Last fall — which was unseasonably warm, mind you — department store beauty shoppers were turned off by the sight of tweed. Their disinterest in the heavy fabric did not bode well for the Estée Lauder brand, which had built its fall 2005 gift-with-purchase promotion around a tweed bag, chock full of color cosmetics.
The trend misstep and warm temperatures drove the brand’s sales down 11 percent and the Estée Lauder Cos. sales down 3 percent in August 2005 versus the prior year, noted Morgan Stanley analyst William Pecoriello in a recent research note.
When it comes to a trend-driven business like beauty, misses happen. Only now the stakes are higher, and beauty firms have an even greater obligation to hone in on a must-have bag and cross their fingers for decent weather and consumer confidence. The reason? Federated Department Stores Inc., having morphed Macy’s into a coast-to-coast chain, has assigned beauty brands a national date for their seasonal gwp promotions.
Prior to last month, when the shift took hold, brands would stagger their gwp’s across a host of major department stores. As a result, 10 weeks out of the season, consumers could likely find a top brand’s gwp at a number of retailers. Now, under Federated’s watch, brands get one shot a season in its two retailers, Macy’s and Bloomingdale’s.
Beauty companies began bracing for the change last year when Federated completed its acquisition of May Co. and announced plans to shutter a number of doors and convert 400 former May stores to the Macy’s nameplate.
It’s a change that Wall Street analysts said will affect department stores’ most established beauty brands, including Clinique, Estée Lauder, Lancôme and Elizabeth Arden.
“It puts more risk on execution and on the weather,” said William Chappell, an analyst with SunTrust Robinson Humphrey Capital Markets. “The company could have big [sales] swings if it doesn’t get the best weekend or if there is a snowstorm that week.”
One beauty executive cautioned that it will take some time to align in-store execution across Macy’s 400 stores. “Long term, it’s a good business decision, shorter term, it’s a mess. Right now it’s difficult to get a true read on the business,” the executive said, adding that it will be nearly a year until beauty companies are able to compare monthly sales data.
Related Articles
“Harmonizing gwp’s within Macy’s is likely increasing quarterly volatility for Lauder and Clinique — two-thirds of the Estée Lauder Cos. portfolio — as approximately 35 percent of each brand is sold under gwp’s,” according to the Morgan Stanley research note, which stated that Lancôme’s sales benefited from its August gwp time slot in Macy’s, increasing 16 percent.
Elizabeth Arden was also one of the first out of the gate, launching its national gwp on Aug. 22, before Federated had officially converted its acquired May stores to Macy’s. Elizabeth Arden’s spring gwp is slated for January. To fete the promotion, Elizabeth Arden broke a national advertising campaign, an effort that included an ad in Vogue magazine, noted Elizabeth Park, executive vice president, global marketing and general manager for Elizabeth Arden U.S.
Laurie Dowley, the company’s vice president, national sales manager, said that while there were certainly logistical challenges to rolling out on “such a big scale,” the change worked in the brand’s favor because its entire field force was focused on one time period. Park added, “Rolling out over an entire season can be distracting.” Both executives acknowledged the risks of one date. “Should anything go wrong, you can’t make up that business,” said Park. However, she added that the benefits of the move, such as national advertising, outweigh any initial logistical hiccups. Industry sources estimate that Elizabeth Arden’s two gwp’s drive roughly 24 percent of sales.
Lancôme’s Dalia Chammas, general manager, also commented that the one date prompted greater focus. “Having one date means you can be more efficient in so many respects,” said Chammas. “We can focus the field force on a specific time frame to achieve high volume.”
Referring to inherent risk of a national gwp, Edgar Huber, president of the luxury products division of L’Oréal USA, declared, “The bigger the operation, the bigger the win and the bigger the risk. But we live with these things everyday, with every product launch,” said Huber. “It’s just part of the business.” He added that Lancôme has been working to enhance the quality of its gwp’s, and that the promotions often require a lead time of 16 months.
Huber nodded to the logic of Federated’s decision, and offered that companies work with Federated to integrate regional peculiarities, such as a Spanish holiday, to maximize their promotional efforts.
Clinique has spent the last year readying for the national rollout of its fall gwp, which launched Wednesday and will run for 18 days. “It took some coordinating and some thinking,” said Lynne Greene, global president for Clinique. “There’s a good deal of merchandise going out the door at once.” She expects to iron out much of the wrinkles of the first go around before Clinique’s next gwp in April.
But like her peers, Greene acknowledged the vulnerability to external factors, such as weather. She offered that should Clinique’s fall promotion be significantly hampered by mother nature, the brand would attempt to launch an anecdotal promotion later on that season. “It would have to be on an exceptional basis,” she added.
Clinique has prime time slots for its two yearly gwp promotions, but under the new system, all brands had to jockey for a window on Federated’s calender. Federated executives could not be reached for comment.
“It’s mutually beneficial for Macy’s to work with its resources in an orderly fashion, and to determine where those resources rank,” said Greene. “Clinique happens to be number one.”
Estée Lauder launched its gwp on Sept. 13 in all Macy’s stores, said Thia Breen, president, Estée Lauder Americas and Global Business Development, adding that prior to the change, the brand would roll out its three seasonal promotions on 15 dates.
“From an execution standpoint, it really simplifies the approach. For 18 days, everybody — from the retail buyer to the company — is totally focused on Estée Lauder’s gwp,” said Breen.
She acknowledged that with the nameplate change taking place only a week before, some consumers may not have been aware that “Filene’s no longer exists,” but said the transition did not cause a disruption in sales. Breen said its a great benefit because of the amount of promotional and advertising activity taking place.
Industry sources said Federated is spending $90 million to $100 million on the ad campaign to introduce its new national reach.
For its part, Estée Lauder also advertised its gwp in national publications, including People Magazine, for the first time.
The shift from 15 dates to three a year did require ramping up the supply chain. “We have planned for this [change] for six months” to ensure all promotional merchandise arrived at all Macy’s doors on the same date, said Breen. “It was silly not to leverage that national nameplate before,” said Breen. “For as much as it is a big gulp,” she added, it will mobilize the company’s resources.