CHALLENGES MOUNT AS BEAUTY MARKET SHARE SLIPS AT DRUGSTORES
Byline: Laura Klepacki / Faye Brookman / Andrea M.Grossman
NEW YORK — The heat is on drugstore beauty.
Chain drug executives heading to Scottsdale this weekend for the National Association of Chain Drug Stores Annual Meeting are once again looking at diminishing market shares in several cosmetics and beauty care segments.
It’s no secret that mass merchandisers have been gaining momentum, and 2000 results were no different. According to sales data from Information Resources Inc., drugstore lipstick, perfume, eye makeup and facial cleansers fell, while mass merchandisers picked up volume in each.
In fact, a fall-off in drugstore sales of lipcolor caused the category to dip 1.9 percent over the previous year. Sales at mass outlets, which includes retailers like Wal-Mart and Target, grew 4.2 percent to $315.9 million. Even supermarkets saw a modest rise of 2.8 percent to $85.6 million. But drug fell 7.7 percent to $363.8 million.
In some categories where drugstores did enjoy growth, the successes did not match the inroads made by their mass competitors. For facial makeup, sales at mass outlets, which now dominate the category, jumped 9.3 percent to $550.9 million, compared to a 2 percent rise at drugstores for sales of $445.7 million. Food stores also enjoyed a 7.3 percent kick to $133.6 million.
Drug chains are being challenged in the teen category by mass merchants and also mall-based specialty stores. Wal-Mart, for example, recently launched a teen bath line called Two Girls. Wal-Mart is also readying a youth makeup line. Last year, it added Rimmel from Coty targeting young women. In addition to offering more private label lines, mass stores have been winning customers with their discount pricing and large departments.
Although some drug chains are trying to build a home for youth products, the efforts are not without travails. CVS is lauded for its efforts with Grl Lab, a special display for youth items. However, spot store checks find that the area is not being kept up. At a store in Chatham, N.J., for example, only a handful of products were casually placed on the display.
Counter that with the power of specialty stores. At the Woodfield Mall in Schaumburg, Ill., the Bath & Body Works store was packed with customers on the Friday prior to Easter. Instead of traditional candy, shoppers were snapping up bath and body products for Easter baskets. Bath & Body even offers baskets for shoppers to fill. Teens were flocking to Bath & Body Works’ Art Stuff, which has achieved a cult status in the market, according to the store’s manager. One floor down at Club Libby Lu, a two-store specialty operator, girls clogged the aisles. Most were making their own body lotion and fairy dust at $8.50 a pop.
Isaac Cohen, chief executive officer of New Dana, thinks drug chains need to do more to create an environment to capture young customers. “Girls shop drugstores, they just don’t always think of buying makeup there, although they are cost conscious. They don’t have the bottomless purse we think they do,” he said.
But according to a study by WSL Strategic Retail, all women are shopping for cosmetics in drugstores less and less. In 1998, 19 percent of survey respondents cited drugstores as their first stop for cosmetics, and that fell to 16 percent last year. Whereas some 21 percent of the survey shopped mass stores for beauty in 1998, which jumped to 34 percent in 2000.
For older customers, New Dana’s Cohen recommended drug chains get back to service which they abandoned 10 years ago. Walgreens is one chain that hasn’t wavered from the service aspect and has the successful sales figures to show the value, bucking the industry trend.
“On one hand, drug retailers are doing things around cosmetics and beauty and with their own lines. They are certainly taking in all the new brands and presenting them,” noted Wendy Liebmann, president of WSL. “The fundamental issue is they are continuing to present beauty, and cosmetics specifically, the way it has always been presented.”
And there are several newcomers eager to draw out more drugstore beauty business. In August, Avon is launching a beauty collection in select Sears and J.C. Penney stores called BeComing that includes cosmetics, skin care and aromatherapy at prices that challenge high-end mass brands like Revlon and L’Oreal.
A Long Island firm has been testing a new format called Fresh Mix Beauty in a handful of East Coast malls. Situated in a large kiosk, Fresh Mix offers customized items in facial skin care, body care and hair care, with prices ranging from $4.50 to $12.
Meanwhile, there is no indication that specialty fashion stores are backing away from beauty any time soon. Swedish retailer H&M, which hit the U.S. last year, offers an extensive cosmetics and beauty care collection. H&M now operates a handful of U.S. stores, but sources predict the chain could open up as many as 20 units in the U.S. this year. H&M’s beauty prices, such as liquid foundation for $5.50 and an eye shadow quad for $6.50, also tempt mass market shoppers. And Avon BeComing, H&M and Fresh Mix all feature beauty consultants.
While cosmetics and beauty sales only account for an average of 3 percent to 8 percent of overall annual drugstore sales, it is an important part of the profit formula. As pharmacy margins are being squeezed by health maintenance organization, drug chains are eyeing higher margin front-end departments for growth. And as noted by Liebmann, drugstores have been making efforts to tend to beauty.
To make the chain more competitive, Rite Aid decreased the prices of health and beauty aid items last year. And it has also set out to increase its offerings and sales of private label brands. Recently, that included the launch of a private label bath line.
At CVS, front-end sales increased last year to $7.2 billion, but has continued to represent a smaller piece of the chain’s total business. In 1998, front-end accounted for 42 percent; in 1999 that moved to 41 percent, and in 2000 it was 37 percent.
Walgreens’ beauty, as a percent of sales, has remained relatively stable at 8 percent over the past three years. Overall company sales rose 18.9 percent to $21.2 billion in 2000, representing $1.6 billion beauty business.