Beauty Wars: A Look at the Major Players

There is a retail war going on right now to compete for your beauty budget. I’ll start with a few confessions.

1. I’m a beauty junkie. I have a bestie and we both once lived in The City, New York that is. When were equally miserable at our underpaid jobs in Manhattan offices, we would call each other, bitch, and put on eye cream. And I lip gloss. Why does a woman need 15 different kinds of lip color at once? That’s what beauty executives worldwide are trying to figure out. It’s not a science but there is a difference between a balm, a stain, a gloss and a lipstick. And I doubt if the white men running these businesses understand but they do understand that these are impulse buys for many of us.
2. I own stock in both LVMH, the parent company in Sephora, and Ulta. These two are at war over the prestige market, which was historically controlled by department stores. According to a July 2012 WWD article, in 1997, department stores controlled 90% of the prestige market. Sephora and Ulta are working hard to make sure that number drops. In fact, according to the same article, there are three players that aim to take a big bite out of the prestige market and eat into department store market share: Sephora, Ulta, and the independent Blue Mercury. I believe the latter is a private company, one founded by a husband-wife team, which focuses solely on the luxury market and has the benefit of one of its founders being a female with a Harvard MBA and a policy master’s from Harvard‘s Kennedy School. Meanwhile, Ulta is pushing ahead with growth in stores and Sephora is as well, but Sephora is also pushing its J.C.Penney tie up as a means to expanding its footprint in North America.
3. Walgreens is a surprise here. I should’ve known when I was still in NYC and sometime around 2009 or 2010 they acquired what in NYC is a ubiquitous drugstore chain, Duane Reade. After they acquired DR, suddenly you could everything you might need in one place: eye cream, condoms, your prescriptions, coconut water, a packaged salad, and more. And now they’ve gone even further; there’s even one Manhattan DR where there is a sushi bar, a frozen yogurt section and a coffee and soft drink section, as you’d see in 7-Eleven. Now add to this the recent news that Walgreens is buying a 45% stake in U.K. beauty retailer Boots and you have a major contender. The deal also allows them to buy the remaining share of Boots, but that could cost them about $9.5 billion. Walgreens also owns Drugstore.com.

Caveats

Here’s the thing about Walgreens though. They are definitely going with the growth by acquisition model but according to a WWD article, some on the street are watching Walgreens because it took on a considerable amount of debt to buy the Boots stake. Another comment is how they will accommodate Boots products, which til now were mostly just available at Target. One unnamed executive told WWD, “So let’s say you are adding three feet of Boots – some vendor has to go and it won’t be Procter & Gamble or L’Oreal. Little brands on the wall could risk going away.”

Regarding Ulta, my concern is their model. Sephora is focused on exclusives and prestige only. Blue Mercery is going after the upscale crowd – think Hamptons, Manhattan, LA, Greenwich, Silicon Valley even. But Ulta is going with a one-stop-shopping model by putting mass, prestige, salon products, and a salon all under one roof. To be honest, I’m not sure if this is asking for too much. That said, they offer tons of coupons and frequent circulars, as well as a rewards card, so maybe there is room to fill in that middle space in upper middle class areas of America, suburban strip malls to be exact.

One more note. According to a March 2012 article in the U.K.’s Marketing Magazine, trends include: affordable treats, gifts, innovation, proving efficacy and quality for pricey products, and DIY treatments. The report also shows Superdrug, Boots and Tesco are the top beauty players in the U.K. and The Body Shop is an outlier amid the rest of the L’Oreal brands, which apparently is need of an image reform.

Room for Growth

In my opinion, there is still growth potential in two areas and I’m hoping to get into the latter.

• Tweens. Kids grow up faster these days and they are exposed to products and looks whether we like it or not. Why not push for more, safer and milder personal care products for tweens and teens, like those approved by Teens Turning Green.
• Ethnic Market. This market is broad and in my opinion, includes anyone that can’t run a small black comb thru their hair or doesn’t see makeup on the shelves that fits their complexion. Translation: from Jews to blacks in terms of haircare, from Asians to Latinas to blacks in terms of makeup, Halal and Kosher products for observant Muslims and Jews (no gelatin, etc), safe relaxers, transitioning kits, tinted moisturizers for all, you get the picture.

The reason I think there is room in these sectors is that historically major beauty and skincare companies haven’t seen the demand to warrant spending on adding foundation for women of color, haircare, until recently, for all minorities, and still there are so many independent companies that cannot afford good shelf space at major drugstores. But this demographic is growing in size and income. They deserve a place where whatever their style – straightened or natural – they can be catered to and appreciated it. I myself would like a judgement-free zone that offers products for the days I want sleek hair and the days I don’t want to be “tamed.” Maybe it’ll take one of us to create it…

Regarding teens, most companies probably never realized that mom is buying the 10-year-old girl her first lip gloss or an OTC acne product. Again we circle back to the most important factor- women largely still control household income, whether they are a housewife or the breadwinner. And this is global. Chew on this – many studies in the developing world resulted in this same finding – that quality of life will increase with more money but you better give it to the women because men will probably drink it, but women will use the money to support their family’s needs. The same is true from Africa to North America, but in America, we have the luxury of a little thing called disposable income. The Lipstick Effect is still current, and the retail Lipstick wars have begun.

 

Thoughts? Tweet us @Trendcetera