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The Rise of Beauty’s Middle Market Retailers

Sandwiched between mass retailers and department stores, the middle market is emerging as a promising alternative for up-and-coming beauty lines.

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Exterior of the Peninsula Beauty store in San Francisco, Calif.

Courtesy

Inside Planet Beauty.

Inside Planet Beauty.

Courtesy Photo

Inside Planet Beauty.

Inside Planet Beauty.

Courtesy Photo

NEW YORK — Make way for a powerful new retail tier in the American beauty market.

The “middle market” — sandwiched between mass retailers and department stores — is emerging as a promising alternative for up-and-coming beauty lines. Manufacturers are eyeing regional specialty chains, including Beauty Brands, Peninsula Beauty and Planet Beauty, as the go-to destination to cultivate their brands. Nimble in their approach, these merchants are snapping up promising new product lines and attracting shoppers on the prowl for the next hot brand. Smaller beauty brands in particular are applauding the role of these retailers as a compelling opportunity. Distribution in both the prestige and mass channel has become increasingly scarce for smaller brands seeking growth.

“There is a resurgence of this channel of distribution, and it helps get brands into the business,” said Tom Winarick, president and owner of The Strategy Studio, which incubates brands. “The majority of drug and mass [merchants] cut back their brand mixes during the economic downturn, focusing their support on the handful of major brands. The end result is now these stores are missing the niche brands that used to supply excitement and trend. The consumer is looking elsewhere for innovation now, and it’s the specialty beauty retailers who are delivering,” said Winarick, who sees this tier as the launching pad as he reintroduces the Doll Face beauty range back into the market.

Several suppliers suggested that a few of these professional beauty stores may have the potential to grow as large as Sephora. Industry sources estimate beauty stores in this tier can pump out sales per square foot exceeding $500. To put that into context, chain drugstores average about the same — but most of that is generated at the pharmacy counter with less than $200 a square foot produced from the front end of the store, where beauty is usually stocked.

Collectively, they present a new venue for brands that had been hard pressed to make inroads in the specialty channel, the province of Sephora and Ulta. The two retailers have long been seen as the most coveted spot for niche beauty brands looking to grow their distribution and scale up their business. In recent years, Sephora and Ulta have become so dominant that they have created their own successful exclusive brands or attracted prestige names once sold only in department stores. Both Sephora and Ulta are still seen as brand incubators, but the stakes that come with taking on an untested new line are high for national chains, pointed out beauty executives.

Many of the emerging merchants in the middle market were once dubbed beauty supply stores or professional beauty shops, which proliferated in the Nineties as hybrid salon and retail doors. At that time, the salon presence cleared the way for professional hair-care retail sales. Cosmetics and skin care were afterthoughts.

When the distribution pipeline opened up for previously restricted salon hair brands in the retail channel, many merchants saw fresh opportunities in cosmetics and skin care — two high-margin categories capable of pulling in more consumers.

For the operators, the margins are attractive; for suppliers, the space yields opportunity.

“We see a winning combination of more real estate on the shelf and a staff that is well-educated on our brands and products,” said J.R. Rigley, vice president of sales and marketing for J.R. Watkins Naturals, about specialty beauty operators. He said these companies pave a different path than conventional mass chains that is “based on a dedicated local customer base.” Rigley said the experience is comforting, while also convenient and not overwhelming. While most of the stores started in the west, they are now spreading across the country — opening up opportunities for beauty manufacturers.

Making these stores beguiling for beauty companies is the laser focus on beauty and hair care. Unlike department or discount stores, the category doesn’t compete with apparel. Contrasting drug chains, beauty doesn’t have to vie against pharmacies and sundry merchandise.

Beauty Brands is the largest of this emerging concept. Founded in 1995, the privately held company has 54 locations in 11 states, as well as a strong online presence via beautybrands.com. Stores range from 6,000 square feet to 8,000 square feet and include a full-service salon and spa, as well as retail with brands including Redken, Brocato, Chi, Pureology, Bliss, Philosophy, Smashbox, Too Faced, Dermalogica and Peter Thomas Roth. Beauty Brands said it attracts clients who want to shop for beauty brands and service needs under one roof.

Recently, Beauty Brands upped the ante in cosmetics with its Studio concept, a store within a store concept that includes prestige makeup and skin-care brands. In select stores, the Studio area occupies about 25 percent of the selling space, set off by bright white and warm gray decor and a wood floor.

“We’ve experienced outstanding performance over the last few years and are poised for tremendous growth,” said David Bernstein, president of Beauty Brands. He attributes growth to the passion and experience of the team. He added the company has “significant” growth plans for the next five years.

The quality of the staff in beauty and salon stores is a distinguishing factor, said Lori Silverstein, the chief beauty officer of Peninsula Beauty, which has 12 locations and just expanded into the San Francisco market. The facilities range in size from 1,300 square feet to 3,200 square feet. Silverstein hopes to nudge the count up to 20 stores in the next five years. Silverstein is quick to point out the differences between Peninsula and Ulta or Sephora. “We are very different. We’re a niche retail beauty boutique and salon. We don’t carry any fragrances. One thing that keeps us different is that we are local,” said Silverstein, who was raised in the San Francisco Bay Area, a fact she believes keeps the merchandise mix in tune with shoppers’ desires.

Peninsula Beauty stocks some 5,000 brands with sales staff trained both internally and by the suppliers, she said. Hair offers range from Redken to Macadamia Natural Oil, while skin care includes Murad, Ahava, Peter Thomas Roth, Dermalogica and Bliss. The top nail products include OPI, Essie, China Glaze and Seche. In addition to selling items from Clairsonic, Pacifica, Terra Nova, Kneipp and Michel Design Works, Silverstein has a growing beauty section with Jane Iredale, Sorme, Tigi, Palladio and Mavala. There’s also a large men’s area, baby department and unique accessories.

“I always enjoy adding new and exciting products. This year, I introduced Too Faced Cosmetics, Butter London, J.R. Watkins, Lomasi Gel System, Ardell Lashes and AG Hair Care,” said Silverstein, adding that her wish list includes lines such as Kiehl’s, Oribe, Kérastase and Bumble and bumble.

Peninsula Beauty promotes a brand on a cable Spotlight each month. Silverstein said the campaign increased some brands’ sales as much as 200 percent.

Whether beauty-salon operators want to be called the next Sephora or Ulta or not, beauty companies see them as the next big thing.

Others agreed that the passion displayed at these stores makes them perfect vehicles for gaining shoppers’ attention. “We love our partnership with Planet Beauty,” said Tata Harper, founder and creator of her namesake skin-care brand, who said the company’s “beauty-obsessed client base” gets a team that understand the science behind the efficacy of the line.

Planet Beauty operates 31 stores, typically ranging about 2,000 square feet. The knowledgeable staff — educational classes are mandated — is the perfect setting for salon tools, according to Rodney Feltner, the national sales manager at Solano, which makes high-end hair tools.

Baby care also is a key category for Planet Beauty. Judy Carlo, managing director for Mustela, said the brand’s business has doubled with Planet Beauty thanks to its shopping experience and “dedication to providing moms with information, advice and an optimal assortment of premium beauty and wellness brands.”

Planet Beauty executives said they don’t want to grow just for growth’s sake, opening two to four new stores annually. This year, however, the company will branch out of California. One factor the company pointed out is that its employee turnover is one-fifth of an average retail operation. Like many of the beauty stores, Planet Beauty is also hoping to attract the nod from firms such as Laura Mercier, Bobbi Brown, MAC and Benefit.

“Stores like Planet Beauty are an important component of the current wave of retailing,” said Theresa Robison, vice president of global sales and business development for Iredale Mineral Cosmetics, putting an emphasis on the impact the operators already make in beauty. “They are in touch with what consumers want and need, and they share that information with us readily. They also educate the consumer as opposed to simply selling her products.”

Getting to the next level of brands could just be what will make or break the hybrid beauty stores. Ulta has certainly proved the concept works, but CVS’ Beauty 360 faltered, beauty executives said, when it couldn’t elevate the selection. For now, however, consumers appear to enjoy discovering up-and-coming brands in a beauty-only setting accompanied by salon services.

 

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