Exclusivity Driving Growth in Mass Beauty

Change was in the air at the National Association of Chain Drug Stores’ annual meeting, held April 27 to April 30 at The Breakers in Palm Beach, Fla.
Historically, the pharmacy accounts for about 70 percent of most drug chains’ revenue. But escalating fees for prescription drugs — NACDS reports that DIR fees have increased 47,000 percent from 2010 to 2017 — has cut into the profit margins of many retailers and put pressure on the front end of the store to be more productive, particularly on beauty, which constitutes the most profitable section of most mass retailers.
“Beauty is an important category,” said Stefano Curti, global president of Markwins. “Customers tell us it’s the most profitable part of the business.
“The biggest challenge is the fight for market share,” he continued, “and inventing something new that transcends product.”
“The trade continues to be highly engaged with beauty, as it drives traffic to the stores and online platforms,” agreed Serge Jureidini, chief marketing officer of Revlon Inc. “Three things resonated as a big focus this year — personalization, clean beauty and the rapid growth of e-commerce.”
Indeed, for the last year, mass retailers have been going head to head, unleashing several new concepts in beauty, each designed to expand its footprint in the category with Millennial and Gen Z shoppers.
CVS’s efforts have centered around its Beauty IRL concept, adding digital-first brands and Glamsquad services to select stores, while Walgreens has partnered with Birchbox to bring prestige and specialty brands into its locations. Target has added new categories, such as men’s grooming products and clean beauty, that are said to be doing well, and a slew of new lines.
“Everyone is trying to figure out profitable growth and what are the big bets,” said one manufacturer, who declined to speak on the record. “What do we need to do to move the needle?”
For certain, one answer lies in a differentiated product assortment, particularly when it comes to exclusive and private-label brands.
“The Amazon effect has created an insatiable appetite for proprietary brands,” said Julien Saada, founder and chief executive officer, U.S., of Maesa, whose brands include Flower by Drew Barrymore and Kristin Ess hair care. Saada said the company is currently working on six to eight new brands, including two slated for launch in 2020, one at Sephora and the other at Walmart.
“Our theory is there is no difference between walking down an aisle in a retail store or scrolling with your fingers on your mobile phone. Consumerism is insanely alive,” he said. “Retailers are realizing if they all have the same stuff, there is no reason to buy any of it. Retail works, but you need to give consumers a reason to buy.”
In terms of what works brand-wise today? “You need authenticity, differentiation and a spokesperson who is going to drive awareness,” said Saada.
The recipe seems to be working. “Target grew its beauty business by almost a half-billion dollars in 2018,” said one source, who added that 75 percent of that business came from differentiated brands.
A Target spokeswoman couldn’t confirm the figures, but did say that differentiated brands are an “important and growing area of the business.”
At Ulta Beauty, brands like Morphe and Kylie Cosmetics have been unqualified successes over the last six months. “Where we’re really winning is with brands that are differentiated and exclusive to us,” said Monica Arnaudo, senior vice president of merchandising for mass, hair and accessories.
Key initiatives for the retailer thus far this year include the creation of a 16-foot textured hair section, with mass, prestige and professional brands all merchandised together. Ulta is also rolling out chain-wide a 16-foot section devoted to at-home hair color, anchored by Madison Reed (“an exclusive,” noted Arnaudo), and featuring on-trend items like trendy colors and hair glosses.
Arnaudo said scalp treatments continue to be an area that is “small but growing,” and added that CBD and hemp oil continue to be buzzy across all categories.
That doesn’t mean that heritage brands are fading from the picture. “It’s a balancing act,” said Arnaudo. “The trickiest part is that it’s moving so fast.”
Likewise, “emerging and private brands” were one of the five key trends that Walmart said will impact people’s purchases in the future during its “Meet the Industry” presentation.
The others were local/natural/organic; new ways to buy, i.e., omnichannel, social commerce, two-day delivery; the evolving role of the brick-and-mortar space, and data-driven personalization.
The big consumer packaged goods companies are working hard to achieve equilibrium in the category. “We feel great about beauty,” said Carolyn Tastad, group president, North America, at Procter & Gamble. “There is plenty of room for growth in our categories. For our second half, we’ll build on the positive momentum we’ve seen this year behind our new innovations like Pantene Rescue Shots, sulfate-free collections in Pantene and Herbal Essences and sun-care innovation from Olay.”
That’s not to say that P&G isn’t testing new models and incubating brands of its own in the rapidly changing landscape. “As the retail environment continues to change rapidly — and new brands enter the market every day — P&G and our retail partners have an opportunity to more completely satisfy consumers’ needs. This will include differentiated approaches, and much more experimentation and incubation of new ideas,” said Tastad.
“Making P&G’s leading brands available to consumers through brick-and-mortar and online retailers will continue to be the largest part of our business, while we will also innovate, test and learn with new products and new go-to-market models," she added.
Wet N' Wild and Physicians Formula are moving aggressively to differentiate themselves as well. The Markwins-owned labels are both undergoing facelifts for 2020, in terms of products and experiences.
“The idea is multi-touchpoint. Diversity in who we reach and how we show up,” said Curti. “Innovation is not just new products — it is also experiences. We are translating differentiation into new ways for fans to interact with our brands.”
Markwins is focused on expanding categories, too. Its Lip Smacker brand, for example, has a robust pipeline of collaborations for its core lip balm business, with everyone from Crayola Crayons to "Frozen 2," the film due out in September. But the brand also recently launched Smackers, a line of makeup geared toward kids, at Target.
“It’s not about color, it’s about fun without being excessively made up,” said Curti. “Our retail customers like it because while we’re all fighting for share in foundation, this is totally incremental.”
The changes in beauty largely reflect larger sociocultural trends that are impacting stores. “Time is the new value,” said Colin Mackenzie, region head of the Americas for GSK Consumer Healthcare, during his opening remarks. “Consumers are saying ‘Find me. Don’t make me search for you.'”
He cited the oral-care category as an example: One-third of consumers have tooth sensitivity, he said, but only 30 percent of those people treat the symptoms.
“Gone are the days of one message reaching millions,” Mackenzie said. “Now, we need to reach each consumer with messages relevant to them as individuals.”
It was a point echoed by a major retailer with over 9,000 stores in the U.S., who requested anonymity. “We need to stop thinking about channels and start thinking about customers,” said the retailer. “Channels are about big corporations controlling distribution. Our stores used to be cookie-cutter, but it’s now about making the store experience more relevant to the consumer.
“We won’t do anything in our stores that is the same,” continued the retailer. “Each store has a different customer with different needs.”
That is going to create a tricky dynamic for larger brands and manufacturers to navigate said Wendy Liebmann, chief executive officer of WSL Strategic Retail.
“The retailer’s need for differentiation is urgent,” she said, “but for a manufacturer, how do you tell a consistent story? What goes everywhere and what doesn’t?”
Moreover, with the influx of exclusive and private label brands coming in, space is shrinking. “Now a brand has 16 feet instead of 24,” Liebmann said. “They’re thinking about how they protect their space, but they should be thinking about how they protect their sales and grow their business — whether they’re in 24 feet or not.”
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