By Laura Klepacki, special to GMDC
Cosmetics can be an alluring category. The department drives traffic and offers attractive margins.
But if supermarkets want to hold on to a piece of this pie, they will have to find their own way to do it - and quickly.
In the past two years retail competitors in both the drugstore and discount store channels have made forward leaps in creating unique beauty destinations for their consumers.
For example, both CVS and Target are testing 16 to 20 foot linear sections featuring a host of brands from Boots the Chemist, including the top selling No. 7. That initiative, now in 167 doors, is expected to multiply in 2007.
Separately, Target continues to leverage its proprietary Sonia Kashuk Professional Makeup Artist collection; CVS has made Finnish brand Lumene its store exclusive while Walgreens presents Swedish brand IsaDora. Even regional drugstore chain Duane Reade introduced a color line with Apt. 5.
More than ever, supermarkets are positioning themselves as the one-stop shop for consumers, providing not just foods, but everything from healthcare to upscale food service to banking and postal services, just to keep abreast of cross-channel competition.
Yet when it comes to cosmetics, there has been little distinction. Sales have been soft for several years. In the 52 weeks ended September 10, the nation’s 34,000 supermarket-doors rang up $468 million in cosmetics sales. That follows three years of declines or limited growth of under 1 percent. In fact, the supermarket industry is way down from the 2003 sales of $489 million, according to data provided by Information Resources Inc.
Meanwhile, the 39,000 U.S. drugstores had cosmetics sales of more than $1.86 billion in the current year, up from $1.76 billion in 2003. The drug store growth trend has been steady, albeit limited in percentage increases, and the dollars are substantial. The discount sector, excluding Wal-Mart, inched up slightly to almost $700 million in the rolling 52 weeks to September 10.
There are supermarkets that have been spicing up departments, so some supermarket executives do believe in this category and its potential. For example, some Shop Rites have added a Burt’s Bees end cap near the health food section. Giant Foods of Carlisle, Pa. unveiled its Neighborhood Drugstore concept where cosmetics is tied to pharmacy and other HBA categories under the "Relax, Renew, Revive" banner. In some Stop & Shop stores cosmetics is located in an HBC valley, which features special, lower profile, fixturing.
There are many issues plaguing cosmetics - slow turns, high pilferage and the issue of service. It’s a difficult category too because it follows fashion trends that call for seasonal shade collections. Cosmetics is image-driven and, because of the high stock keeping-unit count, is labor intensive. It may require a good, knowledgeable distributor to oversee it. But if done right, it can keep women coming back. Indeed, there is plenty of potential in cosmetics for a supermarket; high margins (25-40 percent is feasible), a large category which every woman buys, as well as being a huge draw for women shoppers (still the most important customers for supermarkets).
Discussion Questions: How can the many issues with cosmetics in supermarkets be addressed? How should retailers and their supplier partners go about deciding what role they want the department to play? How important is a top down commitment to making cosmetics work in a supermarket environment?