NEW YORK — Retailing and gambling have a lot in common.
When a retailer purchases a new item, it is akin to taking a chance on a racehorse or plunking down a bet at a craps table.
In the past few years, more buyers have hedged their bets by picking proven winners from large manufacturers rather than gambling on newcomers. The result has been a reduction in the number of fresh new brands entering the mass beauty race. Although there have been many line extensions, there have been few new companies.
“I can’t remember many entirely new launches since Jane,” said Candace Corlett, a partner at WSL Strategic Retail in New York, referring to the teen cosmetics line introduced eight years ago and eventually purchased by Estée Lauder Cos.
In the early 1990s, retail-store shelves were bulging with start-up beauty brands bearing names such as Nat Robbins, Sarah Michaels or Fun Cosmetics. Often, retailers selected these niche marketers because they fulfilled an overlooked nook in the beauty lineup.
Over the years, however, major manufacturers kicked research and development departments into overdrive to create unique products as fast as fledgling firms. When long-wearing makeup made its debut, it was from Revlon. When aromatherapy emerged, it was pushed by Coty.
Retailers started applying more stringent tools to measure the productivity of new brands. Beauty items needed to turn or be eliminated.
The result: entering the race is more expensive than ever. One reason the gamble is so risky is that the mass retail world has been compressed into a handful of players. “The consolidation of the industry has transferred power to the retailer. The space they have is so valuable,” said Cortlett.
Several small manufacturers who asked for anonymity concurred and said that a great deal of retail real estate today is “bought.” Several said Target Stores, for example, auctions off its retail space. Target declined to comment. Others lament practices such as guaranteed sales or pay-upon-scan as factors that make it hard to get into today’s retail behemoths. These practices are much like slotting allowances in the supermarket industry and favor firms with deep pockets. Retailers are also staging test markets in handpicked stores rather than allowing vendors to do their own tests of products.
Yet newness is what really propels the beauty business, especially in drug or discount stores where so much merchandise looks alike. “People are stopped in stores by something new,” said George Rosenbaum, chairman of Leo J. Shapiro and Associates, a market research firm in Chicago.
Today, however, the launches stopping shoppers are most likely product line extensions from an old brand. Tom Vierhile, executive editor of Productscan Online, which tracks new product activity, said there is no shortage of new beauty items. “Beauty is out of control. It is amazing how many new makeup products there are.” In facial makeup alone this year there have been 806 new entries, versus 652 last year. The only beauty area exhibiting a decline is fragrance, where marketing expenses are even higher and the industry is posting declining sales.
Meanwhile, failure rates are high. Today it is estimated that as many as eight out of every 10 new items flop, according to Marketing Intelligence Services. When an entrepreneurial firm does crack through the clutter, the company often needs a corporate parent to purchase it to finance further growth. A handful of examples include John Frieda, Tony & Tina, Demeter and even Jane.
And, a new brand can no longer merely buy its way into the business. “You used to buy the three networks and maybe Fox and reach everyone,” said Corlett. That’s not the case anymore in a world where consumers are bombarded with messages everywhere.
Shapiro’s Rosenbaum agreed and said that’s why marketers — even entrepreneurs — are looking for new avenues. “Advertising, in many cases, is going to have to be supported by assistance in the store,” he said. The service doesn’t always have to be in the form of a person. Rosenbaum said technology could relieve some of the need of assistants, especially in mass market doors where service is not always available.
Although costs and risks are high, there are success stories. Walgreen’s, for example, was singled out by sources as a chain that will get behind a product and nurture it. “Walgreen’s does such a good job with new products,” said Cynthia Henry, a former buyer who now works for Delta & Associates, a category management firm. “They give prime placement to new items and have them right when customers are starting to hear about them.” She cited examples of how Walgreen’s had a hot new diet item on an endcap just as advertising aired.
Procter & Gamble is also lauded for its efforts in extending brands. The new Olay Ohm is a case in point. Retailers have a comfort level in the Olay name that encourages them to buy heavily into Ohm. P&G’s chairman A.G. Lafley has made it clear that he intends to expand the company’s big brands rather than venture off the track.
However, the results are not always what retailers expect. Even with the stellar Olay name behind it, P&G fell off course with Olay cosmetics, despite spending more than $90 million. Many buyers took on Olay cosmetics because of P&G’s reputation.
Ironically, some space Olay once commanded is now being given to a handful of entrepreneurial ventures, such as Prestige Cosmetics, launched in the mid-Eighties, and Caboodles, which was created in 1998. Both remain independent and each has recently enjoyed an uptick in sales. Perhaps the little guy will be able to get back in the race.