NEW YORK — H2O Plus has confirmed it takes more than water and shelf space to sell skin care products.

The international retailer has added a day spa to its Glendale, Calif. store, taking in-store product demonstrations to the next level.

“The spa can add the direct link of luxury,” said Cindy Melk, chief executive and founder of the 15-year-old Chicago-based company.

The day spa, located next to one of the company’s top 10 producing stores, has two treatment rooms and offers a complete list of treatments, including H2O Plus’ wide range of facials.

H2O Plus stores generally measure 1,200 square feet. Its concept is to serve as a modern oasis from the outside world and to offer products with marine botanical benefits. Water is a common theme throughout the store, with light, glass, fixtures and sounds of the sea helping portray a clean, pure and minimalist atmosphere.

The launch of the spa is a strategic initiative for the brand that generates approximately $110 million in sales each year, in part from the sale of 300 products in its 70 retail stores, as well as through distribution in 300 prestige department stores, including Nordstrom in the U.S.

Sales show that skin care is clearly the brand’s strongest area. Between 50 and 60 percent of product sales are skin care items; 20 percent of product sales are body and spa items, and 20 percent of sales of products are fragrance and bath oriented items. The entire line is unisex, targeting 25- to 39-year-olds. Approximately 20 percent of consumers are male.

Some best-selling products include Face Oasis Hydrating Treatment, a water based, oil-free, eight-hour skin moisturizer. It retails for $32 for 1.7 ounces. The Water White Brightening collection, a line designed to lighten discolorations, is also popular. Then there’s Aqua Firm, a new line of firming products formulated with a blend of seaweed extracts to support cell renewal.

About 15 percent of the company’s stores have spas outside the U.S. The success from these locations triggered H2O Plus executives to establish spas domestically. The success of the Glendale spa will gauge the pace of rollout for future spas. The new spa prototype can fit in about 30 percent of all existing stores.Of the 70 H2O Plus stores globally, 25 are company owned and are in North America. The balance of stores are based in Australia, China, Hong Kong, Japan, Thailand, Taiwan, South Korea and Malaysia, and are operated through exclusive distributor arrangements. The largest distributor is a Hong Kong-based company, Water Oasis Group, which is publicly traded on the Hong Kong stock exchange.

“The deal is a hybrid between a franchise and a distribution relationship. We sell them product and business plans and they implement them,” said Melk. The partnership, she added, “Allows us to know what is happening globally, and to be global.”

Adding spas to existing stores also rounds out the firm’s comprehensive strategy for targeting customers. The Internet is the company’s number one product retail outlet. Scott Oats, the company’s chief financial officer, said the Internet holds even greater potential based on its five-year growth rate. “It has grown 89 percent annually over the past five years,” Oats said. Each store produces about $1 million to $2 million in sales each year, depending on the outlet.

New products play a large role in the company’s sales growth. Between 2002 and 2003, the company launched 30 new products. In the next 12 months the company plans to launch 38 new products, 75 percent of which are facial skin care items. A mail order catalog, already in its third edition, also contributes to sales.

H2O Plus’ future looks bright. The company’s first ad campaign to support its products and stores breaks in August in beauty and fashion magazines. “The advertising is part of an overarching strategy to further develop brand awareness for H2O Plus in North America, not only for our retail stores but also to generate increases in business for our catalog and Web site,” according to Michelle Mize, H2O Plus retail marketing director. The campaign will run until October of this year, including 17 full pages of ads in 10 fashion and beauty publications, delivering more than 30 million impressions.

And, in the next 12 to 18 months, the company plans to open stores in London, Paris and Barcelona — the firm opened its first store in Europe, in Greece, during the first quarter. Melk is now looking for a master distributor in Europe.At least four stores are planned to open in North America next year, with about 126 stores planned in total for end of year 2004. Over the next five years the company looks to triple its presence outside its stores, too.

Melk said SARS has made growth in “certain regions tentative,” but she is still expecting a net sales increase of 15 to 20 percent in the next 12 months.

“SARS has had a profound effect on every aspect of retail, but like the war, this will pass.”

According to Melk, H2O Plus was the first American company to launch beauty in a retail format. The Body Shop, Melk recalls, had just hit the U.S. when H2O Plus was breaking ground. “I remember strategically competing against them for real estate,” Melk said.

Melk still competes with The Body Shop for beauty customers, as well as Bath & Body Works, Aveda and Origins. But she likens the merchandising in H2O Plus stores as “not so in your face” as her competitors.

Melk, a graduate of the University of Illinois with a degree in design, may have inherited her business nature from her father. John Melk was one of the original three investors in Blockbuster Entertainment Corp. He and another partner purchased the company in 1987 when just 19 Blockbuster units existed. During the next two years, John Melk served as vice chairman for the company and helped steer its growth to 1,400 stores. In 1989 he left the company to pursue other interests and to advise Melk on her new venture. She was just 25 years old, and had previously had aspirations of becoming an art or packaging director.

A new generation of customers looks to keep H2O Plus’ business afloat in the future, Melk said. Sales of preventative products are on the rise. She cites younger consumers as “equally as interested in prevention as their parents are in reparative products.”

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