CVS and the "Lipstick Index"

CVS is taking the bold step of going upscale in the midst of a recession. According to this article, they have been trying for years to get prestige cosmetics and fragrance brands to sell through CVS, but were unsuccessful. Their solution is to open boutiques in the 2500-4000 square foot range, connected to but clearly separate from adjoining CVS stores. At present two are open, fifty are planned for 2009, with the possibility of up to 500 eventually (and talk of being a billion-dollar business).

According to Bloom, CVS shoppers had for years expressed a desire to purchase high-end cosmetics and skin-care products in a convenient location with great service. CVS certainly had enough convenient locations—60% of the female population in the U.S. lives within five miles of one of its 6,800 stores. The key was convincing the top brands to work with CVS. "Health and beauty is important to us, but suppliers have refused to sell us whole classes of products," says CVS CFO David Rickard.

Bloom enticed vendors with a retail environment that looks nothing like a CVS drugstore—white tiled floors, brushed-metal walls, and sea-foam color accents. (The stores measure between 2,500 and 4,000 square feet and are connected to adjacent CVS stores via a breezeway.)

In the course of the video interview attached to the article, a CVS exec refers to the "Lauder Lipstick Index" as part of the justification for the new stores. I had heard the term a couple times recently, but wasn't clear just what it was, so I did a bit of research: It's an idea, proposed by Leonard Lauder, head of the Estee Lauder company, in 2002, that consumers will cut back on big-ticket items in a recession, but will compensate by splurging on a few small "affordable luxuries". Thus a woman might make herself feel better about canceling a proposed winter holiday by buying an upscale lipstick from Estee Lauder.

It's an interesting idea, although The Economist gives it the kiss-off, so to speak, in this graph, which seems to indicate that there's little if any correlation between lipstick sales and the economy -- sales were up a bit in the 2001 recession, but sank in 1991 even worse than the economy did.

I don't know that Mr. Lauder meant his index to be taken quite so literally, though. The idea that people might compensate for foregoing big luxuries by indulging in little ones seems to make sense intuitively, and has obvious applications for a great many marketers in the current economic environment. It would be interesting to know if there is any proof for it, or if any research has been done.

To get back to CVS, their experiment seems like a worthwhile effort. Certainly the times demand innovation, and past history indicates that companies who innovate during recessions benefit disproportionately. Their timing is very good in one regard -- with the decline of department stores, historically the principal channel for prestige cosmetics brands, the suppliers are probably more open to the idea of working with someone like CVS than they were a few years back. They have signed on some leading brands, including Laura Geller, Paula Dorf, and Coty Fragrance.

Strange-sounding line extension

Not that I claim to be any kind of expert in this area, but this sounds like a very strange idea -- Mattel is licensing the Barbie name to a company to market a line of cosmetics.

Mattel Inc. said on Wednesday that its Barbie business will partner with cosmetics company MAC (Make-up Art Cosmetics) for an "adult-targeted project" that will be unveiled in the spring of 2007.

The toy company declined to give more details on the partnership. Mattel does not currently sell Barbie cosmetics in the United States, although it does sell Barbie children's cosmetics in markets such as Europe, Latin Americas and Asia.

It said the collaboration is the first time that Barbie has partnered with "an adult prestige cosmetics company."

Mattel, the No. 1 U.S. toy maker, has been working to revive sales of its Barbie business amid difficult market conditions and stiff competition from MGA Entertainment's Bratz fashion dolls.

I understand that the women they are targeting grew up playing with Barbies and presumably have strongly-positive feelings toward the brand. But still ... does that mean that they want to wear Barbie perfume?

Still, what do I know? Next year Barbie cosmetics may be all the rage, and I'll be sitting here looking dumb.

Coty wants to be #1

Coty announced a five-year plan that is intended to make it the largest fragrance company in the world, with sales of over $5b -- sales for fiscal 2006 are $2.9b.

The boost will come via innovations in the beauty and color cosmetics category, skin and suncare products and by building three brands—Calvin Klein, adidas and Rimmel—to the billion-dollar mark. The growth strategy also includes increasing its presence in Asia.

The plans, while ambitious, don't appear unrealistic. Coty has doubled in sales in the past five years.

Marketing execs axed at Revlon

The new boss at Revlon took only a few days to fire a bunch of people, including top marketing execs.

The cosmetic marketer's new president-CEO, David Kennedy -- tellingly, the former chief financial officer -- is sweeping out 250 jobs, among them several executives from Mr. Stahl's team, notably CMO Stephanie Klein-Peponis; Chief Creative Officer Rochelle Udell; and Revlon Director-Marketing Maura Mottolese. No successors were named; the company said brand managers would report to Mr. Kennedy. A spokeswoman did not return calls for comment by press time.

According to an executive close to Revlon, the cuts are a part of Mr. Kennedy's strategy to develop a more cost-effective structure. "We were fat in terms of senior-level marketers," the executive said. The team is also likely taking the fall for the failure of a multitude of recent efforts intended to turn the company around, among them the launch of the Vital Radiance brand aimed at older women.

Revlon had put more than $17mil in media behind the new line, but they're dumping it now:

Mr. Kennedy said the company has decided to discontinue the line, taking a negative hit of $110 million, figuring it was unlikely to receive space at Revlon's "best [retail] accounts." Instead of building Vital Radiance, the investment saved will be used to leverage the mainstay Revlon brand, he said.

Clinique in drugstores

Estee Lauder is putting their Clinique line into the drug channel:

Estee Lauder is going mass by expanding distribution for its prestige Clinique cosmetics brand to include Shoppers Drug Mart, the largest drug store chain in Canada.

My first reaction was that this is a disastrous move -- that going mass will destroy the brand image. Some analysts quoted in the story disagree, however:

Industry analysts did not seem particularly concerned that distribution in an "assisted self service" channel would harm Clinique's image.

It's good to test different channels, said Suzanne Grayson, industry expert and president of the consultancy Grayson Associates. "If it's executed well -- and I'm sure it will be -- with the mix of other high end brands already [in the shopping venue], it won't affect the brand image."

On reflection, though I'm not convinced that the move will not damage the brand, I'm also not certain Lauder had a lot of choices. With the continuing constriction of the department store channel, the fact is that they (and many other "department store brands") are running out of places to sell their products.

Piling on Estee

I came across a news item the other day, announcing that a law firm was filing a class action against Estee Lauder for channel-stuffing. Since I had posted an item about that two weeks ago, I went back to the old item, but noticed that the law firm was different. So I checked Yahoo, doing a search for "estee lauder channel stuffing" and found that at least six firms have announced such actions.

It seems that suing folks for channel-stuffing is seen as a potential hot area in the legal community.

Weekend quick notes

General Motors is looking to dump its share of Isuzu. This marks an almost complete pull-out from Japan -- they had big investments in Suzuki and Fuji (Subaru), but have sold all or most of them. But right now what they need is cash.

Estee Lauder is about to get hit with a class-action for alleged channel stuffing last year, according to this law firm's press release: "... defendants launched a largely successful campaign that employed channel stuffing and the dissemination of materially false statements to prop up ... the Company's share price."

Alcatel is buying Lucent. The merger will give Alcatel a significant presence in the US: "With about one-third of revenues coming each from North America, Europe and Asia ... the new company will have a geographic reach few competitors could match, likely forcing other mergers."

Weekend quick notes

Whirlpool's takeover of Maytag is apparently likely to get the thumbs-down from the Department of Justice on antitrust grounds, according to rumor. "Lawyers in the department's antitrust division 'have made it clear' to the antitrust chief, Thomas Barnett, that they believe the $1.7 billion deal would hurt competition, said the source, speaking on the condition of anonymity."

L'Oreal is buying the Body Shop retail chain, which will presumably help their distribution, and also help to further blur the line between retail and manufacturer, as we commented on, just a few days ago.

ConAgra seems to be going through some tough times, with sales down 46% (!) since 2001. They're responding by cutting dividends and selling a bunch of brands: "ConAgra ... said last month that it will sell its Butterball turkey and Armour meat brands. The company, which has 70 brands, said Thursday that it will sell its Singleton seafood unit, which had $290 million in sales last year, and the Swissrose cheese unit, which had $200 million in sales." On the plus side, the company is planning to bump up advertising by 21%, concentrating on stronger brands.