To grow — and, indeed, survive — in the evolving beauty landscape, it’s necessary to look at the competitive field in an entirely new way, says Neil Fiske, chief executive officer of Bath & Body Works.
“The beauty landscape, when you put it all together, is pretty exciting,” said Fiske. “Total consumption, properly defined, is growing about two times the economy. New channels are growing rapidly. You have the direct channel, whether it’s infomercials, QVC; you have the Internet, you have door to door — Body Shop at Home is an example — growing double-digit rates in the U.S., eBay. You have proliferation and growth of the specialty channel, lots of boutiques. And you have the off-mall channel, which is experiencing very strong growth rates.”
Fiske, who used his theory of affordable luxury to reposition Bath & Body Works — and launched the chain’s new flagship format — is not afraid to practice what he preaches, having teamed up with brands such as C.O. Bigelow, L’Occitane, Dr. Patricia Wexler and American Girl to revamp the chain.
“The next five years in beauty retailing will unleash more innovation, more change, more radical transformation than in the previous 30,” said Fiske, pointing out that spas and cosmetic surgery are among the growth areas that can be leveraged. “I think our constraints to growth are largely self-imposed. [In] the conventional view of the beauty market, you have body care, hair care, color, and it’s chopped up into the little channels of distribution — mass, direct, specialty — and it’s about $45 billion. And for a long time, most of us have probably been looking at the industry, one way or the other, like this. The problem is, if this is the way we look at the beauty business, we’re not going to grow. If you look at it over time, measured the same way, the conventional view of the beauty market has grown 2 percent to 3 percent per year, not adjusting for inflation. After inflation, flat or negative over a five- or six-year time period. We are lagging [behind] the growth of the overall economy.”
Fiske suggests taking an expansionist view of industry and the consumer. “Let’s look at where she is spending her money and how she thinks about the beauty category,” he said. “If we define it that way, we get to a much different picture, more like $170 billion. It starts with the $45 billion I just showed you. Then, if you simply add the hair salon business at $53 billion, that’s a big chunk. Nail salons at $6.5 billion; cosmetic procedures, a $12.5 billion market now. Tanning, $5 billion. Spas, over $11 billion. Cosmetic dentistry, $3 billion. Health and fitness, a $15 billion business. Vitamins, $9 billion. And if we don’t think that’s beauty, we’re not thinking about it the way she is.”
Beauty services are “clearly outpacing” the rest of the industry, said Fiske, who noted that salons are growing at 7 percent per year, and said that from 1997 to 2002, spas went from being a $2 billion industry to an $11.4 billion industry. Cosmetic surgery procedures are growing at 24 percent per year, he said, while cosmetic dentistry is growing 29 percent per year and the number of nail technicians is growing 9 percent per year. “What’s the message? She’s spending more than she ever has on the beauty category. [If] the product is right, the service is right, the environment is right, she will trade up. And I think our constraints to growth are largely self-imposed…How many of us have yet thought about the potential of spas as a distribution channel?
“On the one hand, we hear about massive consolidation. On the other hand, there have never been more points of distribution in retail than there are now. So how do we square these two views? The expansionist view would say, ‘Look at the consolidation.’ Industries that consolidate typically aren’t very innovative; industries that consolidate typically are mature. And I know we love the anti-aging business, but I don’t think we really want to be a mature business. The deconstructionist view would say that the proliferation of retail channels and points of sale is very much a counterrevolution of sorts to a growing consolidation in the traditional channels. Competition in the conventional view is viewed as very much zero sum. One competitor wins, the other competitor loses. One fragrance is a success, it’s at the expense of another. The expansionist view is that the category is incredibly elastic. She will spend more money on beauty if we give her the right products and the right experience to buy them.”
Internationally, opportunities abound, he added. “This truly is a global market, not just with the presence of global brands and global appeal, but an enormous opportunity exists for us in those newly developing countries is enormous,” Fiske said, adding, “The connection between inner and outer beauty is really an opportunity to expand our growth and our thinking about the beauty category.”
“How do we accelerate growth? At the end of the day, I think it comes down to three simple things. First, we need to become, as Judy [Wray of Rite Aid] said, customer-centric and never underestimate her. Not know about her, not research her — know her. Go into her home, go shopping with her. Second, we’ve got to break down walls and classifications. You have to break down the way we think about things. It’s not the white kid dressed up in hip-hop, it’s just a kid growing up in a multicultural environment. When we classify things, when we put people in boxes, when we think about the industry as having boundaries, we stifle our growth. And third, it’s really about embracing change. It’s about embracing the upstarts, the iconoclasts, the rule-breakers, the outsiders and the newcomers. Most of our best hope for innovation and dramatic acceleration of growth in this business comes from the newcomers, the outsiders, the people who are willing to change and challenge our thinking.”
“How many times have we heard that there are too many fragrance launches? A lot over the course of the last day and a half. The funny thing is, we heard it two years ago, too. How many times have we heard too many promotions? Funny thing is, we heard it two years ago,” Fiske said, labeling the industry’s problem “the prisoner’s dilemma.” He described the condition as being trapped in a habit but unable to change out of fear of the consequences.
“As long as we keep defining the industry on our terms, not the consumer’s terms, we’re going to be trapped.”