Their nameplates may vary, but in consumers’ eyes, mass retailers — drugstores included — can look remarkably similar to one another. Most have branded themselves with a color scheme of red, white and blue, and inside their doors shoppers can generally expect to find the same cast of brands.
But several retailers, including CVS, Target and, most recently, Walgreens, are trying to change that.
Using their beauty departments to mark their individuality, these retailers are uprooting a number of national brands — backed by multimillion dollar advertising campaigns — to make space for unknown European lines.
Generally, retailers rely on their vendors to cover the cost of in-store promotions, advertising and displays. But when it comes to U.S. exclusives on European products, the chains end up shouldering some of the burden, said a number of industry insiders.
But that shift in roles hasn’t stopped the nation’s leading retailers from embracing the merchandising trend.
CVS has given prominent display space to the Finnish-born beauty brand Lumene and a smattering of the U.K.’s Boots brands; Target revamped its specialty bath department last spring, replacing national brands with a collection of European lines, and in October Walgreens plans to outfit 1,000 of its doors with a consortium of seven exclusive skin care brands from Europe.
For European brands, aligning with a U.S. retailer is a much more affordable way to widen their international scope.
“These are basically little brands that can’t afford to do business in the U.S. market,” said industry expert Allan Mottus, adding the European influx is a bid to cater to consumers’ newfound affection for niche brands. So retailers, in turn, are giving these smaller, foreign-born brands more accommodation, he added.
Industry sources said that retailers give their imported exclusives significant financial breaks.
For instance, to participate in a retailer’s weekly circular, a national brand, such as L’Oréal Paris or Cover Girl, could expect to pay roughly $100,000 to $150,000 an ad, noted manufacturers that asked not to be named. Should they run 26 ads a year, it would cost upward of $2 million to $4 million. Vendors that sell their goods exclusively in that retailer get preferential treatment, which includes discounted advertising rates and, in many cases, free exposure in the circular and direct-mail pieces. They are also often exempt from other financial obligations, such as slotting allowances — or an initial fee to the retailers for placing goods on the shelves — that generally cost a manufacturer an estimated $100,000, said industry experts. While several vendors involved in exclusive retail deals assert they do foot the bill for educational materials, product testers and displays, it seems, at least, time is on their side.
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The more strategic the program, the greater amount of time a manufacturer has to make it a success, said Nick Hudson, co-founder of Excelsior Beauty, the beauty marketing firm that sourced the brands for Walgreens’ upcoming European Beauty Collection. He added that if a new product program, such as Revlon’s Vital Radiance or L’Oréal Paris’ HIP, is available in all retailers, it has a shorter amount of time to succeed.
Given their strategic role in building customer loyalty, many of these exclusive product programs are drafted and supported by retailers’ top management.
Vendors with exclusivity agreements insist the strategy is “financially motivating” for retailers, but that returns will be seen over the long term, not overnight. But retailers don’t always have the luxury to wait for these product programs to germinate. One vendor noted that as publicly traded companies, mass retailers are under tremendous pressure to maintain a long-term growth pattern, and therefore are often quick to abandon product programs and underperforming items.
A.G. Edwards & Sons analyst Robert Buchanan said that Target, in particular, tends to have a Darwinian approach to its product mix, generally giving initiatives less than a year to make a go of it. “If something’s not working, Target will pull it,” he said. While he nods to the success Target has had in other areas of the store, such as with Michael Graves and Mossimo, he said he is less convinced by its new specialty bath section, which stocks some 20 international brands. “I scratch my head when I walk through the section,” said Buchanan. “I wonder how quickly Target is going to be able to gain mind share with the customer.”
Mottus acknowledged that it’s not yet known whether the broader retail tactic of adding exclusive brands into the fold will succeed. “The risk is if they don’t do something,” he said, referring to retailers’ need to sharpen their competitive edge.
“At the end of the day, drugstores are realizing that they need to work harder to differentiate themselves from one another,” said Hudson of Excelsior Beauty. He noted that retailers’ fondness for European brands is rooted in their goal to woo department store shoppers with quality products. Products slated for the special section range in price from $13 to $60, nearly double the typical price ceiling in the mass skin care market.
Walgreens’ closest competitor, CVS, also is eyeing the upper tier, clearing room for French skin care brands Avene and Vichy, and its exclusive Skin Effects by Dr. Jeffrey Dover and Lumene brands. In the retailer’s 2005 annual report, the company states, “These days it’s getting harder to differentiate the CVS/pharmacy beauty care aisle from one found in a department store. Except when it comes to price, of course.”
In the past, retailers tended to commission an exclusive brand from a manufacturer, as Duane Reade did to create its proprietary beauty line Apt. 5, but today they seem more enticed by existing brands sold in other markets. Plus, should they fail, these made-to-order brands could end up saddling the retailer with extra inventory or packaging, causing a financial liability.
But as retailers increasingly recruit European beauty brands, industry experts warn the strategy requires a prolonged marketing investment.
“It’s not enough that you can only find the brand in one place,” said Wendy Liebmann, president of WSL Strategic Retail. “The retailer and the manufacturer need to tell consumers that this is a viable brand.” Liebmann added that to do that retailers have to develop a marketing strategy that extends beyond the store circular to more traditional advertising channels. She cited Target as an example of that kind of multipronged effort. To introduce its new specialty bath section, Target touted a gaggle of foreign-born brands in a four-page advertising insert in April beauty magazines, which teased, “Bubbles are just the beginning.”
As for whether merchants are succeeding in their efforts to educate consumers that certain brands are only in their doors, Liebmann said, “I suspect that for the most part, there’s a large percentage of shoppers who don’t realize the exclusive brand is only available in one retailer.”
Rick Goldberg, founder of Brand Architects, which creates proprietary product lines, declared, “The true way to build a brand is to aggressively spend against it.” Goldberg — who has developed a number of exclusive hair care brands, including Cristophe for CVS, Mossimo for Target and 411 for Rite Aid — added that drugstores’ growing door count gives them the might to elevate proprietary or exclusive brands into household names.
“In reality it takes considerable time for a consumer to get used to seeing a brand that’s not advertised,” said Liebmann, adding that retailers should look beyond their financial models to the value in building loyalty.