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State of the Industry: Eco-values Escalate
By: Briony Davies
Posted: June 14, 2007
page 4 of 6In retail, convenience is a key driver of change. Supermarkets/hypermarkets are, by far, the leading channel for cosmetics and toiletries purchases in Western Europe, Australasia, Latin America, Africa and the Middle East, and a close second after direct sales in Eastern Europe. Low prices and one-stop shopping convenience are a powerful combination in today’s fast-paced society, and supermarkets/hypermarkets attract a share from almost all other channels. Only in North America are supermarkets/hypermarkets lower down the rankings, holding fourth place with a 15% retail value share—this due primarily to the success of discounters, namely Wal-Mart.
However, other retail formats—specialists, pharmacies/drugstores and department stores—are fighting back against the dominance of supermarkets/hypermarkets. These channels, however, have come to a key realization—that they have more power to engage consumers shopping for cosmetics than do supermarkets/hypermarkets. The range of initiatives taken by specialists and department stores has been broad. German cosmetics retailer Douglas has added hair salons to its stores and offered points for Lufthansa’s Miles & More bonus program. At Selfridges in London, Lancôme opened a beauty therapy suite where customers can receive treatments.
Consolidation among retailers has prompted similar action from suppliers, in an effort to gain negotiating power with retailers. However, some manufacturers are tackling the problem head-on, creating opportunities for their own brands by buying a slice of the retail industry. Stand-alones are the primary route into retailing for multinationals; Nivea Haus provides one example. Based in Germany, Nivea Haus is a multilevel retail outlet that offers spa treatments, as well as a range of 500 Nivea products. L’Oréal expanded its involvement in retailing through its 2006 acquisitions of The Body Shop and U.S. distributorship Beauty Alliance International.
The Estée Lauder Companies was perhaps hardest hit by the merger of department stores May and Federated (owners of Macy’s and Bloomingdale’s). As Federated’s largest customer, 16% of Estée Lauder’s total business in 2005 was controlled by Macy’s alone. Aware of the need to broaden out from the department store channel, The Estée Lauder Companies has been working to create a global network of retail stores for its own labels, including Bobbi Brown and MAC. This approach has proven particularly successful in emerging markets, and is likely to be echoed by other manufacturers.
The year 2007 is about building on existing trends, and extending beyond current parameters. However, it will not just be more of the same. The year will continue to bring innovations that pull together trends to satisfy a broader range of demands. Some will look beyond the beauty industry for inspiration. Natural and organic ingredients were big news in 2006, and their presence is expanding to the mainstream in 2007. The increasing focus on health and well-being, the rising incidence of allergies and concern about the safety of everyday chemicals are driving the trend. Government initiatives have also helped raise awareness. In the EU, for example, new legislation was passed in December 2006, set for a July 2007 implementation, to outlaw potentially harmful chemicals used in cosmetics and toiletries and require that others be safety tested.