NEW YORK — The ultimate authority on makeup won’t be found this week on TV talk shows or inside glossy magazines — or even in uptown boardrooms — but backstage in the fashion tents at Bryant Park, where a crew of frenzied makeup artists wield mascara wands, lipstick applicators and powder brushes.
And a good number of them usually work for MAC Cosmetics. The sometimes loving, sometimes fitful triangle between fashion, beauty and entertainment has formed a wedge, allowing MAC to become one of the most revolutionary and influential success stories in global cosmetics, as the brand approaches its 20th anniversary next March. In the five years since the Estée Lauder Cos. acquired full ownership of the brand, MAC has grown tenfold from an estimated $65 million in retail sales to a projected $660 million for this fiscal year, which began July 1, according to calculations by industry sources.
MAC reportedly finished the last fiscal year June 30 with more than $550 million in retail sales. Those estimates could put MAC in fourth place in the American prestige market, edging out Chanel. MAC is now reportedly clipping along with 12 to 13 percent comp-store growth. All that is done in an extremely tight distribution of only 650 doors worldwide, 220 of them outside North America. Domestically, there are 75 MAC-owned stores. The total distribution for the brand is projected to swell to 729 doors next year.According to market observers, MAC’s profitability is driven by a tremendous sales productivity approaching $1 million per door.
MAC executives are taking a hard look at the rest of the world as the brand enters its third stage of development. In the last five years, distribution has ballooned from four to 47 markets, and it is expected that the business could nearly double, primarily through international expansion, in the next five years. This is particularly true if the business achieves compounded, sustainable double-digit growth, as expected.
“The next big opportunity for us is probably Eastern Europe and China,” said John Demsey, president of MAC. By Eastern Europe, he was referring to Russia, the Czech Republic, Hungary and Poland. While China offers great promise and South Korea is the fastest-growing market for the entire industry, MAC has an important anchor in Japan. Because the company has opened only 13 points of distribution in a country boasting the second-largest economy, “the Japanese market, from an international perspective in terms of current distribution, remains our largest opportunity,” Demsey said. “We did not expand our distribution in Japan aggressively because we wanted to make sure that the product flow and the MAC experience in Japan was, first of all, relevant enough in the local market, and differentiated enough to be successful.” MAC built a product development center in Japan and developedinternational marketing capabilities in New York.In South America, the promising spots are Mexico, where MAC has counters in seven department stores and one freestanding store, and Brazil, with its MAC stores in São Paulo, which sources expect to do $2.5 million at retail this year, and Rio de Janeiro. The São Paulo store could do $15 million in two years, sources estimate.
Karen Buglisi, senior vice president of sales and artist training for the Americas, estimates that another half-dozen points of distribution will be opened in Brazil in the next three years, and another one or two could be added in Mexico. There are also possibilities for more doors in Western Europe. The number of MAC doors in France is being expanded from 11 to 16 by yearend.
The importance of international expansion is underscored by the fact that Michelle Feeney, vice president of international global communications, has relocated to London. In addition to spearheading MAC’s innovative public-relations strategy, she had worked with chief makeup artist Gordon Espinet in building the artist relations program, especially MAC’s groundbreaking participation in fashion shows. MAC makeup artist crews work backstage in about 120 to 180 fashion shows globally per season. The program has spread its wings recently by branching out into Hollywood and TV with programs like “Friends.”
The brand’s huge overseas potential is indicated by the current geographic breakdown: Canada, where the brand was born, 6 percent; the U.S., 67 percent, and international, 27 percent. Meanwhile, Buglisi says another five to 10 stores could be opened in the U.S. — primarily on the East Coast — in the next three years.
In addition to distribution, the product assortment is always being updated. Demsey is single-minded in his respect of MAC’s heritage as a brand, invented by and for makeup artists, and its mission of applying color cosmetics to the art of living. While never losing sight that 94 percent of MAC’s business is generated by color, he sees other possibilities.
He noted that the skin care line is being improved and MAC will do “new forays into fragrance” but only as “accents in terms of the fashion positioning for our color business — they’re not done as an ‘instead of.’”Demsey noted MAC has scored with these “forays” before with cosmetics accessory bags. “That is a business that could be handled correctly, developed into an offshoot,” he said. “We’ve had some small, relative successes bringing in hair accessories and doing some more accessory-type businesses, integrated into our lifestyle shops.” While not wanting to tip his hand, Demsey added that the nail category will be redone next year.
As MAC expands its freestanding shop concept, the company will also widen makeup services and make the shops not just places to buy makeup and get makeup done; future plans include adding beauty services and out-call services as well. “There currently are no plans right now for MAC to aggressively go into the hair business, but we know obviously it’s a potential opportunity,” said Demsey. Buglisi described the planned new services as including individualized specialties like making up wedding parties on location.
Demsey is focusing on a big prize — becoming number one in the color category in select distribution in dominant markets. While MAC reportedly has already achieved that distinction in a number of department store doors, the goal is a lofty one — certain to set off a dog fight, at least with its sister brand, Clinique, and Lancôme.
One number that Demsey and other executives freely discuss is the $30 million that Viva Glam lipstick has raised to fight AIDS since the program was started nine years ago. Far from being corporate window dressing, it was an initiative that echoed through the core of the MAC culture, much like the recycling and other programs.
The brand was born 19 years ago in the basement of Simpson’s, a division of The Bay, as a sideline to a chain of hair salons, owned by Frank Angelo. His partner, Frank Toskan, a budding makeup artist, was working on photo shoots for a magazine while he and his brother-in-law, Vic Casale, were busy at work developing cosmetics products and shades that would shine under the intense glare of high-powered tungsten lights, rather than fade, like most colors. “It was the time of the Goth look: intense dark,” said Espinet, executive director of makeup artistry. “They took the idea of special effects in makeup and turned it into something streetworthy.”One of the new products that bubbled up was an intense matte red lipstick that was used on a shoot with a New York cabaret star named Madonna. She was later photographed by a magazine wearing a MAC Cruelty-Free Beauty T-shirt, and the revolution was on.
Rod Ulmer, who was then the head of cosmetics for Simpson’s, recalls offering to move the cosmetics operation upstairs at Simpson’s and giving MAC its own counter. It was a time when Revlon and Max Factor were failing and MAC arrived with mass pricing and showbiz panache. “It had magic — affordable, classy magic,” Ulmer noted recently. And it was heavily staffed with makeup artists working behind the counter, numbering 10 to 15 salespeople, versus the usual two.
Most major brands, such as Lauder and Lancôme, were skin care companies that periodically reached into color cosmetics for an added sale, while being leery of color’s poor profitability, Ulmer noted. MAC took the opposite tack, aspiring to become the ultimate color authority. “They created a new industry by giving color class and excitement,” he said. The rise of MAC also paralleled the early emergence of the makeup artist as celebrity, such as Way Bandy and Kevyn Aucoin.
The celebrity connection and the brand’s edgy coolness reached a height in 1994 when Angelo and Toskan hired the transvestite singer and TV host RuPaul and singer and gay activist k.d. lang to appear in advertising and representing the MAC AIDS Fund. Espinet noted that MAC redefined hip by adding playfulness, rather than making makeup a serious matter: “You can be anything you want, like RuPaul.”
“What set MAC apart from everybody else is that MAC was and continues to be an idea,” Demsey observed. “It’s beyond just product, it’s beyond just a marketing calendar. It’s the idea of how beauty interfaces with the way that one expresses oneself. Or how someone interfaces with products or chooses to articulate themselves. That was something that never really existed before. And the fact that there was this tremendous sense of theater and play and diversity of color was incredibly impressive and quite honestly shocked the world.”
He added that MAC was the first brand to invest in the makeup artist salesperson and the customer’s point-of-sale experience, rather driving sales through advertising, gifts-with-purchase promotions and heavy sampling. As MAC was building a product arsenal of 1,300 stockkeeping units, Demsey continued, “Most cosmetics lines would choose the same best-selling 24 to 36 shades, and what you would see was a lot of promotion and some color story activity, but really a very edited approach. Because of its inspiration and connection with the professional makeup artist community, MAC was really the first brand that also began product differentiation in terms of texture, not just shade. So this was the idea of the original matte MAC lipstick or the MAC Lip Glass — which spurred an entire revolution in terms of lip gloss category — or Studio Fix powder or face and body foundations. The attention to the formulation, the performance of the product, what the product looked like and the ability to invest in staffing and the training and education of the staff to explain the benefit of the product — the consumer perceived [all] that as value-added.”Adding to the image was more than a touch of outrageousness, which injected a sense of theater into the stores. The makeup artist that waited on you by day could easily be a drag performer by night.
Noting that Angelo was an aficionado of New York’s Wigstock festival, where RuPaul began, Demsey added, “the idea of creating this sort of Warholian factory experience where people from all walks of life and all sorts of diversity lived up to the model that the creators had, which was ‘all races, all ages, all sexes, all MAC.’ The concept that this was an honest approach to beauty that was both professional and cared about the customer, but at the same time took its inspiration from the people who worked for the company and the professionals who inspired the product development — that was something unique.”
Into this Warholian downtown swirl stepped Lauder chairman Leonard Lauder. Despite his decidedly Upper East Side bearing, he liked what he saw. After Lauder went public in 1995, it bought 51 percent of MAC as a prelude to acquiring the entire company in 1998. It was Lauder’s first acquisition.
In a recent interview, Lauder said that what appealed to him was “an ability to think out of the box that was so countercultural to everything that we knew and everything the specialty store and department stores knew. We didn’t have that kind of out-of-the box thinking inside the house.”
MAC offered a striking antithesis. “They don’t use a traditional means of selling,” he continued. “There’s no advertising, no giveaways, no dress code — you can wear anything you want as long as it’s black. Your color of hair is anything you want. It’s driven by the makeup artist.”
So much so that Lauder said that future growth of distribution in the U.S. is limited only by the talent pool. “There isn’t enough talent and support, considering all the makeup artists that are needed,” he said. “It may seem strange to say, but we have no growth objectives for it. We want it to grow in its own garden as long as it can.”When MAC’s offices were moved from Toronto to New York to provide more access to the media and other markets, some observers assumed that the new parent would try to Lauderize the upstart from Canada. Not only does Lauder strongly object to this notion — “I consider us to be cosmetics venture capitalists”— but he also has been known to sound like the guardian of the flame. In one meeting, Buglisi remembers Lauder declaring, “Let MAC be MAC.”
While Lauder noted that he had “a meeting of minds” with Angelo and Toskan — with one side not trying to win over the other — his son William, now chief operating officer, and chief executive officer Fred Langhammer also became involved. When Lauder started distributing MAC overseas, key roles were played by now-retired vice chair Jeanette Wagner and then Estée Lauder group president Patrick Bousquet-Chavanne when MAC headed international.
Langhammer also saw MAC as “a freethinker” that gave rise to Lauder’s Rule Maker, Rule Breaker philosophy. Lauder now has both kinds of brands, a dichotomy that generated a creative energy. “If you look at [Lauder] pre-MAC,” he said, “the change created a whole dynamic and stimulus for the whole company.”
Langhammer stressed that MAC was not just a marketing machine. “Early on, MAC made a commitment to what its customers believe in,” he said. “This is the first cosmetics brand positioned not just to sell product, but to connect with the concerns of its customers.”
William Lauder, who earlier had launched the Origins brand, viewed the MAC acquisition as a prudent exercise in risk assessment — whether to gamble for the first four or five years of a start-up’s life or buy a ready-made leader, which MAC was. He also clearly loved the “exceptional” DNA, which embraced all ages, all races and genders. Moreover, it was not dominated by a single person’s vision. “It had a collective personality,” Lauder said, referring to the makeup artist community. “We liked that.”
The organization received a severe shock in January 1997 when Angelo, the architect of MAC’s business development, died unexpectedly of a heart attack following routine surgery. Demsey, who had been senior vice president of sales and education in the Lauder division, was made managing director in April 1998 to run the company after Lauder took over. Toskan, who had continued to work as founding chairman and creative director, left the following December. He could not be reached for comment for this article.Bousquet-Chavanne, who now oversees MAC along with the Lauder division as a group president, says the makeup artist brand has “exceptional” potential overseas. He praised Demsey for deftly making connections withmakeup artists communities in foreign countries to pave the way for opening MAC stores or simply entering the market. “John is outstanding at bringing the best of the international makeup artist community into the global creative network,” said Bousquet-Chavanne, who added that Demsey is“an amazing gatekeeper of the culture of the brand, maintaining the rule breaker mind-set.” As for the future, Bousquet-Chavanne said China and India have been looked at. MAC is one of a “very few brands that taps into such a wide variety of ethnic groups in a very genuine way.”
The Demsey chapter began in April 1998 when he arrived in Toronto with orders from Langhammer to put together a business plan in time for the July 1 takeover. “Fred said, ‘You’ve got 65 days to figure this out.’ ”
What Demsey found was an emotionally bonded organization of about 100 people — more of a sprawling family — that was long on talent and creative and short on infrastructure, analytical tools and resources. MAC had stunned the world with landmark products like Spice lip pencil and the Russian Red matte lipstick that Madonna made famous.
Demsey made an analogy with Erica Jong’s “Fear of Flying.” “The initial idea was amazing, and the talent and the persona around the brand was amazing and continued to be amazing,” he said. “But there was a fear: Once you’ve had a tremendous success on something, you’re more reticent, asking yourself what’s your next act.” Demsey added, “There was very little product development in the hopper.”
Jennifer Balbier, who was recruited as senior vice president of product development, agreed: “They had a lot of colors, but not a lot of products. It was the longest-running shade promotion.”
While Demsey takes every opportunity to praise MAC’s founding organization, its early accomplishments and interpersonal chemistry, he nonetheless faced a tall task. “The business fundamentals in terms of operating expense structure, running a business, forecasting, manufacturing, public relations, marketing, marketing services, product to market, visual merchandising — none of that was there,” he said. And neither were the skills to run a multichannel, multinational, financially driven distribution network.Also, the company was not equipped “to understand that creativity and ideation is part of the everyday process of a company that calls itself to be a creative entity. And I think that that’s when MAC got in trouble,” Demsey said. “It wasn’t evolving, it wasn’t bringing product to market. It had an amazing idea, the talent was there, but once again, it didn’t have the business structure and the fundamentals in place to allow those things that were inherently good to be better.”
That’s where the Lauder organization came in, with its high-powered tools and financial muscle.
“The first thing that I did in meeting with the Lauder family was to understand that this was something very special,” Demsey recalled. “This was the company’s first acquisition, and I needed to understand what the core DNA of the brand was about and to make the brand more MAC than it ever was. Those were my marching orders.”
So Demsey hit the road and talked to everyone from lab technicians to factory workers to store employees to people in the freelance community and back to headquarters staff. Meanwhile, Buglisi did the same on the sales front, spending four days a week on the road. He then did a brand equity study with the consumer.
“The number-one asset that the company had was a professional heritage,” Demsey concluded. “This emotional connect that existed between the people that worked for the company and the people. And that what they were most fearful about was a ‘suit’ from Estée Lauder, because I was a suit from Estée Lauder coming in.”
Demsey saw his job as summoning “the savvy and the know-how to protect them, to create an environment that would continue to inspire them. We also wanted to give them the tools that they wanted to move forward, to avail them of the career opportunities available and not to turn them into something that they didn’t want to be. That’s why they came to us to begin with.”
Faced with a volatile mood in Toronto, Demsey sat down and restructured the company, divvying up duties according to the abilities of those on staff; he empowered them. “Probably 75 percent of the original team is still with the brand,” Demsey said. Espinet, for instance, had started as a consultant in 1988 and joined MAC in 1999 as a trainer. Demsey put him in charge of the makeup artists. “I felt this instant trust,” Espinet said of Demsey. “Most importantly, he was not predictable; John had a spontaneity.”Demsey also brought in some management stars to buttress the organization. In addition to Buglisi, Feeney and Balbier, he recruited James Gager, the man who conceived the look of Prescriptives, as senior vice president and creative director, succeeding Toskan. Caroline Geerlings, a Lauder veteran who was at Christian Dior, came on as senior vice president of marketing. She, in turn, made a key appointment by moving Ksenija Flajs, one of the original makeup artists at Simpson’s, to director of artist research.
Demsey and his new team went to work. A separate professional line, called MAC Pro, was developed for professional artists to keep them interested in the brand. The link between fashion and beauty was strengthened and exploited. Instead of doing shade statements twice a year, as do most companies, MAC does a new statement every six weeks. “The edit is very similar to what you might see in an H&M or a Zara,” Demsey said. “That concept of fashion, newness, visualization and product energy, all of which takes on a promotional dynamic, is very unique. We figured out a way to do that so that we could introduce new categories and new products, while using color shades and fashion to bring a sense of fun and interest to the counter.”
He said the new marketing and product development team, coupled with the makeup artist network, enables MAC to pounce on fashion trends and quickly bring new products to market. “We had one season that we saw a lot of white on the runways with Alexander McQueen,” he recalled. “Eighteen weeks later, Frozen White was part of our Christmas color story.” Demsey explained that the company can operate profitably while still doing as many as 10 color stories a year because the shade statements are used to build stories around bestsellers. An estimated 30 to 50 percent of shades in the color stories are existing products.
Gager, who works in concert with Balbier, prizes the rebellious heritage of the brand. “There’s a certain fantasy and whimsy to what we do,” he said. “We play street fashion against couture fashion. We use the color collections to create newness and new forms of visualization” for the stores and the counters, while keeping “the environment as fresh as possible and to express the culture of the brand.”The color collections also tie together the packaging units at the counters. This September’s offering, Femme Noir, is a Hollywood takeoff, complete with a video for the stores. Still photos were extracted and packaged into a flip book as a promotional tool.
The effort is paying off, at least at Marshall Field’s in Chicago. “Their fashion statements continue to be more and more compelling,” said David Steiner, divisional merchandise manager, citing the hot looks of spring’s Aquadisiac and summer’s Tan Ray as not only hot and edgy, but versatile looks. He sees 14-year-old girls at the counter wanting cool blowout fashion. He also sees 45-year-old women, who just want to feel cool and to walk away from the counter with great makeup, but without the edge.”
Like most retailers, Steiner praised MAC’s in-store events, which promote the brand. He cited the recent Naked Spin featuring body painting and music. “It feeds younger customers, but attracts all ages and lifestyles,” he said.
One of MAC’s three biggest doors in the world is the London flagship of Selfridges, where the brand ranks number one and became the first beauty vendor last year to hit the 3 million pound mark for one year. Claudia Lucas, head of cosmetics, says it is “a very accessible brand, very exciting and a real chameleon. They are changing constantly.”
“Customers not only like the product, but the attitude,” said Robert Mettler, chairman and ceo of Macy’s West. “There’s a lot of good product out, but attitudinally, not a lot of MAC.” Adding that MAC “has a glamour that transcends geography,” Mettler said the brand does huge numbers in both high-profile locales like Third Street in Santa Monica, Calif., and in small, dusty California markets like San Bernadino and Bakersfield. “I wish I had 12 MACs,” concurred Gail Gordon, vice president and divisional merchandise manager of cosmetics at Macy’s East.
Demsey’s third move was to ratchet up standards in an effort to make sure that “our products actually exceeded the expectations of what the professional and the consumer had for us. There’s been a tremendous amount of emphasis and work on our mascaras, foundations and powders, which were very good. But there was opportunity for them to be even better,” he noted.Meanwhile, distribution also was evolving. MAC had made its first big splash in New York by attracting mobs of makeup artists to its counter at Henri Bendel. Ed Burstell, Bendel’s vice president and general merchandise manager, views MAC as having paved the way for all other makeup artist brands, and he remembers the brand’s arrival in the store in 1989. “They had perfect timing,” he said. “They recognized that a large portion of consumers were dissatisfied and rejecting big, nameless faceless cosmetics companies. MAC’s attitude was: ‘This is who we are and what we are. We give honest advice.’”
Burstell noted, “They’ve gotten much smarter in terms of products and selling strategies, with in-store installations that actually work — they don’t just look good. MAC is very clever on what to do with in-store shops. Ten years ago, it was a big deal to have RuPaul in the store,” he continued. “Now to keep it fresh, you need live action — acrobats, mermaids. The customer wants to be engaged. [At a MAC event] we do a month’s worth of business in a week.”
But it was Nordstrom that ultimately became the brand’s biggest account. “It definitely got us from the backstage fashion set to the suburbs and its soccer moms, where you make the money,” Espinet said of the move to Nordstrom.
“Their approach to the business was way outside of the box,” recalled Dale Crichton, executive vice president of cosmetics at Nordstrom. “Some of their ideas were innovative and doable, and some requests were challenging at best. What we loved about MAC was the talent that they attracted to their line. Their first priority in hiring was to hire makeup artists. The line was all about makeup application and fashion. For their sales staff, it was all about being an artist and teaching customers. It was not about sales results. They had a unique culture.”
MAC has always been strong in multicultural marketing due to its wide shade range and affordable prices, and this has been accentuated by distribution decision. As an example, Demsey, who is fond of insisting that the brand should walk the talk, decided that MAC should be merchandised in a Macy’s West store in Fox Hills, a low-income neighborhood with a large African-American population near Los Angeles International Airport. “What’s important is that with such a broad shade assortment and focus in terms of the point of service and sales in store, that if it’s done right and if it adapts itself to wherever it’s being sold, the brand can resonate as true in Tokyo as it does in Fox Hills,” said Demsey.In late July, MAC opened a new flagship in the heart of Manhattan’s Harlem on 125th Street, and sales exceeded expectations, reportedly averaging $25,000 a week. Singer Mary J. Blige, one of the new generation of spokespeople for the MAC AIDS Fund, recently made an appearance at the store to present two $25,000 checks to local medical organizations and giveaway copies of her new CD. Currently, pop stars serving as spokespeople include Elton John and Shirley Manson; past figures include Lil’ Kim.
Constantly in search of freshness, MAC continues to look for upturned edges in the popular culture. A Liza Minnelli collection is due out Oct. 2, and a product duo — Bunny Pink Lustre Lipstick and Playmate Pink Glitter Cream — will be introduced in February to mark Playboy magazine’s 50th anniversary.
Demsey is lauded by retailers, colleagues and market observers for shepherding the heritage of MAC while still keeping the brand fresh. “It’s got great energy in a very lethargic market,” said industry consultant Allan Mottus.
But Ulmer, who praises Demsey and Lauder for “building on the line’s strengths,” says he feels that MAC lost some of its old Eighties magic in becoming so dominant. If the brand doesn’t regain its old bite, he added, a new MAC may come along in five years.
Demsey strongly disagrees, asserting the world has changed. “The ‘Leave It to Beaver’ of today is ‘The Osbournes,’” he said, “and they use MAC pencils.” And the brand is no longer a secret. “We are no longer undiscovered,” he replied with a trace of exasperation. “We have been very careful not to be seen as pandering to be cool.” Pointing to upcoming project like Minnelli’s collection and last year’s Sandy B. project headlined by Sandra Bernhard, he asserted that MAC has already done everything from transvestites to Goth to nudity.
As Espinet added, “In reality, MAC is still very magical, but it’s so big now. Before we were magical, but we were all over the place. You can’t do that now.”
Even from Wall Street, however, there’s no question about MAC’s authority. William H. Steele, analyst for Banc of America, noted, “A consumer knows if she wants color, she is going to MAC.”
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