LAUDER INVADES MASS, PURCHASES SASSABY AND ITS JANE BRAND

Byline: Pete Born / With contributions from Faye Brookman and Chantal Tode

NEW YORK — Estee Lauder Cos., the prestige-priced behemoth that controls 44 percent of the U.S. department store business, stepped into the mass market Thursday by acquiring Sassaby Inc.
Sassaby owns Jane, one of the hottest-selling and nimblest color cosmetics brands to enter the discount and drugstore arena in recent years. The brainchild of Howard Katkov, Sassaby president, and Don Pettit, senior vice president of marketing and product development, Jane was launched in May 1994 as a value-priced color cosmetics line aimed at teenagers, with its 311 stockkeeping units carrying a universal suggested retail price of $2.99 each.
Neither Sassaby nor Lauder would disclose a volume figure or the purchase price, but sales tracking firm Information Resources Inc. put Jane’s retail volume at slightly more than $22 million for the 52 weeks ended Aug. 24, a 46.5 percent leap over the previous year. The line ranked 13th in mass color cosmetics, according to IRI.
One Wall Street analyst estimated the purchase price could range from as little as $18 million to as much as $30 million.
Leonard Lauder, chairman and chief executive officer of Estee Lauder Cos., has big plans for Jane: “We needed to have a brand with a more modest price point that we could use to enter emerging markets like China and India,”
Not immediately, he added, but the intention is there. Lauder was emphatic about desiring no global confrontations.
“Right now we have no interest whatsoever in ever entering developed markets; we are not going to go into competition with the big guys,” Lauder said, referring to L’Oreal, Unilever and Benckiser. “What Europe certainly is not waiting for is another mass market line.”
In addition to a pricing alternative, Jane also provides Lauder with a different, younger customer. The customer demographics for Lauder’s Clinique division start “in the high teens,” he said, “and this is a step down from that by two or three years.”
Ownership of Jane also will give Lauder a feeling for the mass market: “It will offer us a laboratory to find out if we have a taste for this type of business.”
He conceded that the mass market is foreign territory: “It will take a lot of learning, but we are good students.”
In the past, Lauder has said he bought certain companies, like MAC Cosmetics, to acquire their management skill as well as their products, and this acquisition seems to be no exception.
“I like what they’ve done in such a short period,” he said, indicating that he intends to help them gain more ground. Lauder agreed with Pettit’s assessment that Lauder’s technological clout will empower the tiny brand.
Costs would prohibit the translation of Lauder products into mass, Lauder said, but Sassaby will be given the run of Lauder’s sprawling labs. Lauder added that ownership by a $3.3 billion global empire will give the startup a jolt of credibility.
Sassaby, which will be 100 percent owned by Lauder, will be a freestanding subsidiary with its operations staying in Cardiff by the Sea in Southern California, and in Baltimore.
Katkov said the company is profitable. Armed with the capital and technology of Lauder, there is ample opportunity for expansion within the mass teen market, he said, mentioning skin care, hair care and fragrance as obvious possibilities.
And one thing that the Katkov-Pettit team offers Lauder is entrepreneurial agility. Usually, when a mass brand enters the market it’s via a single, narrow-product category like nail polish or eyebrow pencils. Pettit, the product marketing guru, unleashed a full line of 144 sku’s. The brand was launched in 11 Wal-Mart stores in March 1994; by the end of the year, distribution numbered 1,700 doors.
For the most part, retailers are optimistic about Lauder’s purchase of Sassaby. Most believe Lauder’s expertise will benefit Jane as the company tries to increase the teen brand’s distribution from 9,000 to more than 25,000 doors in the next three years.
“I’m sure that both lines are in many of the same households,” observed Bob VonderHaar, vice president of merchandising for Ulta3 in Romeoville, Ill. “The moms have Lauder, and the kids have Jane.”
He said Jane was a good choice versus other niche players such as Prestige Cosmetics.
“Those companies try to get department store customers to buy mass; Jane goes after a customer who isn’t necessarily shopping prestige stores,” he said.
VonderHaar also said it is easier for class manufacturers to go mass than the reverse.
“And maybe drug chains pay their bills better than department stores,” said VonderHaar, referring to comments Lauder made about department stores at the inaugural WWD CEO Beauty Summit meeting in Carefree, Ariz.
VonderHaar applauded Jane’s management team: “Don is brilliant, and I think [Lauder and Jane] are an incredible combination.”
Katkov said the deal, which was in the works since March, will allow Lauder to reach an important and growing consumer base: “It fits with Lauder’s criteria of appealing to a unique market segment that complements their brands.”
Retailers cited Jane’s niche-filling ability. “Jane was the first line to really do a good job catering to the teen group,” said Maggie Parish, senior cosmetics and fragrance buyer at Target in Minneapolis. “This is a very competitive market right now, and having the Lauder group behind them will give them more power. This is going to take Jane to the next level.”
“It’s a very positive move for Jane,” said Mary Prince, divisional vice president of cosmetics and fragrance at Kmart in Troy, Mich. “I’m hoping additional funds will be allocated for Jane as a result.”
Denise Valerio, assistant category manager for Longs Drug Stores in Walnut Creek, Calif., credited the line with helping Longs attract more young shoppers.
Scott Gorley, senior director of health and beauty aids for Phar-Mor in Youngstown, Ohio, said his company was expanding its Jane commitment based on initial results. Rite Aid, in Harrisburg, Pa., following successful tests in the Thrifty Payless division, has increased its footage for Jane.
A few retailers, however, were less sanguine.
One drugstore chain executive said the Jane fixture has been problematic and requires high levels of maintenance.
Another said the $2.99 price points are detrimental because “they trade people down from Revlon and Maybelline, but not up from budget.”
On the other hand, Target’s Parrish likes Jane’s singular price point, saying it “makes shopping easier.”
Others pointed out that Jane now faces stepped up competition from other youth-oriented lines such as Renaissance Cosmetics’ Fetish, AM Cosmetics’ Sweet Georgia Brown, Bonne Bell, Sel-Lab’s Loud Music and M Professional. Revlon’s Street Wear also is aimed at young shoppers, but retailers noted its sales are falling off.
A source at a discount chain said Jane’s quick growth in the past year can be attributed to an increase in distribution as the company focuses on expanding into drugstore chains. However, all retailers were impressed with the thought of Lauder tinkering in the mass arena. “We’d love to have this open discussions with them about fragrances,” noted one source.
Norbert Becker of Renaissance, a Jane competitor, said the deal represents Lauder looking for another unusual opportunity like MAC. “And it does make you wonder if they are looking to upgrade Jane or get into mass as the gap between channels narrows,” he said.
Another of Jane’s competitors speculated that Lauder intends to experiment in the mass market and probably will buy another brand, because Jane has a narrow appeal, and its audience tends to outgrow brands quickly. Another executive likened Lauder’s move to “sticking a toe in the water.”
Cosmetics executives have long speculated about Lauder’s possible expansion into the mass market, with Leonard Lauder saying, during an interview in 1995, that he would consider a mass market acquisition under the right circumstances.
“I do wish that I had that mass market anchor,” he said then. “I think there’s a lot of business to be had with Sears, Penney’s and Wal-Mart.”
Subsequently, reports circulated that Lauder had considered buying Maybelline. But industry executives deemed that idea too ambitious a bite for Lauder, which lacked mass market experience, and the prize was snatched up by archrival L’Oreal.
About three weeks ago, Fred Langhammer, Lauder president, made a remark at a financial seminar indicating the company was in the market. The same week, Lauder made some observations about the mass market while speaking at the CEO Summit in Arizona.
He predicted that a 13 percent bulge in the country’s population of 13-to-24-year-olds would create “a great makeup opportunity” and that conditions are ripe for value pricing in the mass market.
Ironically, Katkov was a panelist at the same three-day Summit that Lauder was attending. At the end of a panel discussion, a member of the audience asked the speakers if their companies were up for sale or going public.
Katkov responded, “I’m having too much fun. I’ve only been in this business three years, so I have the advantage and disadvantage of not being burned by it, so I intend to stay.”

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