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Skin Care: Physicians Formula’s Second Act

The brand is hitting its stride once again, after dealing with a string of recession-era hurdles.

Ingrid Jackel is obsessed with her iPhone these days: It’s the tool she uses to keep constant watch over Physicians Formula’s sales in the mass market.

“There’s nothing more exciting to me than to look at our point-of-sale data,” said Jackel, the brand’s chairman and chief executive officer. “There were a few years where that wasn’t the case.”

The brand is hitting its stride once again, after dealing with a string of recession-era hurdles.

In 2007, the problem-solution cosmetics brand was riding high on mineral makeup — it was touted for bringing the trend to the mass market — but the recession introduced an unexpected challenge. A number of mass retailers began to destock their inventory — cutting stockkeeping units and in some cases entire brands — in a move intended to streamline their assortments and boost sales.

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For some retailers, like Walgreens, the strategy backfired and stores ultimately had to add back some merchandise.

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But, not before beauty brands felt the pinch. In its fiscal year ended Dec. 31, 2010, Physicians Formula’s net sales declined 31.8 percent — to $77.8 million from $114 million — due in part to the loss of Walgreens as a retail partner. Walgreens now sells Physicians Formula on its Web site.

Physicians Formula came back swinging last summer when it expanded its offering beyond color cosmetics to skin care. In August, it introduced a 14-sku cosmeceutical range called Physicians Formula Skin Care in 2,400 Wal-Mart Stores Inc. doors. At the time of the line’s launch, Jackel said, “this could be material in changing the future of the brand.”

This year, the skin care range is slated to roll out to more than 8,000 doors across multiple retailers, including CVS Pharmacy and Ulta, and regional chains such as Fred Meyer and Bartell Drugs.

Jackel said Wal-Mart’s exclusive launch window gave Physicians Formula an opportunity “to see what platforms were the strongest and to fine-tune the product selection, merchandising and marketing tools.” For instance, it found the line didn’t need as many graphic panels at the shelf. “Why waste the space that we’d rather dedicate to new products. We saw the performance wasn’t affected by less visuals,” said Jackel.

Of the three regimens — namely Aging (purple), Moisture Balance (blue) and Sensitivity & Redness (red) — products in the antiaging platform performed the best. That said, more antiaging products are slated to launch mid-year, said Jackel. She added the brand plans to introduce a new skin care platform in 2013.

Physicians Formula’s move into skin care is intended to broaden the brand’s reach. “We expect that we are acquiring new customers who may not walk down the cosmetics aisle,” said Jackel. “Clearly it’s incremental revenue. It’s had a positive impact on the business, not only in terms of revenue but in brand awareness.”

The company’s net sales rose 3.1 percent to $80.9 million in 2011, and net sales in the fourth quarter gained 12.7 percent to $23.1 million.

“We are back to a double-digit growth rate, which is where we were before the recession,” said Jackel.

The brand also has increasingly set its sights abroad, and last year expanded to Mexico, Turkey, Trinidad, El Salvador and Panama. It plans to ship to five more markets in Latin America over the coming months. And then it will turn its attention to Europe, said Jackel, adding, “It’s a slow process, but it’s exciting.”

International markets account for 13 percent of company sales.

The company also has eight cosmetics platforms on deck this year, including Youthful Wear, a cosmeceutical foundation, and pH Matchmaker, which is formulated with light-adjusting pigments. Existing platforms, like Mineral Wear, are seeing double-digit growth, said Jackel, adding “that means we are capable of sustaining innovation and growth in a category that many abandon [after the initial launch].