailer. The company runs about 7,700 stores around the country.

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