By and  on August 28, 2009

ShopNBC doesn’t like being the underdog.

The TV shopping network, which currently is in third place behind rivals QVC and HSN, wants to evolve into an on-air springboard where small beauty brands hit big — and in the process catapult itself into being a serious electronic retail contender.

Minneapolis-based ShopNBC, operated by ValueVision Media Inc., has assembled a management team with extensive experience at QVC — the leading TV shopping network — to execute a diversification strategy that would diminish its reliance on jewelry and expand its beauty presence. In three to five years from last fiscal year, the goal is for ShopNBC’s sales to reach $1.1 billion, up from $568 million last year, with beauty constituting 12 percent of the total, a jump from 5 percent in 2008, and jewelry’s percentage decreasing from 56 to 33 percent.

“The beauty business is immensely valuable,” said Keith Stewart, who was named chief executive officer in January after joining ShopNBC in August 2008 as president and chief operating officer. “The product margins are very good and the return rates are very low, but the brass ring to me is the beauty customer. It is a customer who buys more than other customers…[and] is more apt to cross categories than others.”

Stewart spent 15 years at QVC, where he was general manager of the German unit, vice president of international sourcing and vice president of home merchandising, among other titles. When Stewart became ceo, Randy Ronning — who was QVC’s executive vice president and chief merchandising officer from 2005 to 2007 — was appointed ShopNBC’s board chairman.

Other recent ShopNBC recruits with QVC on their résumés include ShopNBC’s senior vice president of e-commerce Carol Steinberg, formerly QVC’s director of online marketing and business development; senior vice president of sales and product planning Jean Sabatier, formerly in sales and product planning at QVC; health and beauty director Donna Tarantino-Loyle, formerly a QVC beauty buyer, and strategic adviser Darlene Daggett, who stepped down as QVC’s president of U.S. commerce in 2007 to pursue retirement plans. Kris Kulesza, ShopNBC’s senior vice president of merchandising, spent about eight years at HSN — the number-two TV retailer — where she ascended from senior vice president of jewelry to hsn.com’s executive vice president and general manager.

After a period of uncertainty in which ShopNBC proposed and ultimately jettisoned the idea of selling the company, Stewart formally introduced himself and ShopNBC’s ambitious plan of action to its vendors at a spring meeting. At the meeting, the letters in NBC, used by ShopNBC under a license agreement with NBC Universal, were pronounced to stand for “new,” “better” and “changing” to signify the channel’s new merchandise, its better system of sales predictability, and its changing to keep up with the times.

“This is very much the most different and most significant management change that has ever occurred in my lifetime there,” said meeting attendee Manuela Marcheggiani, ceo of Isomers Laboratories Inc., a Toronto-based skin care company that has been on ShopNBC for 13 years. “It is all very exciting and interesting. I like the fact that they are going to bring in a lot more new [brands] because I see those [brands attracting] new people that aren’t exposed to my brand….It is like opening up a new market.”

Announcements about brand debuts on ShopNBC are becoming regular events. In the beauty category, there were seven launches in the second quarter, 30 expected in the third quarter, and Tarantino-Loyle said the objective is to draw 50 new beauty brands to ShopNBC.

Intelligent Nutrients, the plant-based beauty line developed by Horst Rechelbacher, first appeared on ShopNBC last spring and has more segments on deck for September and October. Intelligent Nutrients ceo Rick Goldberg said the network offers an inroad to smaller companies. “It’s difficult for an upstart to get a fair shake,” said Goldberg, noting that on competing networks a brand generally has one shot to succeed. “ShopNBC gives brands an opportunity for development and more time to tell your story. Eight minutes is not enough,” he said. He also nodded to Tarantino-Loyle experience and global view, which he said will help her add high visible brands to the fold. “She knows the game,” said Goldberg. “She’s a [plugged-in] beauty maven.”

MasticSpa — a Greek beauty brand with a natural bent — also is new to ShopNBC, first appearing on the network in July. The brand, which operates 31 locations globally and two in the U.S., sees ShopNBC’s reach as a way to build its presence in the U.S, said Anastazio Kosmatos, MasticSpa’s international export director. MasticSpa added its range of beauty products neatly ties into ShopNBC’s interest in natural and organic products.

At ShopNBC, the beauty category presently has an 82 percent customer retention rate with an average margin of 52 percent and a return rate of 10 percent. New beauty customers are up 95 percent year to date, and net units are up 39 percent.

Suzanne Somers, a 17-year veteran of HSN, is premiering on ShopNBC next month with her virtual department store of goods, including beauty products, jewelry, fashion and new vitamins and supplements. Additional upcoming beauty launches are skin care brand Cor, and hair care brands Neil George, B. The Product by hairstylist Brandon Martinez and Shear Force by hairstylist Allen Edwards. Some recent beauty launches are cosmetics brand Vapour Beauty, cosmeceutical brand Janson Beckett, hairstylist Steve Lococo’s Eco-Care hair care brand, lash enhancement brand neuLash and hair removal brand eXhair.

“It wasn’t a priority before I came, and now it is,” said Tarantino-Loyle of ShopNBC’s beauty category, which she described emphasizing beauty “from the inside out.” “We are looking for the small, new brands that have something to say…[and] taking the small indie brands and making them into household names.” She added, “Skin care is an area that we have a very loyal customer. We will continue to build that. We are looking to build the hair care category and the color cosmetic category.”

Tarantino-Loyle said ShopNBC is especially interested in brands that have substantial buzz, but are not oversaturated in the marketplace. Other brand elements that are appealing to ShopNBC are a credible spokesperson, a compelling brand message and a technological advancement. The average price for a beauty product on ShopNBC is $50 to $60, and Tarantino-Loyle is seeking to maintain the channel’s premium beauty positioning. As a whole, ShopNBC consumers average 35- to 64-years-old with incomes more than $70,000.

Brands that have signed on to ShopNBC have been impressed by the new leadership. “We met all these people and we liked what they said,” said Alan Hamel, chairman and ceo of suzannesomers.com, a division of Somers Licensing Corp. “Now that ShopNBC is populated with a group of new people, all of whom have extensive experience in electronic marketing, we all have this new adventure ahead of us. We all have something to prove. ShopNBC has always been the number-three electronic shopping service, and I think that all of us are going to work very hard to try and make ShopNBC the number-one shopping service. All of us are highly motivated.”

Small beauty companies starting on ShopNBC praise it as a venue where fledging brands can shine.

Of hair care brand Neil George’s decision to go with ShopNBC, co-creator Neil Weisberg, said, “We didn’t want to go into a situation where we felt that there would be another brand that was too similar to Neil George that we would be competing against.” Jennifer McKinley, founder of Cor, said, “What I really like about ShopNBC is that they are very flexible when working with smaller, entrepreneurial brands. You can get put on a lot faster in terms of the airtime availability. Then, also in terms of the size of the order, they are very conservative to begin with. They work with you to make sure that is not too much of a burden in terms of the inventory carrying costs.” In September, Allen Edwards, the hairstylist behind Shear Force, said, “They are giving me four one-hour shows. For me to be on QVC and do four one-hour shows, I would have to be doing $20 million. There was no way they would give me that off the bat.”

But brands shouldn’t be mistaken that succeeding on ShopNBC will be a cakewalk. Those on ShopNBC before the new management suggest that QVC-style controls have been put in place to examine performance with a scrutiny unheard of previously. There is increased attention paid to strict adherence to scripts, and items are studied closely for the dollars per minute they rack up as well as the new customers they lure. “They are more focused on numbers than they had been in the past,” said Mary Martin, a marketing executive at Senna Cosmetics, which has celebrated its sixth anniversary on ShopNBC. “The focus is on sell-through. They are keeping their inventory tighter than before.”

ShopNBC, which reaches around 73 million U.S. homes, certainly has more than its share of challenges. It is a long way from $7 billion QVC with its 95 million U.S. households and $2.8 billion HSN with its 90 million.

Wendy Liebmann, founder and ceo of WSL Strategic Retail, said, “We’ve watched the development and reinvention of QVC and HSN, but ShopNBC seems off the radar.” Drawing a parallel to the brick-and-mortar world, Liebmann said, “It’s almost like every other retail channel that I know, where it comes down to two major players.”

ShopNBC’s recent efforts have been overshadowed by the strategies of QVC and HSN. Liebmann said that both QVC and HSN have been very clear about their strategies and, in attracting high-end beauty brands, they have legitimized home shopping in the eyes of many. “It’s taken a long time for these companies to develop small brands into larger ones and then convince national brands to come on board,” she said. “HSN and QVC have evolved, in part, into entertainment sites — and its taken a long time to build that.”

One observer in the financial industry said QVC — the strong dominant player — and HSN, which in recent years has unfurled an aggressive growth plan, have invested heavily in technology and its hosts, which has only widened their lead over ShopNBC.

But, ShopNBC’s Stewart stresses he is shepherding the electronic retailer in the right direction and beauty will be significant contributor to any future growth. “I can with tell you with great confidence right now that we have turned the corner. As it relates to all the difficult pain the company has gone though in the last months, that pain is over. We need to continue to operate and improve our metrics,” said Stewart. “[Beauty] will continue to be a very important flagship for our business.”

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