Three new retail formats opened their doors last year—just as the U.S. was embarking on one of the worst recessions in modern history.
Strength in numbers? Last year, despite signs the economy was about to bust, three ambitious beauty retail concepts launched. First up was salon powerhouse Regis Corp. with the March opening of PureBeauty in Minneapolis’ Mall of America. That was followed by the October debut of Ulta’s 16,000-square-foot, four-floor beauty mecca in the heart of Chicago, stocked with a mix of mass, prestige and professional brands. Not to be outdone, CVS Pharmacy unveiled its prestige concept called Beauty 360, in November, announcing plans to open 500 more stores within the next few years. And why not? Spurred by Sephora’s continuing popularity in the U.S. and declining sales in traditional prestige channels like department stores, each hoped to attract consumers with a shiny new concept, perky and knowledgeable staff and, perhaps most important, a big parking lot. Now, as we head into the second half of the year with the critical holiday shopping period ahead, the question is, are they succeeding?
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The answer seems to be a qualified yes. With their mix of “high-low, special-commodity, everything they need under one special roof,” the newer stores appear to be winning fans, says Wendy Liebmann, chief executive offi cer of WSL Strategic Retail. “It’s especially relevant today as women are moving away from high-end, higher-priced retailers because they either don’t want to be tempted to spend, or they are just being more discreet about it,” she says. “Consumers already shop in so many different places for their beauty products. If they can do it—or much of it—in one great place with the right experience, it’s perfect.” Convenience, ironically, is what traditional retailers once tagged as their fairy dust. But now, experts say, shoppers are flocking to stores that offer something different, be it an experience or a product, from what they’re used to. “We’ve seen over the years that [exploring other stores] has been a trend,” says Karen Grant, senior global industry analyst and vice president of beauty at The NPD Group. “Sephora was the pioneer, a great lab for developing indie brands and trends. Ulta added the mix and match with mass and prestige brands,” she continues. “[And places such as CVS’ Beauty 360] also offer services and open environments where consumers can play. “The big-box players, like a Macy’s or any department store, are changing their format in response,” Grant concludes. “They are opening up case lines so you can walk around and see everything.”
“IF YOU LIVE IN THE SUBURBS AND CAN PARK THE CAR AND NOT HAVE TO GO INTO THE MALL TO GET TO THE DEPARTMENT STORE, IT WORKS WELL.”
Though department stores are furiously playing catch-up, the new concepts—often called masstige because of their channel-agnostic approach to stocking brands—seem to be effectively attracting shoppers, who prior to the recession, were committed prestige channel shoppers. “Women who traditionally shop in prestige will shop mass if the brands offer her the same quality and on-trend product she is accustomed to fi nding in the prestige channel,” says Gina Drosos, president, global female beauty of P&G Beauty & Grooming. “We expect retailers will continue to leverage masstige opportunities as they theme their promotions with value re-framing messaging.” For its part, CVS is loathe to refer to Beauty 360 as a masstige concept, pointing out that none of the brands sold within it are mass.
But the retailer is forthright about using the lure of the pharmacy to drive traffi c to Beauty 360. “When we built this [concept more than a year ago] the economy wasn’t where it is today. We built this because of the convenience model,” says Mike Bloom, senior vice president of merchandising. “It’s really about convenience and exposure.” Located separate yet adjacent to existing CVS stores, Beauty 360 makes shopping for Pantene shampoo, snacks, cat food, Canyon Ranch skin care and professional makeup brands plausible without having to drive to various locations. Perhaps the single most important merchandising strategy in Beauty 360, says Laura Geller, founder of the eponymous makeup line sold there, “is to be able to have an open-sell environment in a prestige setting that is close enough in proximity to offer standard mass drug items.” Geller is reportedly the retailer’s top-selling makeup line. “Beauty 360 is a one-stop shop,” agrees Andrew Knox, chief operating offi cer and president of Pixi Cosmetics. “All of us want that.”
The store’s merchandise mix is about 40 percent skin care, 40 percent color cosmetics and 20 percent hair care, nail care, body care and fragrance. Brands include Vincent Longo, Paula Dorf and Laura Geller in color cosmetics, Freeze 24-7, Ahava, Dr. Brandt and StriVectin in skin care, and offerings from P&G Prestige, Coty and Clarins, among others, in fragrance. The mix will continue to evolve. In the newest store, the chain’s third, based in Ridgefield, Conn., there’s a 6-foot hair care section and a 9-foot men’s grooming assortment, for example. For now, though, CVS is finding that both skin care and cosmetics are equally “compelling for customers,” says Bloom.
Service is also driving consumers into Beauty 360, say executives, which, despite the economy, aims to have around 30 stores in 2009 and about 50 by this time next year. “We have beauty consultants, many who are licensed aestheticians and all of whom are extensively trained, that are dedicated to making the customer experience personalized and fun,” says Mary Lou Gardner, project lead for Beauty 360 and senior category manager for beauty, CVS. At Ulta’s four-story powerhouse unit in Chicago, in-store boutiques showcase brands in their most flattering light. Bare Escentuals, Benefi t and Smashbox Studios each have a store-in-store there, manned by brand-trained beauty advisers. Additional prestige brands, such as Lorac, Urban Decay and Too Faced, are merchandised either on brand-specific gondolas or on a wall surrounding the boutiques.
Designer fragrances also reside on the first floor, such as Chanel, Ralph Lauren, Giorgio Armani and Estée Lauder. Prestige names are rounded out in the Advanced Skin Care department, featuring Perricone MD, Murad, Kinerase and NeoStrata. Key to Ulta’s mix are its mass brands, which include L’Oréal Paris and Physicians Formula in color; Olay, Cetaphil and Neutrogena in skin care, and Garnier Fructis, Marc Anthony and John Frieda in hair. Executives at Bare Escentuals believe the newer retail environments simply make shopping easier. “The economy plays a role in this shopping behavior,” says company president Michael Dadario. “But if you live in the suburbs and can park the car in the lot and not have to go into the mall to get to the department store, it works well.” Lyn Kirby, ceo of Ulta, says that the concept of an open-sell format and vast merchandising mix is key to tapping into women’s updated wants and needs. “The paradigm shift that started a number of years ago is still very appealing,” she says, adding that the chain is “very well poised for this economic time.” What is challenging, though, is getting consumers into stores, something that is not just relative to Ulta.
The chain’s loyalty program, Kirby says, is helping, and even assisted in pushing consumer traffic and market share up 2 percent during the most recent quarter, despite a comp-store sales dip of 2.3 percent. “[The consumer is] staying at home, so we need to reach her at home,” says Kirby. “Our marketing machine is helping us do that through direct mail with our loyalty program. We are well focused on value to get her in the store and then to get her to do what she does: spend.” The chain, which grew sales for the quarter 12.3 percent to $268.8 million, still expects to open an additional 35 stores for the balance of 2009. Ulta operates 320 stores, which measure on average 9,000 square feet.
Not all new beauty efforts have been a win out of the gate. Less than 10 months after opening PureBeauty to much fanfare, Regis sold the troubled 709-unit Trade Secret division to Premier Salons. The division, which included the PureBeauty, Trade Secret and Beauty First banners, had been slated for an overhaul to the remodeled PureBeauty format, which featured professional hair care items by brands such as Frédéric Fekkai and Tony & Guy, as well as cosmetics by Jane Iredale and Yves Saint Laurent, and skin care by Dermalogica and Murad. Premier plans to give the concept another makeover, as well as a possible name change, to get it into the graces of consumers. Some of PureBeauty’s stumbles, says Brian Luborsky, chairman and ceo of Premier Salons, include a too-heavy hair care assortment. The store does have one edge over the competition though, he says: “We have a well developed network of professional advisers who work in the stores.”
“THESE RETAILERS ARE ATTRACTING YOUNGER CONSUMERS. TO GET A BROADER MIX,YOU DO NEED TO ADD BRANDS THATHAVE A TRUSTED HERITAGE.”
The advisers provide everything from skin analysis and facials to hair styles and makeovers, which in turn spurs purchases. Each store also features service stations, which Luborsky expects to increase from about two per unit to five or six, as in the recently opened Corpus Christie, Tex. and Appleton, Wisc. stores. “We’ll sell more products with more service stations,” he says, adding that PureBeauty’s loyalty program furthers relationships with consumers. “When they come in the store…we solve their beauty problems, as opposed to just selling stuff.” Julie Woffington, managing director for Frédéric Fekkai, says she’s found the staff at PureBeauty to be extremely dedicated to the hair care category and in presenting the brand to new clients or offering them the information to trade up to a regimen purchase. “The clients who shop at [Ulta and PureBeauty] are unequivocal beauty junkies: They are the women who seek out the newest, latest and best options for hair and personal care,” she says. Stores such as PureBeauty also bring somethingnew and fresh to merchandising. “The open-sell environment makes it extremely easy for the consumer to shop, take their time and browse,” says Woffington. “They also make product information available via merchandising within the unit that allows consumers to self-serve.
There is also always the option to seek out a personal shopping experience if they choose via the sales associates. This format gives consumers the ability to try products in a very demonstrative environment—for example, PureBeauty has sinks—allowing consumers to try products in their own hair and see results immediately,” she adds. Luborsky hopes tweaking the chain’s product mix will make PureBeauty more competitive, too. He’s focused on narrowing the hair care assortment (“Why would we have 15 brands in the same price point range?” he asks) and adding more high-end skin care brands as well as some fashion items, such as cashmere robes. Creating an appealing lineup is easier said than done. For PureBeauty and others of its ilk, finding suitable brands is a challenge, says Liebmann, but stores are getter better. “Better, but not perfect,” she says. “The perfect model is all key price points with a mix of high-end brands, indie, professional, mass, et cetera.
They don’t have to have every prestige brand, but they certainly need to have sufficient selection to support the concept’s legitimacy of this approach.” The prestige market’s big three—namely Estée Lauder, Clinique and Lancôme—have proven themselves reluctant to join the fray. In what many considered a positive sign, Clinique entered select Ulta doors last year, while some smaller lines that have primarily been exclusive to Sephora, such as Cargo and Benefit, are now rolling out to Beauty 360.NPD’s Grant says seducing more big-name brands will be key to driving an older demographic into some of the newer retailers. “These retailers are attractingyounger customers.
To get a broader mix of consumers, you need to add brands that have a trusted heritage,” she says. “In 2008, we’ve seen makeup and skin launches from Lauder, Clinique and Lancôme that have been strong sellers. It indicates that consumers opt for newness from established brands, especially in a down economy, and that’s one thing that these retailers need to look at.” Pixi’s Knox believes it’s just a matter of time before some of the bigger players enter beauty’s new retail concepts in a more prominent way. “None of the big boys have made the conversion, but it will happen at some point,” he says. “Department stores are closing doors and brands are rethinking what they’re doing.
The brands will have to go along.” Liebmann agrees that the growth trajectory for some of these retailers presents a better opportunity now more than ever as prestige brands struggle in department stores. “Sales of beauty in these newer concepts are definitely stealing from traditional retailers,” she reports. “But they are also bringing a new generation of shoppers to beauty who may not have found their way to traditional retail at all.” And then there’s the economy. Despite whether abrand’s equity is strong and relevant, there has been a dramatic decline in customer traffi c that’s particularly acute in traditional retailers. According to a study compiled by The NPD Group and Information Resources, there are pockets of growth and opportunity in several beauty categories driven by some channel shifting by consumers.
In their report, The Beauty Cross Channel Monitor, which tracked beauty purchases in traditional retailers such as department stores and mass stores, makeup posted a slight increase in the food, drug and mass channels, while declining in department stores in 2008. Conversely, the hair segment, although representing a relatively small portion of the prestige business, grew by 6 percent in department stores versus a decline of 4 percent in mass, where hair represents a larger portion of the overall business. Studies by Procter & Gamble show that consumers shop in three modes: indulge, replenish and browse.
The challenge, says NPD’s Grant, is converting browsers into buyers. “Being in a non-pressure environment helps,” she says. “Sometimes she wants a more edited assortment….[Shoppers] can get confused.” Indeed, Sephora transformed shopping for makeup into a beauty arcade format, giving the newer retailers a high performance bar to go up against. “It’s not just branded categories versus multibranded items within a category,” says Robert DeBaker, ceo of Korres America. “And it’s not just the merchandising or laying it out on the floor or educating or animating the store well or telling a great story, but it’s also the way they have educated the staff and tied all of the benefits of each brand together,” he continues. “It’s a balance of all of those different things and it’s difficult to get them into play all at the same time.”