NEW YORK — Nexxus has developed a new business model for professional hair care companies that, like them, have been frustrated with widespread product diversion.
On January 15, specific items under the Nexxus Salon Hair Care brand, owned by Alberto-Culver as of May, entered food, drug and mass stores — legitimately. Nexxus products continue to be sold in salons, albeit different items from those sold at Wal-Mart, Target, CVS, Walgreens, Kroger and Publix. Controlling distribution in the mass market looks to boost Nexxus’ mass sales to $100 million by yearend, according to industry sources. Nexxus’ sales were $27 million for the 52-week period ended March 19, excluding Wal-Mart, according to Information Resources Inc. In a year’s time, the mass business looks to make Nexxus the third-largest professional hair care brand, behind Matrix and Redken. It currently ranks seventh.
While the introduction of Nexxus to mass retailers has been Alberto-Culver’s main focus over the past six months, Alberto-Culver is now busying itself with finding another buyer for its Sally Beauty and Beauty Systems Group businesses since its deal with Regis Corp. collapsed Wednesday night. The proposed merger, valued at $2.6 billion, fell apart when Alberto-Culver’s board said it could no longer support the transaction, citing financial vulnerabilities, including two consecutive earnings shortfalls by Regis and revisions to Regis’ financial forecasts. The merger agreement now requires Alberto-Culver to pay a $50 million termination fee, roughly the amount of Nexxus’ overall sales in 2005.
Richard Gerstein, chief marketing officer of Alberto-Culver, is overseeing Nexxus’ new business model, to be supported this year with a “large” ad budget. Industry sources expect the brand to spend as much as $20 million on TV and print ads, ranking it as a top advertiser in the category.
Nexxus Salon Hair Care now consists of products for the mass market, encompassing the Therappe, Color Assure and Humectress brands; salons sell the Phyto Organics, Vita Tress and Y Serum ranges. Gerstein said that approximately 12 percent of the overall hair care business in mass stores is generated from professional items by brands such as Paul Mitchell, Matrix and Nexxus. Mass sales of these brands can define as much as 20 to 40 percent of the brand’s overall sales, he added. But while selling in mass stores is lucrative, most professional companies do not support diversion, as counterfeit products and product ubiquity can destroy a brand’s image. Salon owners also fight diversion, since it offers consumers an alternative place to shop.
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“We do not support diversion; that’s why we have done what we have done,” said Gerstein. “There are people that believe channels are channels and you can’t work across them. The consumer decides this, and they are shopping many places. Sometimes they want to pick up the brand they love but they’re not near a salon. We don’t want to push her to buy another brand,” Gerstein said.
The chief marketing officer does not believe salon owners will be upset by the sale of Nexxus in mass stores, since the products are different from what is sold in salons, and since, in the end, retailers simply want brands that are invested behind to build consumer awareness. He points to the wine industry as an example.
“Wine used to be exclusive to wine stores. Now you can buy it at Costco, where they have $200 bottles of wine. [Wine sales] are only doing better. It [can be] the same for hair care,” Gerstein said.
Nexxus is known for using a significant amount of the very expensive ingredient panthenol in its formulas — as much as 6 percent — to improve the quality of hair. Other brands use as little as 0.5 percent. In turn, Nexxus retails between $5 for the 150-ml Therappe Luxury Moisturizing Shampoo and $30 for the 8-oz Humctress Ultimate Moisturizing Conditioner.
The brand does not use a spokesperson in its ads. Instead, ads feature women with beautiful hair alongside Nexxus artistic director Roy Teeluck. Teeluck, also a salon owner, was surprised by the level of commitment Nexxus employs when constructing its formulas. He didn’t know much about the brand otherwise.
“Learning how the products were made was the first seducing part of getting involved with Nexxus. I knew then they were serious and luxurious products,” Teeluck said. He now sells and uses Nexxus Phyto Organics in his salon and said that the brand’s being offered in the mass market is OK with him.
“It does not turn me off. It’s a new way of thinking,” Teeluck said.
It seems Nexxus was saved from an early death by Alberto-Culver’s purchase last year, but not much was being done to promote the brand’s growth.
“Brands are left to die when they are not ready. Nexxus was on that road,” said Gerstein. He is giving himself as long as five to seven years to return Nexxus to the iconic status it enjoyed in the Eighties. “Credibility is not something you can buy outright. It has to be earned.”