Can Private Label Be a Success in Mass Market Cosmetics?
By Laura Klepacki, special to GMDC
Private label cosmetics have traditionally been a difficult venture for retailers.
The high stock-keeping-unit count coupled with the necessity to stay constantly in touch with fashion trends, make it a detail-intense, time-heavy category. Then there are the sophisticated marketing programs and high-priced models that are an inherent part of the beauty business. How could a retailer brand possibly compete?
Of course, offering a private label or an exclusive beauty collection is a way to set a store apart from the competition in a category that lures the core shopper – women. So U.S. drug store and mass retailers have found an easier way to do it – many are now sourcing high quality, well-developed European brands and tweaking them for an American audience.
CVS has been a forerunner in this movement with the introduction of Lumene, a brand from Finland. It started as a test in select stores in 2003. By the end of 2006, it had rolled out chain wide. Lumene reported its U.S. sales grew 30 percent last year. It is a broad line containing color cosmetics like lipstick and mascara, as well as skin care products. CVS prominently displays the full product assortment in lighted blue and white fixtures.
Starting in March 2007, Target is offering the Lumene brand in 1,500 stores, possessing the brand exclusive in the discount store trade.
That’s not all. Also in March, both CVS and Target are expanding Boots beauty brand sections that have been testing in some 80 doors for about two years. The set will be in 1,500 Target stores and 450 CVS locations. It contains some of the U.K. retailer’s best selling proprietary beauty lines such as No. 7, Botanics, Mediterranean and Time Dimension.
Meanwhile, Walgreens has an exclusive with IsaDora, a cosmetics brand from Sweden. The program began simply two years ago with countertop displays and has progressed to take the lead position on its cosmetics wall.
The U.S. launches of these European brands are being supported with press events for beauty editors and in-store sampling and information. For instance, Walgreens provides an IsaDora cosmetics guide that clearly states the brand is “Exclusively at Walgreens.” A recent flyer outlined the benefits of each of its mascara, lipstick and foundation items.
Discussion Questions: What does all this international, private label and exclusive brand activity mean for the longstanding brands such as L’Oreal, Maybelline, Cover Girl and Revlon? How will the U.S. branded cosmetics manufacturers position themselves relative to these new offerings from major retail chains? On the other side, can major retailers make such fashion oriented-offerings work?
The driver behind this strategy is upscale differentiation. Retailers recognize that being unique and offering a differentiated assortment builds loyalty and avoids pricing disparities in the marketplace that can create shopper anxiety.
Margins can be maintained with a unique offering, and there is no need to price match big box retailers and their EDLP positioning.
The European brands can be perceived as upscale which is a plus to build image and a unique status with shoppers who buy this category frequently.
Stores want margins to rise for cosmetics and everything else. It’s hard to do that when you sell the same mass market brands like Cover Girl, Maybelline, and Revlon that everyone else sells. If you’re a chain, you can make an exclusive deal with a Euro brand that is desperate for American distribution. If you’re not a chain, you look for limited distribution brands who won’t sell discounters. If you’re the sales department at Cover Girl, Maybelline or Revlon you emphasize the higher turn propelling GMROI rather than the lower margins.
Premium private label and exclusive brand cosmetics stand an excellent chance to succeed if the project is treated by retailers with a disciplined and regimented marketing methodology.
“Hope springs eternal” and cosmetics is Hope in a Jar. Consumers will try almost anything if the promise is compelling enough in this category. So, I’m not surprised that these are doing well. The question in my mind is–how well will they do in the long haul? Can they meet expectations over time? Boots–sure. Others such as Walgreens? We’ll see.
From a UK perspective, and one close to No 7, bear in mind that No 7 is the Number 1 cosmetics brand on the UK high street. It has a unique position–pretty much worldwide–to be a retailer own-brand in holding that position and it only gets to keep that through delivering, in my opinion, quality–consumer believable results at a reasonable price. It plays the cues of the premium market but with the accessibility of self selection. Boots continues to invest in it, and it continues to evolve as a brand. It’ll be interesting to see what impact it has in the US versus a highly advertised market, where the Boots name has less associations.
Consider the success of what Wal-Mart did with the Rimmel brand. It was the private label/opening price point alternative to the major brands that caught quite a consumer following who traditionally did not buy “branded” cosmetics. A “me too” copycat strategy does not always work in this category, but innovation, pricing, merchandising, and promotion do make a difference. Any supplier that can focus more on the green initiative and sustainability in the marketing message should do well in major and alternative trade channels.
In order for retailers to make this work, they need to ensure that they have effective merchandisers in the store, ongoing. They need to have consistently high quality, fashionable products that they market to their consumers to create the demand and drive loyalty and sales. With all of the concern about “unhealthy” cosmetic products, this is a great opportunity for retailers to present a healthy alternative, that is also exclusive to their chain.
I would add two quick points to those above. First, Lumene stepped on a very slippery slope when it expanded the definition of “exclusive” to be “channel exclusive” with the dual distribution in CVS and Target. Or more precisely, CVS and Target may have. In today’s world of cross-channel shopping, “channel exclusivity” isn’t really that exclusive at all.
Second, to the question of how do national brands compete? They must use the traditional tools of brand building outside the store to offset the inherent in-store advantage of the retailer brands. Rarely can the national brand come up with a “partnering proposition” more compelling than the corporate mandate to build the corporate owned brands. So they must concentrate on the fact that purchasing is a process that begins long before the customer enters the store.
Some ideas:
Create a more compelling brand proposition. Cosmetics have a high “personal affinity factor.”
Do a better job of communicating that brand proposition to consumers. Make it so prominent that your brand becomes the latest “must have” accessory for your target audience.
Innovate! True differentiation only comes with product innovation.
Deliver. I’m certainly no expert on what “performance” means in cosmetics, or how easy it is to deliver distinguishably different performance, but in general it is the best performing product that wins out in the long run.
The growth of proprietary store brand cosmetics was inevitable. Beauty care still lags behind the rest of the store in private label development. At the same time, the beauty-conscious shopper is a very important one to most retailers.
The challenge for retailers is combine the image power of the leading national brands with the novelty of proprietary brands. Cosmetics is still and image business and retailers must remember they have to invest in the fashion element of their brands. Just as Wegmans lives their foody image across the stores, CVS and Target will need to communicate beauty and fashion in ways new to their stores.
National branded players need to be a step ahead and leverage their marketing and trend resources for both cutting-edge innovation and to set the fashion tone in store. Yes, some national players will lose share but not necessarily in the same store. All win with more innovative, on trend, healthier Cosmetics products that grow the category.
Cosmetics are a high margin business and an aging population provides an excellent potential for continued growth. Many retailers want to participate in this opportunity without being totally dependent on national brands.
Cosmetics require a certain cache and credibility to compete. It is often difficult for a retailer’s Private Label to achieve that versus a well known brand. Turning to the European brands is a smart move since they offer the image needed without the investment to build a new brand. Essentially, they are turning to the old concept of exclusive distribution or “controlled brand.”
This may be a healthy development if it truly offers the consumer more choices. However, if retailers attempt to eliminate major national brands to gain a position for their “branded label,” they may only hurt themselves.
Really good commentary here and I agree with nearly all of the points made. I see by the “voting” on the subject by RetailWire readers, however, that there’s a fair amount of skepticism. To the skeptics, I’d just suggest you go visit these stores and look at the PL and Euro brands on the shelf. Retailers are doing some really excellent work here.
Jeffrey is correct that the trend isn’t so much about “private label” in the old-fashioned sense of a store label–but about differentiation through exclusive national brands. This is the same trend that stores from Target to Penney to Kohl’s have been using in their apparel and home businesses for years, extended to the cosmetic department. And just because the European brands mentioned don’t have high recognition yet…well, that was true at one time of L’Oreal and Lancome, too.
As mass retailers such as Target and Walgreens strive toward differentiation, the challenge to true “mass brands” such as Cover Girl is how to partner on exclusive product development with key accounts. These efforts still require enough volume to drive brand-building and sales through national marketing.
The move to exclusive cosmetic and beauty brands by retailers is a natural one. In the never ending effort to attract and retain consumer loyalty, retailers are compelled to innovate. Certainly, creating proprietary shopping experiences that provide the consumer “something new and exciting” makes one store different that the other. This is especially true when new brands are introduced and the consumer perceives they are being offered a choice that did not exist before. Exclusive cosmetic and beauty brands certainly satisfies this need.
By creating these exclusive brands, retailers take more control of profit margins against the category. Because the brands are not widely distributed in other stores, this allows retailers to produce very high quality product and generally realize increased financial productivity. In the Drug class in particular, this is almost mandatory as this class continues to work tirelessly to improve non pharmacy sales (front end).
The potential is for the “perfect storm.” A place where consumers are happy with new innovative offerings and retailers gain more control of financial productivity. This is a trend that is likely to be successful and continue.
Whether it’s right or not, we’re bound to see more private label activity in this category. I agree; the most successful will be faux designer stuff.
Competition is what it’s all about. Strong brands, whether they be for private label cosmetics like CVS or Target, or name brands, take time to build. Look at the recent launch of Oil of Olay products and the differentiation now available.
The choices seems endless for consumers who really can’t judge the quality of these products, only the retail cost and perceived benefits.