NEW YORK — Sure, industry pundits have long enumerated the growing evidence of cross-channel shopping, but last month a startling illustration of just how remarkably the phenomenon had taken root emerged and Wall Street analysts took note.
In August, Procter & Gamble crashed through the mass market price ceiling, once again, with the introduction of Olay Definity, a three-item skin care line designed to improve tone and discoloration. At $27.99 each, the trio sailed past Clinique’s opening price point in the department store channel.
Definity’s predecessor, the three-year-old wrinkle-fighting line Regenerist, has price points in the mid-teens. It generated $97 million in sales in the mass market, excluding Wal-Mart, for the year ended Aug. 13, a 36.2 percent increase over the prior-year period, according to Information Resources Inc.
Definity is expected to make an even bigger splash.
At a Prudential financial conference this month, an analyst asked Dan Brestle, chief operating officer of the Estée Lauder Cos., what impact Olay Definity’s higher prices and quality would have on Clinique, and what the mass market launch could imply for department store brands sold at more affordable price points.
Brestle responded that as mass brands continue to push prices forward, “It certainly gives us elasticity if the top end of the department store market can also move. I don’t think there is an issue for us at the bottom and Clinique is the entry-level skin care business.”
The question underpinned an emerging reality in beauty retailing. As the products sold under their roofs move closer in price, the mass market and prestige channel are evolving into a cause-and-effect relationship.
At the same Prudential conference Susan Arnold, vice chair, P&G Beauty and Health, declared, “It took Olay 50 years to hit $1 billion, and its coming up on $2 billion now. Our target is to more than double that in the next five years.”
Moving price points upward is part of the plan.
“Manufacturers and retailers are trying to introduce higher price points into the mass market to try and siphon off sales from department stores,” said William Chappell, an analyst with SunTrust Robinson Humphrey Capital Markets. “Consumers are migrating away from malls, and drugstores want to capture shoppers who are willing to trade up.”
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P&G has had a successful history of encouraging consumers to trade up across a number of its brands, including Olay, Crest Whitestrips and now Gillette. But Definity’s primary aim is bringing a new consumer to the mass market, said Bill Brace, marketing director for Olay.
“Trading up is only one way to grow your brand. We wanted to do both,” said Brace, referring to Olay’s effort to pull in department store shoppers.
“It’s no longer about price,” Brace continued. “It’s about value and how women measure performance. So we will continue to see the [price] ceiling in mass raise up. I would guess that prices in department stores will also increase.”
And it appears P&G and its mass market peers have the green light from consumers to take prices on technology-laden treatments upward.
“Skin care — unlike the razor blade business, which has hit an inflection point — can go higher in price,” said A.G. Edwards & Sons analyst Jason M. Gere, who follows P&G, adding that mass market skin care prices will likely top off at $35. Gere said Olay and Clinique cater to different customers, but acknowledged, “The person who buys Clinique is likely shopping at Target, where Olay is sold.”
Olay is hardly alone in its efforts. In skin care, L’Oréal and Neutrogena sell products for over $20, and an influx of European brands carry price tags as high as $80 in some drugstores.
In the cosmetics aisle, Physicians Formula has fueled sales and space gains with premium prices, but this spring Max Factor and Revlon’s Vital Radiance failed to convince women to pay more for their offerings. Both lines have lost display space and Revlon has discontinued Vital Radiance.
“We are seeing price escalation in skin care,” said Carrie Mellage, industry manager, consumer products, for Kline & Co., noting that women are seeking products with technology that improve their appearance. Mellage said that dollar sales across all beauty channels — including mass, prestige, spa, specialty and direct — are increasing at a more rapid clip than unit sales, indicating that price tags are inching up. Last year, dollar sales of facial treatments increased 7.8 percent, while unit sales grew 3 percent, according to Kline and Co.’s Cosmetics & Toiletries USA 2005 Report.
“In color the current claims do not warrant an increase in price,” said Mellage. Dollar sales for color cosmetics were up 3.3 percent, while unit sales rose 0.5 percent, according to the company.
Industry consultant Allan Mottus declared, “Drugstores need MAC Cosmetics and Clinique pricing to survive. The problem is the consumer isn’t willing to pay those prices. She’s feeling pretty burnt out.” Referring to Max Factor and Vital Radiance’s troubles, Mottus continued, “retailers were initially attracted by their higher price points, but that excitement didn’t hold the last three or four months.”
A higher cash register ring does come with challenges. For instance, several mass retailers have locked Definity behind glass to prevent theft. Brace said that P&G is working to resolve such issues as price points climb higher. He added that on shop-alongs with consumers who buy beauty across multiple channels, P&G found that many women arrived at department store counters armed with knowledge and in some cases knew more than the beauty adviser.
Brace said, “The consumer drive for sophistication is driving prices higher.”