Wal-Mart’s Carmen Bauza issued a challenge to beauty and retail executives: Unshackle their companies from an antiquated business model to drive growth and transform the industry.

This story first appeared in the June 11, 2010 issue of WWD. Subscribe Today.

Bauza, Wal-Mart’s vice president and divisional merchandise manager of beauty and personal care, began by quoting the words of financier Warren Buffett, who said, “Chains of habit are too light to be felt until they are too heavy to be broken.”

In Bauza’s view, a history of misguided promotions — particularly in the mass market, where “buy one, get one free” and coupons flourish — are outdated and, worst of all, damaging.

“As the world’s economies have found out, mortgaging tomorrow’s sales is not a growth vehicle,” she declared.

In illustrating the need for “radical change,” Bauza showed a photo she snapped during a recent visit to New York City. The photo depicts the Virgin Megastore on 14th Street with “out of business” signs plastered across the windows and, across the street, a pulsing and modern Apple Store.

Bauza recalled that Virgin once led the music retail industry but did not anticipate the changes in technology that would usher in online music downloads.

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“The music industry evolved from a price-driven model to a customer-access one, but Virgin didn’t make the transition.”

For beauty, the Virgin story is a cautionary tale.

“In the old world, brand plus product innovation plus customer knowledge plus a single channel of distribution equaled sales. That equation is no longer delivering results. It is a new game, there are new rules,” said Bauza. “If we fail to recognize our customer’s rapidly changing expectations, we will be chasing instead of leading the market.”

In Bauza’s view, becoming customer-centric means anticipating what the shopper wants before she knows she wants it — the credo of Apple’s chief executive officer Steve Jobs — or more simply put, staying ahead of a customer who is more informed than ever before.

As Bauza pointed out, the customer may compare prices on her iPhone while standing in a store. The shopper’s access to information makes it more challenging for retailers to build a personal connection.

On a product level, certain categories have lost that connection as well, particularly fragrance, where the industry has turned to an aggressive launch strategy that resulted in “the scent du jour.”

To punctuate her point, Bauza asked attendees to raise their hands if they remembered the 1973 launch of the Charlie fragrance. A large number of hands shot up. She then asked audience members to shout out the name of the most memorable fragrance launched within the last decade. Silence.

“Fragrances have become transitory,” said Bauza. “There is no effort to establish an emotional connection to the brand.”

The executive spends quite a bit of time speaking directly to customers during store tours, shop-alongs and in their homes, and she has learned what they want.

“She wants quality in the products that she is buying, she wants access to the brands and products that she wants, but she is not willing to overpay for these products, and she has made it very clear that she has many choices,” said Bauza.

The customer also is no longer loyal to one particular retailer or shopping channel. “Waiting for a customer to come to a single channel of distribution is allowing the world to evolve around us, without us,” she said. As for how the industry will meaningfully grow sales, Bauza offered a new formula to replace the “old-world” one. She said, “We must be customer-centric and deliver on product innovation. Value is the price of entry and multichannel is the new portal. Information technology is the driver.…This is the new equation, this is the key to delivering double-digit growth.”

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