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New formats change face of cosmetics category

By Faye Brookman

Ulta, which combines cosmetics retail with a salon, is getting an upscale makeover.

Cosmetics retailing used to be simple: There were department stores and mass marketers. Trained professionals who hawked the products staffed the department stores; mass stores were mostly self-serve. Now, a new breed of beauty merchants is rewriting the rules.

Leading the brigade is Sephora, an import from France, which now has more than 50 stores in the United States. But there are other retailers bringing new options to U.S. consumers, including Ulta, formerly Ulta3; Essentials; and Beauty Brands. They join the growing list of bath-and-body specialty stores that have also reshaped the landscape — such as Bath & Body Works, Victoria’s Secret Beauty, The Body Shop and The Skin Shop.

Sephora appears to be making the biggest splash with its stores located in both major shopping malls and city locales. Owned by Louis Vuitton Möet Hennessy (LVMH), Sephora was born out of the category-killer model.

Like Barnes & Noble or The Home Depot, Sephora packs in a wealth of brand names. Instead of putting all of the goods under lock and key and staffing with manufacturer-supplied salespeople, Sephora sports an open-sell environment. Beauty advisors roam the aisles looking for customers in need — black smocks and one black glove easily identify them.

LVMH purchased the concept from an independent retailer in France. The first U.S. store opened in Manhattan’s new lipstick neighborhood — Soho — in 1998. Now there are more than 50 units across the United States. The centerpiece of U.S. operations is a 21,000-square-foot, three-level store in New York’s Rockefeller Center. Most stores are more compact at an average of 4,000 square feet. “What makes Sephora so dramatic,’’ explained Howard Meitiner, president and CEO of Sephora in North and South America and the Asia-Pacific region, “is that we shake up an industry that’s been dominated by traditions of department stores.’’

Some of the ways in which Sephora has broken the rules include removing the sales counters and adding funky brands like Dirt, Stila and Vincent Longo. Many of those brands have been too small to get the nod of big department stores. In fragrances, Sephora has also abandoned the typical notion of merchandising by type of fragrance to a simple notion of alphabetizing scents by manufacturer.

The final difference is the elimination of “gifts with purchase’’ and “purchase with purchase’’ — a longtime department store tradition. Apparently shoppers don’t miss the freebies — the store at Rockefeller Center is said to pump out sales exceeding $1,000 per square foot. Smaller mall stores produce at least $500 per square foot.

While eliminating some old approaches to beauty retailing, Sephora has ushered in new ones. Meitiner pointed to the concept of multilevel stores; color libraries where shoppers choose cosmetics by look rather than by brand; and interactive screens where customers can access product information. Sephora, according to industry consultant Allan Mottus, has been particularly adept in spotlighting new makeup brands that don’t always get equal attention at department stores, such as Hard Candy, Urban Decay, and Club Monaco (a favorite of Monica Lewinsky, whose appearance on Barbara Walters helped Sephora sell out of the color lipstick she wore called Glaze) and Tony and Tina. Sephora is also aggressive with its own private labels, especially in bath and body, where its items are packaged in vibrant colors that lure shoppers to the display.

The private labels are colorful and allow Sephora an interesting way to merchandise products like bath gels and bath beads. Sephora has made such an impact on beauty retailing that others have tried to emulate it. Federated Department Stores created an entire department at Macy’s called Souson that is so close to Sephora that Sephora was awarded a legal injunction to halt Cincinnati-based Federated from operating the shops. Nordstrom and Bloomingdale’s have also started adopting an open-sell approach to beauty. However, there are manufacturers holding out from selling Sephora. Estée Lauder brands are missing at the Rockefeller Center store because of the proximity to a huge Lauder account — Saks Fifth Avenue — across the street.

Long before Sephora washed up on U.S. shores, Ulta3 was carving out a niche as a new form of beauty retailing. Formed by several former drugstore executives, Ulta3 merged mass and class beauty brands under one roof and added a new twist — salons. Now Ulta3 is being revamped as an even more upscale chain. The 3 has been dropped from the name and a new store format has been unveiled in Dallas.

Ulta, based in Romeoville, Ill., is rolling out the new prototype. Cyberimaging is done in the salons to show patrons how different hair styles and colors could look. Terry J. Hanson, the cofounder of Ulta, said the moves in the store reflect what shoppers in focus groups said they want. According to Hanson, Ulta stocks more than 17,500 SKUs in 74 stores across the country. The cosmetics assortment includes mass and prestige brands.

There are more than 1,600 fragrances. The salon portion of the store features services including waxing, manicures, cuts and perms. Ulta likes to position stores in power centers, said Hanson. “People like them because they can get in and out,’’ he added. Like Sephora, Ulta offers an assisted self-service environment. A similar retail concept is Beauty Brands, which also offers salon services and retail under one roof.

Another growing specialty concept is Essentials Plus, which operates combination salon and retail stores. The chain plans to further expand upon its base of stores in Manhattan, Long Island and New Jersey.

“We spent the last few years examining our business and finding our niche,’’ said Alan Jamnik, vice president of Essentials Plus. It is expected Essentials Plus could double in size by 2001.

The focus that Essentials Plus has identified is to offer stores with trendy, mass-market priced beauty products on one side and salon services and salon merchandise on the other side of the units. Stores, with the exception of one unit on the upper West Side of Manhattan, are located in regional malls and range between 1,700 square feet and 3,500 square feet. Sources estimate sales exceed $600 per square foot — higher than the average for drugstores and other beauty specialty stores.

While there are other retailers, such as Ulta and Beauty Brands, combining salon services and beauty, Essentials Plus differentiates itself by totally separating the salon side of the business with a wall and by its mix of solely mass-market products. Ulta stores often have glass windows between the salon and retail elements. Beauty Brands is attempting to further integrate salon services with retail products so that pedicures are even performed in the retail part of the store.

According to Jamnik, Essentials Plus is revamping its merchandise assortment on the retail side to appeal to what he calls “experimental’’ shoppers. “Although lines such as Revlon and Maybelline are important to us, and we’ll always carry them, we’re looking to expand products for teen-agers,’’ said Jamnik.

Skin Market in the Beverly Center in Los Angeles is trying to bring specialty retailing to a younger customer. The store markets unique items to Generations X and Y. And, Victoria’s Secret is spinning off Victoria’s Secret Beauty — specialty shops selling only beauty items. At the helm is Robin Burns — a former executive with Bloomingdale’s, Calvin Klein and Estée Lauder. The bottom line: There’s more tenants for mall operators.