National brands take notice. Private-label lines are taking on a more prominent role at beauty retailers.
They are no longer simply imitations of well-known brands, and they are increasingly populating the assortment at prestige retailers as well — as a glance at Sephora Inc.’s mix will attest. Macy’s Inc. also recently gained M-61 from its acquisition of the beauty apothecary Bluemercury, where the high-end skin-care range was conceived by founder Marla Malcolm Beck.
It isn’t just traditional beauty sellers looking to boost sales with their own collections. H&M is stirring up the market with its first full-range beauty collection. The assortment, which includes hair care, body care and beauty tools, is slated for more than 900 H&M stores this fall.
In a twist, some of these brands are attempting to build their businesses beyond one retailer, following a model created by Boots No7, which is now sold in Walgreens and Target stores.
“Boots is a private-label brand that’s become a national brand,” said retail expert and former Walgreen Co. executive Joe Magnacca, who most recently was chief executive officer of Radio Shack. “That gets you the volume you need. To get costs down, you need to play outside your retail chain,” he added, referring to proprietary brands expanding beyond their home turf.
That’s the plan for Maesa’s newly acquired P2 brand. Maesa, which develops proprietary brands for retailers, aims to distribute P2, a European private-label line sold exclusively at the German drugstore chain DM, to select U.S. chains.
Several industry sources said Sephora spin-off Kendo, a brand developer and incubator, is working to get its brands into more retailers. Its portfolio includes Marc Jacobs Beauty, Formula X, Bite and Kat Von D, to name a few. Kendo declined to comment.
At a time when more retailers are vying for a larger piece of the beauty business — from Kohl’s Department Stores to CVS Pharmacy — proprietary lines allow merchants to tout exclusives and widen gross margins.
“There’s just too much sameness in cosmetics,” said former top drugstore executive Bob Kwait, chairman of Kwait & Associates, a consulting firm.
What these brands may lack in advertising dollars they make up for in gross margin.
Experts said the margins on national brands range between 20 and 30 percent, but can swell to 60 percent for a private-label line.
Those figures are pushing sales of private-label products upward. Market sizes of beauty and personal-care products in the U.S. gained 1.9 percent to $76.28 billion in 2014, up from $74.86 billion in the prior year, according to Euromonitor International.
Private-label beauty products in the U.S. had a 4.4 percent market share in 2014 compared with a 2.8 percent market share in 2005.
“There’s been a dramatic shift in the ways that retailers are approaching their assortment within the last five years,” said Ben Bennett, cofounder and chief creative officer at Hatchbeauty. He added that in the past, part of retailers’ strategies hinged on securing exclusive merchandise. But many brands that struck exclusive deals often found themselves trapped without a means to further develop and grow their businesses.
“It’s becoming very challenging for retailers to tie up exclusives. Brands can’t afford to do it,” said Bennett. As an alternative, brands often provide key retail partners’ exclusive items.
A number of retailers — CVS, Walgreens and Wal-Mart included — have turned to companies such as Hatchbeauty and Maesa to develop exclusive brands for them based on their trove of customer data.
CVS tapped Hatchbeauty to develop Salma Hayek’s namesake beauty line called Nuance Salma Hayek, which includes cosmetics, skin care and hair care.
Maesa, for its part, has developed Flower by Drew Barrymore for Wal-Mart Stores Inc. and Circa color cosmetics fronted by Eva Mendes for Walgreens.
Shawn Haynes, senior vice president of sales, mass and drugstore retail for Maesa, said, “Retailers are more intelligent about their consumers [than when other exclusives were introduced] and know what is right for each door situation.” For instance, at Ulta Beauty, private label accounts for approximately 5 percent of the assortment, and that percentage will likely grow, said the chain’s ceo, Mary Dillon. The beauty retailer is amplifying its effort with an upscale, lighted wall display for the Ulta brand in new and remodeled stores. During an investor conference in the fall, the company said it is also improving formulas and responding to trends to make sure “the Ulta brand really stands out.”
It is also increasing its focus on offering exclusive products, tagging items “new” and “only at Ulta” throughout the store.
This isn’t the first time retailers have dabbled in product creation.
“A successful proprietary brand risks alienating the retailers’ vendors. They may see the new line as competition,” said Deborah Weinswig, executive director, head of global retail and technology for the Fung Business Intelligence Centre.
One retailer acknowledged that before a private-label brand enters a category, one or two national brands are often cut by the retailer from the mix.
Retailers wield a lot of power, and shoppers have come to trust their nameplates, making customers more open to try a product with their name on it.
Brian Sharoff, president of the Private Label Manufacturers Association, said social media outlets are also playing an important role in the growth of private label. Retailers can directly reach consumers, lessening the need for national advertising.
“For many decades, consumer purchasing was determined by television advertising, something that brands understand and supported with great amounts of money. That state of media no longer exists,” Sharoff said. “TV no longer rules the roost. Media is divided into so many pieces that no company can dominate it any longer. Stores have become brands themselves and can promote their own products in a way that never existed before.”
Speaking at the National Association of Chain Drug Stores’ annual meeting in April, Linda Filler, Walgreens’ president of retail products and chief merchandising officer, said the chain has “an opportunity to differentiate Walgreens further with our own brands, more premium brands and exclusive programs.”
In addition to Circa, Walgreens rolled out Colour Prevails from Nonie Crème, a 140-stockkeeping color line with edgy packaging and vibrant colors. Beyond color cosmetics, Walgreens offers a product in its Beauty 35 brand that the company said compares to Clinique.
Walgreens is also carving out more space in beauty for Boots products, notably Boots No 7 and Botanics.
Walgreens’ Shannon Curtin, group vice president and general merchandise manager — beauty and personal care — acknowledged the important role national brands play in delivering customers to stores, but said there are still some white spaces to fill.
Rite Aid responded when its customers shared that they wanted a broader assortment of clinical skin care.
While some retailers seek exclusivity, others are moving solidly toward national brands. Kohl’s, for example, recently shelved its exclusive brands in favor of highlighting larger, well-known brands, such as Bliss and Cargo.
Wendy Liebmann, founder and chairman of WSL Strategic Retail, said she understands the need for retailers to distinguish themselves from one another, but encourages caution when it comes to exclusives.
“I have very mixed feelings about it,” said Liebmann. “Most retailers beyond Boots don’t invest enough in those brands. They think by just having them in the store that that’s enough,” she said, noting that Boots is supported with innovation and advertising. “That’s never been the case here [in the U.S.]. If retailers think by adding these unique brands into their stores it will create a point of differentiation, it only works with marketing and support.”
Even a celebrity doesn’t guarantee success. “It gives you lots of press coverage, but it doesn’t build trust and credibility,” she said.
Haynes at Maesa said celebrities such as Eva Mendes and Drew Barrymore “elevate” the experience, but that the brands are developed to stand on their own — and continue to grow. For instance, Maesa is rolling out Barrymore’s Flower line to Sam’s Club.