SCOTTSDALE, Ariz. — The National Association of Chain Drug Stores' Annual Meeting got off to a slow and cold start Saturday, as temperatures hovered in the mid-fifties. But by Sunday, the sun had broken through a smattering of clouds, business started to heat up, and manufacturers and retailers resumed pool-side cabana meetings at The Phoenician, a resort and spa nestled at the base of Camelback Mountain.

For many beauty firms in attendance, talk centered on beauty as a destination category in drug and mass stores. Even rival manufacturers agreed retailers' efforts to pepper their mix with exclusive beauty brands — as Target, Walgreens and CVS Pharmacy have done — help create an upscale shopping experience.

And, since many of these exclusive items also carry premium price tags, higher margins help offset slow product turns.

"Retailers realize that beauty is where they can get a bigger improvement in their market basket size," observed Wendy Liebmann, the founder of WSL Strategic Retail, who attended the meeting. She added that exclusive beauty brands helped differentiate one chain from another. "Retailers know if they walk away from beauty, they'll lose out to specialty stores."

However, several manufacturers said that while the concept marks a move in the right direction, they questioned whether retailers were adding the most appropriate brands, because, when sales don't materialize, displays require frequent tinkering.

Target, manufacturers reported, has condensed its year-old bath and body section, chock full of foreign-born brands, to 16 feet from its original 24 feet. It has also added nationally advertised brands to the set, including Neutrogena, Aveeno and Burt's Bees.

Rite Aid, which is expected to complete its acquisition of Brooks-Eckerd Pharmacy in late May, may now be able to put more of an emphasis on beauty.

After recent store tours with Rite Aid executives, Brooks-Eckerd president and chief executive officer Michel Coutu said Rite Aid was "very positive" about the latter chain's innovative approach to beauty. After all, he said, Rite Aid had been equally aggressive in health with its collaboration with GNC, and Brooks-Eckerd's 10 Derma Skincare Centers will only complement that.

"Exclusive brands only build up your own brand," he said.For the time being, Rite Aid is taking a wait-and-see approach to the exclusive products trend, said Rod Kautz, vice president of beauty and personal care.

"I think the customer is confused in terms of proprietary brands. We are taking a cautionary approach."

CVS has worked to improve its department with lighted displays and exclusives, such as Lumene (which is rolling out to Target) and Skin Effects by Dr. Jeffrey Dover. It plans to reveal a spate of initiatives designed to "reinvent beauty" the first week of May. Several conference attendees speculated that the plans include both merchandising and marketing efforts.

CVS' northern neighbor, Shoppers Drug Mart, is an established purveyor of both mass market and prestige beauty brands, including Clinique, owned by Estée Lauder Cos, in its Beauty Boutique. Last week, Shoppers Drug Mart announced it would begin selling the Estée Lauder brand as well. Meeting attendees commented that CVS had a collaborative relationship with the Toronto drugstore chain, in which CVS shares its pharmacy best practices in exchange for tips on how to merchandise its beauty department.

As part of an emphasis on the cosmetics category, Walgreens will kick off a "30 days of beauty" promotion tied to consumer magazine advertising.

Walgreens' European Beauty Collection, a selection of seven high-end skin care lines, is humming along, said conference attendees, and according to Kathy Steirly, vice president and general merchandise manager, beauty and fashion, the chain is also having great success with a mineral line from IsaDora, its exclusive cosmetics brand from Sweden.

While exclusive beauty brands and merchandising areas may give retailers a competitive edge, Carol Hamilton, president of the L'Oréal Paris division of L'Oréal USA, reminded merchants that national brands are their bread and butter.

"If [merchandising] space is cut from national brands, there will be an effect. We are driving customers into their stores with our advertising dollars," Hamilton said.

Overall, L'Oréal's Hamilton reported that the NACDS meeting carried a significant focus on driving profitability and improving margin, as opposed to product turns.

"Turns improved, but it's more about planning ahead of the curve, in regard to promotions and launches. We are focusing on the financials."Skin care, she said, ranked at the top of the beauty pyramid, and subsequently presented the largest opportunity in the highly seductive beauty category. Ideas for new skin care displays, she said, were being discussed with retailers. "The more we invest in merchandising to improve the beauty experience, the better," she said, adding that the new displays would likely be brand-specific.

"Each brand needs to express its own [vision]. [By lumping many brands together] it becomes undervalued and would not serve as a solution for the entire category. If presented properly, the magic of a brand is there."

Del Labs' president Harvey Alstodt said chains were narrowing assortments and introducing new initiatives to build exclusivity so they don't need to compete on price with the store on the next block. However, he agreed with Hamilton, saying retailers can't walk away from national brands that are supported in the market and drive consumers into stores. — Faye Brookman, Andrea Nagel and Molly Prior

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