Flat sales spur cosmetic brands to try on new routes to market

To keep shrivelling sales at bay, the cosmetics industry has picked up clues from market segmentation while experimenting with retail and pricing formats

Brands in the cosmetics industry are using a number of approaches to deal with this mature market, though many marketers continue their love affair with celebrity as a means of increasing brand visibility and loyalty. On visiting the Revlon website, for example, the first image is of Halle Berry next to the ColorStay Makeup range. In January, L’Oréal announced an agreement with Scarlett Johansson to be the face of its new High Intensity Pigments (HIP) cosmetics line in a deal reported to be worth $3m to $4m (£1.7m to £2.2m) a year. In February, Procter & Gamble announced that actress Keri Russell, soon to feature alongside Tom Cruise in Mission Impossible III, would be the new face of top selling make-up brand CoverGirl. While Johansson is a magazine favourite, Russell is relative unknown, but her M:i:III role is likely to raise considerable attention.

The belief that celebrity endorsement allows consumers to connect with a product in a deeper way than a model-based campaign seems to be growing stronger. If the underlying logic behind celebrity endorsements is to be believed, as consumer thirst for celebrity news and gossip increases, so do the channels through which celebrities gain coverage and thus increase exposure for their associated brands.

A more “hands on” role has also emerged for celebrities lending more than their face to a range of cosmetics. Procter & Gamble is launching Queen, a sub-brand of CoverGirl, that was created by singer/actress Queen Latifah for coloured women. Serena Williams, a “guest creator” for Flirt! Cosmetics (by Estée Lauder), has launched her first colour cosmetics collection called Exotic Jewels, exclusive to Kohl’s department stores. This also serves to highlight the increasing emphasis on marketing to different ethnic groups.

Market segmentation revitalises sales

Yet the industry is employing more than celebrity endorsement to bolster sales in the US, with market segmentation and product innovation proving to be key drivers. The prestige anti-ageing segment has seen a 33% increase in sales from $500m (£279m) in 2001 to $664m (£371m) in 2005, compared with just 4% value growth for standard prestige skincare products in the same period. Baby boomers, who are now turning 60, are being heavily targeted – and with good reason. According to ACNielsen, female heads of households over the age of 45 account for about 70% of cosmetics purchases at mass retailers. Revlon has just launched its new Vital Radiance Brand for the 50-plus market, which the company hopes will add $200m (£123m) in sales to its $2.5bn (£1.4m) business. Meanwhile, L’Oréal is planning to introduce a cosmetics and skin-care collection this autumn for women in their 50s and 60s, while Procter & Gamble is said to be studying the older market carefully.

The teen market is another growing segment for cosmetics. Euromonitor has estimated that teenage consumption of cosmetics and toiletries represents up to 20% of total value sales. In 2005, Teen Vogue carried 1,000 ad pages, a 27.7% gain over the previous year, according to the Mediaweek Monitor.

Interest is growing in this group. Hard Candy Cosmetics has just launched Kiss & Tell Fortune Telling Lip Gloss, consisting of sheer lip gloss that comes in a vial topped with a “fortune-telling” cap. To tie in with the release of the new Lindsay Lohan movie “Just My Luck” in US cinemas next month, Stila has created a limited edition colour collection inspired by the movie. It may seem gimmicky to older consumers, but tie-ups with popular culture are crucial when it comes to capturing the attention of teens – and it is not easy to get it right. In the past, some manufacturers have attempted to gain a firmer footing in the teen market, with mixed results. Estée Lauder purchased the teen-orientated Jane Cosmetics brand in 1997, only to sell it on in 2003 when its strategy for the company failed to gel with the other brands in its portfolio. LVMH had similar difficulty assimilating the Hard Candy and Urban Decay brands, which it had purchased in 1999 and 2000 respectively and ultimately sold in 2002.

Other companies are testing new concepts in pricing and in the retail of cosmetics and skin care in the US. Korean cosmetics company Missha has three stores in New York that offer products far below the typical price point for quality cosmetics. Missha sells its own line of cosmetics and skin-care products at prices equivalent to or less than drugstore brands. Missha operates with minimal advertising – relying primarily on word of mouth to generate custom -and does not use expensive packaging such as glass.

A new foundation for retail

Missha’s move has the potential to change the way consumers see pricing within the industry. “Consumers are misled into believing they have to spend a lot of money to buy foundation and cosmetics,” Missha director of retail development Michael Fong recently told New York’s Village Voice. “Raw-material costs for all these products are quite low.” Time will tell whether the concept, which could be compared to Uniqulo in the clothing market, will be a hit with consumers who have been “taught” to pay much more for cosmetics over the years.

Sephora is a French retail concept that has been particularly successful; it opened its first store in 1998 and now count 70 stores nationwide. Sephora has pioneered a middle ground between drugstores that sell pre-packaged cosmetics that customers don’t get a chance to try on and department stores with sales assistants pushing brands on would-be buyers. At Sephora, shoppers can roam the store and try on any number of brands without the presence of an aggressive sales person. Quarterly results released by parent company LVMH last week show double-digit growth in sales on a same-store basis. Sephora has shown itself willing to break the mould both in the way that it presents and sells cosmetics to consumers.

The US cosmetics industry will continue to face the inherent challenges of a maturing market. Yet continued innovation, along with a willingness to explore emerging segments in the market, suggests that growth will continue.