BrandWatch by Michel Gutsatz

American Drugstores are Moving Upscale

The American drugstores - CVS, Walgreen, Rite Aid & Duane Read – are important distribution channels in the United States, and are going through a fundamental change, especially with regard to beauty products. Each of the four chains is developing a different strategy but with a single objective: to increase sales of beauty products.

• CVS was a pioneer in 2008, launching a new chain dedicated to beauty called Beauty 360.  Four of these stores exist today and the number should reach 30 by the end of 2010. Solely devoted to “premium” beauty and niche brands, this store is akin to a "speciality store", like Sephora, with a large counselling staff, services and demonstrations. "This new concept will redefine the beauty shopping experience by providing customers with access to prestige and niche beauty brands as well as an unparalleled level of service". These stores are adjacent to CVS stores and have access to them. 

• Walgreen has chosen to capitalize on the trust its customers place in the brand. This stems from the presence of pharmacists in the stores. Walgreen has therefore undertaken to develop a "customer-centric", 4-point strategy concentrating on its current stores: training of "beauty advisors", developing its own beauty brands, upgrading the range of products (Fekkai is one example), restructuring merchandizing, etc.
• Rite Aid continues to maintain its positioning, centred on pharmacy and proximity to its customers. Beauty products are located in the centre of the new store - which has been completely reorganized - with low gondolas, great clarity, merchandizing intended to counsel the client. This is certainly the mass market, but one of high quality.
  
• Duane Read has begun a total transformation of the architecture of some of its stores: The first one just opened in New York on Herald Square. The 1400m2 store on two levels has devoted the top floor of 540m2 to beauty products under the name Look Boutique.
  
  
  Thirty new stores with the same concept are to be opened in 2010, half of which will include Look Boutique. Here one finds Lacoste, Juicy Couture, Usher, Burberry and Gwen Stefani perfumes, and skincare products such as Avene, La Roche-Posay, Lierac (already present); also new brands such as MD Skincare by Dr. Dennis Gross, 100% Pure, and Rilastil Borba. Exclusive brands are clearly separated from mass brands and "beauty advisors" are to be present during peak hours. And of course – giving it a strong competitive advantage - the store is open around the clock (as opposed to the neighbouring Sephora and Macy's).

A Mass-market approach, but with quality (Rite Aid), a chain dedicated to high-end beauty products (CVS), a store-in-store devoted to high-end and mass (Duane Read), the development of beauty private labels and service (Walgreen)… Who said that the beauty distribution landscape was bleak and that nothing was happening?

Frederic Fekkai Breaks the Codes of Beauty

Frdédéric Fekkai is regarded as a luxury brand in hair care: The success story of a French hairdresser living in the USA, and who became a "celebrity hair stylist”, materialized in a line of hair care products distributed through the selective network (Sephora, Nordstrom, Neiman Marcus, etc.). The brand was acquired by Procter & Gamble in early 2008 and now has 8 salons. It would be interesting to analyze two events that occurred in recent months:

• August 2009: Fekkai announced they are grouping together three of its “best sellers” under a single sub-brand. Brilliant Glossing, Salon Technician Colour Care and Full Blown Volume - which represent 40% of sales - are now sold under the brand name Fekkai Advanced. Change of packaging, new ingredients, new formulas, new textures: all of it is clearly repositioned more high-end with prices ranging between $ 20 and $ 23.
  
  
  The Director of the brand points out: "the Fekkai Advanced Subbrand helps differentiate it from any other collection and makes it more luxurious. You see a big departure from the old ranges". The Fekkai Advanced distribution network is very selective: Saks, Neiman Marcus, Sephora, Nordstrom, Bloomingdale's, Lord & Taylor. What was to become of the other Fekkai brand products?
• The answer was given in December.  The rest of the collection – which was the reason for the Fekkai success – has been renamed Fekkai Classic and will henceforth be sold in the mass-market networks at prices averaging $20: Target and Walgreens. Sephora's response was immediate: they de-referenced Fekkai Classic. 

  
  

These opposing reactions are very instructive. I would draw two lessons from it:

1. The exclusive beauty brands are now caught between Scylla and Charybdis: a sluggish exclusive market, and the exclusive/mass segmentation. Even in the United States where this distinction does not exist as far as regulations are concerned (as it does in Europe), it does exist in reality. How can business be developed when it is a beauty luxury brand in a flat market? Fekkai gives the answer: by branching into two, with a brand catering to the exclusive, and the other to the mass market. Fekkai expects to sell through 10 000 sales points within a year (i.e. 30% being mass-market sales)... so with a form of exclusive presence nonetheless.
2. The selection of sales outlets is of significance: Target is positioned "cheap chic", which was a reason for its success and is fully consistent with the Fekkai positioning. Target could thus have supplied Fekkai with information from its database concerning its customers who already buy hair products at prices above $15. Walgreens is one of the leading drugstores – with a strategy for shifting towards high-end with its boutiques and advice (they have 21 000 beauty advisors) and a "customer-centric” strategy.

Contrary to analysts who predict that Fekkai will become commonplace, I think it is a move with great coherence: it adheres to customer expectations, it effectively helps to develop the brand, and it offers genuine legibility. Still, one may ask why the difference in price between the two collections is so small: We will probably see a slide towards $15 for the Classic product range.

Sephora USA, or How to Innovate in Beauty Product Distribution

Since 2007 Sephora USA and JC Penney have an agreement following which Sephora has opened about 150 shop-in-shops in U.S. department stores: These spaces of 150m2 offering a limited range (about 50 brands) enabled Sephora to double its number of outlets and JC Penney to go upmarket.

 

Now the two partners have announced a new initiative that will make an impact: They are testing vending machines for beauty products (using Zoom Systems Technology) in 20 JC Penney stores that do not have shop-in-shops, in malls where Sephora does not exist. These distributors offer some fifty references in skin-care, perfumes and makeup from Bare Escentuals, Korres, Smashbox, Juicy Couture, Dior Beauty, Philosophy, Peter Thomas Roth, Murad and StriVectin.

To understand this digression in matters of distribution, we must take a look at the previous ZoomSystems initiatives and view the results, then re-examine the Sephora innovations:

Pop-up Stores Must be Consistent With Brand Values

USA Today tells us that there is a flood of pop-up stores in the U.S., to fill empty spaces in the malls, during the Christmas holidays. One finds (pell-mell) Hickory Farms (which has been doing it for 15 years), Toys R Us (with 80 shops), JC Penney (for its jeans), Daffy's, G-Star and several designer brands. Clearly the low overheads and availability of space make the concept attractive during a period when, traditionally, sales are significant.
However, these are just business opportunities, far removed from efforts made to strengthen the values of the brand. I propose to draw your attention to two examples that are much more interesting - because they correspond to real brand strategy.
eBay - which has no stores - has set up a pop-up of 550 m2 in the heart of Manhattan (they are planning 12 in the USA), "stocked with a dizzying selection of Norma Kamali’s exclusive fashions for eBay, L.A.M.B. shoes, handbags from Michael Kors and Dooney & Bourke, Anthropologie dresses, cosmetics from M.A.C., Smashbox and other brands, and the Dolce & Gabbana Light Blue and Vera Wang Princess fragrances. Electronics, toys, home and garden items.”
eBay  - whose business model is no longer as successful as it was some years ago - is copying Amazon. It has become a huge sales website ... which needs to promote its new model. The pop-up stores serve this purpose.
Even more interesting is the Jet Blue pop-up store. I referred to their offbeat communication campaign in March: This low-cost airline (associated with Lufthansa since last August) that provides top-quality service, (almost) on a par with business class, has made humour its trademark. It has just opened a pop-up in New York (opposite an Apple Store) where no products are sold: One finds an exhibition of an amazing collection of curious objects that appeared in its latest advertising campaign "For those times where you're not on JetBlue”. We find here the first logical relationship between the ad and the pop-up. There is a second: these objects are all imaginary creations which any harassed traveller who does NOT travel on JetBlue would need (a signal to warn the person behind you that you are going to tilt back your seat / knee pads to better wedge yourself against the seat in front of you to sleep / a big marshmallow pillow to lean against the window, etc.). Consistency between brand positioning, style, advertising discourse and temporary location. A great success!

Just for fun here is a sample of the advertising campaign in question:

 

 

Great Value: An Asset at the Service of Walmart’s "Green" Image

Last November 19th, MyPrivateBrand blog told us that Walmart, Mexico, was presenting a new line, "Great Value Terra", at the PLMA 2009 fair. This consists of a range of "green" cleaning products with the catchphrase "Cuidemos Nuestro Planeta" - "Let us care for our planet”.
The "white and blue" graphic identity of Great Value has been enhanced with green: the Terra range, the catchphrase, product benefits and a graphic element - the "leaves" in which products are presented.
Launched and therefore tested in Mexico, it is likely that this range will arrive in the United States soon.
The creation of this "green" subcategory is totally consistent with the Walmart strategy that I discussed on September 6th on BrandWatch:

“Another aspect that struck me is that Walmart's own flagship brand serves as media support to put the sustainable development promise into practice. Great Value becomes the spearhead of Walmart's strategy: cheaper products, good quality, and involved in the "sustainable" strategy of the retailer”.

The Consumers Take Control: The GoodGuide Case

One of the topics to which I frequently return in BrandWatch is the taking over of power by consumers: all mega-trends that I have been analyzing in my studies show that the balance of power between brands and consumers is changing. The preferred tool for this empowerment is the Internet, and Web 2.0 in particular. I shall analyze a recent example that originates in the USA. 

The New York Times of June 14, 2009 announced that Dara O'Rourke, professor of environmental policy, University of California, Berkeley, had launched a website, GoodGuide.com, the purpose of which is to provide consumers with more information about consumer products: When a name is entered, one obtains all the nutritional, environmental and social information concerning it, and information about the company that introduced it in the market.
The objective is to measure the impact of each product on (See the methodology adopted here):

• Consumer health when using the product;
• The health of the employees of the companies - by analyzing methods of production and the risks involved;
• Environment - Analysis of the life cycle of the product (among other criteria);
• Society - Analysis of the social policies of the companies, governance, etc ...

This is a proper expert system, that gathers information from dozens of independent sources. More than 70,000 products in food, beauty, home maintenance, etc. have been analyzed and recorded. The beta version currently available, gives the average prices found on the Web for certain products. We learn that the cereal best rated is "Nature's Path Organic Kamut Puffs" (rating of 8.3 out of 10)… and another organic product has the lowest rating: "Kashi, Strawberry Fields Organic Cereal" (rated 4.1).

"What we're trying to do is flip the whole marketing world on its head", said Mr. O'Rourke. "Instead of companies telling you what to believe, customers are making the statements to the marketers about what they care about".
To illustrate this reversal of power, it is worth noting that the iPhone has an application that scans the barcode of a product on the shelves: All the GoodGuide information concerning this product is then downloaded.
Brands must be vigilant and anticipate the development of such initiatives - which I will put on a par with the announcement of the Sustainability Index by Walmart. They will have to reflect on the consequences of this converging movement of consumers and some retailers (mostly American) and therefore fundamentally rethink their values to align them with the fundamental values of the new ethics of consumption that we see emerging before our eyes: respect and transparency.