By  on June 19, 2009

NEW YORK — Where have all the mass market beauty brands gone?

Many changes on the beauty wall have been afoot in just the past few months. Jane Cosmetics filed for bankruptcy protection and was purchased by Reborn Cosmetics (which is comprised of many of the same team minus the creative force of Lisa Yarnell). Procter & Gamble Co. decided to pull the plug on the U.S. distribution of Max Factor after several reinventions. Other brands have been trimmed by leading retail accounts and more problems are likely brewing.

Other major cosmetics launches that didn’t sustain the test of time over the past five years include Oil Of Olay, some items from Sally Hansen Healing Beauty and Revlon’s Vital Radiance.

“The mass cosmetics category is in a sorry state of confusion,” said Allan Mottus, an industry consultant. “The large players, both manufacturers and retailers, have prepared their lines and merchandise assortments to capture customers trading down from department stores. But they have missed the crucial element that many consumers feel they can no longer afford to use beauty products or they are using them less frequently,” he warned.

Ten years ago, a store tour reported in WWD mentioned niche brands that have since either disappeared or have limited distribution such as Caboodles, Sweet Georgia Brown and Fun. At that time, retailers said they were seeing more launches than ever in mass history. Some of the niche manufacturers banked on the people-pulling power of major brands to lure customers who might be intrigued by the innovative offerings.

Has the bubble burst? Is it just too hard to sustain a color brand without millions of dollars of advertising in today’s environment? Or is this just a natural pendulum swing in the business? The answer: all of the above.

Mottus thinks the business won’t be revived without major surgery and he added that consumption has been declining for three years. “The canaries in the coal mine are the small brands. Unless new pricing and marketing begin a new cycle of consumption, the industry will decline until new leadership is assumed,” he said.

Sales of mass market cosmetics have fluctuated over the past year, but squeezed out a 2 percent gain to $4.18 billion for the 52-week period, ended May 17, according to ACNielsen data for drug, food and mass doors including Wal-Mart. However, the sales were from higher ticket items since unit movement actually slipped 1.4 percent to 847 million units for the same period. In particular, facial products took a big hit while more value oriented kits expanded. Those fewer units only exacerbate the paltry inventory turns of cosmetics. The fact is, most cosmetics lines turn fewer than two times per year.

“The problem today is that partnerships [between buyer and seller] has dissipated and the large retailers have power so for the small marketing company it is my [retailer’s] way or the highway,” said one small manufacturer who requested anonymity. “The large retailers have cleverly turned everything into cost. It is difficult to make a large profit.”

He believes the true creativity and innovation comes from small players, but that retailers aren’t sure the investment is worth the effort in today’s climate.

Pressure from top management at chains does direct retailers to expand space to more productive categories such as skin care, home health care centers and over-the-counter medications. Chains doing much heavy lifting from beauty (although not always in pure footage, but brands) include Walgreens, Wal-Mart in select markets and, in some stores, Target. While it is generally thought Target’s new exclusives don’t move swiftly, the chain likes the atmosphere the edgy brands deliver.

The stress to make color cosmetics more productive is more intense than ever and some reduction probably should have been made years before, suggested Wendy Liebmann, chief executive officer of WSL Strategic Retail. “Retailers have to be more productive in their space and that means a smaller offer,” she said.

In heady days, retailers could support those sluggish turns and simple dust off the merchandise. In today’s economy, the time has come to slash the goods. That’s exactly what some buyers are doing — editing from the bottom movers up to an agreed movement point.

That said, the rush to reduce brands could just be a pendulum swing, said Tom Winarick, a former executive with Prestige Cosmetics, who is now helping American brands find growth opportunities abroad. “When the economy is bad, you have to fix operational costs and undergo SKU [stockkeeping unit] optimization. There are only a few options retailers have and those are to increase ads and get a handle on productivity.”

The brands that got put on the chopping block, he suggested, were those without a defined place in the market. Also, small companies just can’t afford the drastic costs retailers are demanding for everything from display allowances to pay on scan.

Mottus agreed that the brands in trouble today have no compelling reasons why consumers should buy these products versus others. “The large blend of sameness at comparable pricing is no inducement to purchase,” he proposed.

There are companies so unique, yet small, that survive such as Sinful which has edgy nail products, retailers said. Another example of a company that has defined its image and has small, but productive, space is Styli-Style and its placement in CVS.

Winarick expects the pendulum to swing back not only when the economy improves — at least a few years down the road — but also when consumers start complaining stores look boring.

Liebmann agreed that the single biggest obstacle to the cosmetics assortment is that shoppers will not find a brand they like or won’t see any differences between one chain to another. “With the destocking going on you have consumers who can’t find an item they are looking for and that could lead to them not finding a brand,” she said. “It is one more thing to frustrate them.”

Frustrating shoppers could drive them to other channels, too, especially to Sephora or Ulta where selection is deep and broad. Or, as Mottus predicted, many will move down to dollar stores where beauty is getting attention and manufacturers are offering special product.

In the midst of this, at least one company is putting more push into skin care and color. Elizabeth Arden Inc.’s chief executive officer E. Scott Beattie told a Piper Jaffray Consumer Conference group that the Arden brand will be transformed from a $600 million operation to a $1 billion business in five years. To do so, the product mix is to be altered so that skin care expands from 44 percent to 50 percent of sales, color cosmetics from 16 percent to 20 percent while fragrance is reduced from 40 percent to 30 percent. While this for now is an international push and goal, there are suggestions Arden could look to build color and skin in the U.S., too.

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