Pre-pack display of AguaCeuticals eye products.

The mass market beauty universe was rocked earlier this week when Jane & Company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

NEW YORK — The mass market beauty universe was rocked earlier this week when Jane & Company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

This story first appeared in the April 10, 2009 issue of WWD. Subscribe Today.

Baltimore-based Jane, which is sold by mass merchants and drugstores, said the filing in Wilmington, Del., was “due to significant cash liquidity issues faced by Jane arising from the economic crisis that affected retail customers nationwide.” Court documents detailed assets of between zero and $50,000, and liabilities of between $1 million and $10 million.

For the fiscal year ended Dec. 31, Jane had net sales of approximately $24 million and incurred a loss of approximately $6.5 million, according to the affidavit filed Wednesday. It also stated the principal outstanding on its pre-petition credit facility was about $4.1 million and was secured by CIT Group/Commercial Services.

Drew McManigle, who was named chief restructuring officer several weeks ago, said the debtor-in-possession financing commitment will allow the company to run and fill orders and get into a “business as usual scenario” at least through June.

As retailers continue to retrench and trim inventory, Jane’s struggles could become all too familiar to other niche cosmetics lines. “The question becomes: Is this Jane facing financial challenges or is Jane a canary in a coal mine?” said industry consultant Allan Mottus.

Jane said retailers’ actions to reduce store inventories in 2008 and earlier this year pressured the company. The beauty line fell victim to the consolidation of the industry and the growing power of big retailers.

In early February, one large retailer, according to the affidavit filed Wednesday, requested a change in the space allocated to Jane for the 2009 selling season and a reduction in the total amount of product the retailer committed to purchase over the year. The retailer also asked for return of millions of dollars of products. When Jane refused, the retailer ceased doing business with the brand immediately.

Jane’s business also was impacted by the ongoing industry trend to weed out duplicate stockkeeping units among beauty brands. Several chains, such as Walgreens, are undergoing this process, which is typically called SKU optimization. Industry sources said Walgreens has tapped McKinsey & Company consultants to assist with winnowing out items. Walgreens executives would not identify what brands have been eliminated but confirmed an optimization program was ongoing.

Visits to five Walgreens locations found that Jane products have been marked down. Mottus concurred that there is duplication in the mass market. He gave the proliferation of mineral brands as an example, and said that pressures on beauty vendors are compounded by “consumers moving out of the category.” After the success of mineral lines from Bare Escentuals and Physicians Formula, virtually every mass brand followed suit — from tiny players to behemoths.

Jane isn’t the only midsized cosmetics brand fighting for shelf space. Many chains rely on brands such as Milani, Bonne Bell, Physicians Formula, Prestige, Styli-Style, NYX and others to provide variety along the beauty wall.

Mass market retailers have declared they’re bent on offering customers more choices. But as top management demands more of the beauty department, buyers are faced with tough choices. “We’re going to see everyone’s departments begin to look alike,” lamented one marketing executive.

The cost of entry has narrowed the road to success for color cosmetics. “I’m not sure anyone can launch a new brand and make it these days,” said one vendor. “There have been few successes since L’Oréal came to the U.S.,” the vendor added, citing past cosmetics brands that were pulled from the cosmetics wall, namely Clarion, Oil of Olay and Vital Radiance. With chains reducing their beauty footprint, the big players are winning while shoppers lose, suggested some industry watchers.

For now, retailers carrying Jane said they’ll wait to see what happens. McManigle said he hopes to “fast-track” the Chapter 11 proceeding. In a recent document, the company identified a firm called Reborn as a potential buyer. The company provided no further information on Reborn.

Jane can be found promotionally in many retail doors, and has planagrammed display space in Rite Aid, ShopKo, Wal-Mart, Ulta, Giant Eagle and Marc Glassman. Under the current management, Jane had expanded its distribution significantly.

Jane was saved from extinction five years ago by the most recent management team led by Lisa Yarnell, who bought the cosmetics brand from the Estée Lauder Cos. Inc. in February 2004. Yarnell was Jane’s chief executive officer and now serves an advisory role.

In 1994, Jane launched exclusively in Wal-Mart. It was introduced by Sassaby Inc., which had experience meeting the needs of young shoppers through its cosmetics makeup case division. Spearheaded by industry veteran Don Pettit, Jane filled a hole in the market for a youthful, makeup artist-inspired line at prices 30 to 50 percent below the competition. With its snazzy black packaging and black fixturing, which at the time was a novelty in the mass market, Jane was a standout and instant hit.

In 1997, looking for an entrée into mass, Lauder purchased Jane — which then had sales of about $25 million — for an estimated $50 million.

Lauder later decided to exit the mass market and divested the brand. Lauder left a treasure trove of quality formulas developed for the new owners, Yarnell and her team. From there, Yarnell worked to widen the brand’s positioning beyond teens, rebuild brand recognition and introduce premium-inspired product at mass retail prices. She and her team were among the first to jump onto the mass mineral trend with BePure.

Jane did gain ground with a number of its introductions. BePure is among the top 15 makeup combos in drug chains; Jane’s Bronzer ranks in the top 10, and Jane’s Colorstick lip products rank ninth in drugstores, according to industry data obtained from market sources for the 52-week period ended Jan. 25.

Last year, the company created its first TV and print marketing campaign, spending $13 million to build brand awareness. Jane was among the most prolific mass market brands with new items producing 35 to 40 percent of sales.

In its filing for reorganization, as reported this week in WWD, Jane had annual revenues of about $25 million (although sales had grown to as high as $50 million in recent years). The creditors listed included materials and fixture suppliers, many based in the metropolitan New York area. Those suppliers were alerted to cash liquidity issues in a Feb. 28 letter.

Yarnell is serving as adviser to Jane, but a handful of buyers said they hoped she will stay involved in the beauty business. Yarnell reached out to accounts via a letter, thanking them for support over the years. One chain drug buyer said of Yarnell, “She loved what she was doing and worked tirelessly for Jane, and this is a bad way to see it potentially end for her.”

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