You have created a great concept for your brand and you are sure it solves a specific problem that no one is addressing. You are POSITIVE it fills a white space in the market place and you KNOW it will be a home run!! But, now what?
Did you know that deciding where to sell your product should drive most of the decisions you make as you take your brand from concept to manufacturing? This is one of the most challenging issues for an entrepreneur.
For the purpose of this discussion, we will focus on four main consumer channels where you can sell your cosmetic brand: prestige, mass, home shopping and direct.
We’ll leave the other channels such as physician’s offices, spas and hair salons for another time.
Prestige retailers are places such as Saks Fifth Avenue, Bloomingdales, Sephora, Macys, Ulta*, Dillard’s and Beauty.com. They carry brands like Estée Lauder, Bobbi Brown, Living Proof, Lancôme, and MAC. Mass retailers encompass Walmart, Target, Kmart, CVS, Walgreens and Drugstore.com. Brands sold here are L’Oréal, Maybelline, CoverGirl, Physicians Formula and Sally Hansen. The third prominent sales channel for cosmetics is called Home Shopping. Key North American home shopping networks are HSN, QVC, TSC and EVine Live (formerly ShopHQ/ShopNBC). The home shopping networks are a relatively new opportunity for cosmetics and they primarily focus on better to premium products. On any given day, you could find Lancôme, It Cosmetics, Korres, Mally Beauty, Bare Minerals, Clarisonic and Dr. Perricone selling products on air. And finally, we have Direct. The Direct channel is made up of your own ecommerce site, direct to consumer media such as television infomercials and your own retail stores. When we speak of Direct we refer to sales that are direct from you to the customer with no wholesale structure in between.
*Ulta falls into the prestige channel but they carry a mix of prestige and mass brands in clearly delineated areas of their stores.
So now let’s go back to the original premise of this article. Just because you are an avid shopper in one of these channels and you think your brand/products would shine there, it’s important to understand the mechanics of selling in any given channel as early in the process as possible. This decision drives your brand creation, packaging, product development, company infrastructure, how you speak to potential investors and how you will plan your overall budget.
As an example, let’s take one critical decision pathway- your packaging. Let’s say you have spent the last year developing your product and packaging. You have found the most beautiful bottles for your formulas and your designer created unique cartons in which to place the bottles. Yes, they were huge investments and the minimum runs of each were high, so it’s costing you $12.50 to make each product and house it in its carton. But it will be worth it when the customers see you on the shelf.
You plan to retail your product for $50.00 because you have done your research and that retail price positions you competitively within the market. If you assume you will sell your product to the retailer at 50% off the suggested retail price, they will buy your product from you for $22.50 and your wholesale cost of goods will be 50% (ouch!!). Further to this discussion, you really have your heart set on being in Sephora. Did you know that Sephora might require you to provide an even greater discount, hovering around 65% off SRP? This means if Sephora is interested in buying your product, they will pay $17.50 per piece, bringing your wholesale cost of goods to 71% (double ouch!!).
This topic will be explored extensively in our pre-show seminar in July at CPNA. We’ll review the terms of doing business in each channel and discuss specifics of the most well known retailers. We’ll decode the secret language that retailers use such as gross margin FTE’s, TPR, Co-Op, net 30, net 60 and holdbacks. In turn, you’ll be able to effectively negotiate with your new retail buying partner because you will both be speaking the same language.
You will be able to determine the infrastructure you need based on where you want to sell. Such as, do you need regional field trainers? Do you need a sales manager? Do you need a marketing executive with solid experience in Direct selling? Do you need brokers and distributors? We’ll help you map out a plan for when to bring on the right people to help drive your business.
You will walk away with a knowledge base of information that allows you to plan your business from pitch to closing the deal. Most importantly, you will be armed with information to make critical decisions: bringing the best product to market and aligning your overall business strategy.
Join us on Saturday July 11th at the hands on workshop, “Beauty Business Start-Up: 7 Things You Have To Know Before You Launch” for “Lesson #3 Distribution: Just because you like to shop there, doesn’t mean you should”, and arm yourself with the knowledge to reach the path to success at Cosmoprof North America, taking place July 12th – 14th, 2015.
About the Authors:
Karen Young, Chief Executive Officer, The Young Group
Since opening The Young Group in 1999, Karen has developed extensive color cosmetics and skin care lines. She has worked on numerous established brands in the beauty category including Christian Dior Parfums, Shiseido Skin Care & Cosmetics, Bath & Body Works, Avon, Neutrogena and 3M Products. In her previous role, Karen was the vice president of marketing & advertising for Lancôme, the prestige division of L’Oréal. In that capacity she also handled product development and sales promotion. Before joining Lancôme, she spent seventeen years at Estée Lauder, where she held a variety of executive positions, including director of color cosmetics.
Karen is an active board member of Fashion Group International and is an adjunct professor of Product Development in FIT’s Cosmetic Masters Program.
Lauren Freedman, Chief Executive Officer, clé GLOBAL COSMETIC SERVICES
Lauren Freedman is Founder and CEO of clé GLOBAL COSMETIC SERVICES; a strategic global marketing company focused on new and emerging prestige beauty brands that was established in 2005.
While managing the clé Services business, Lauren also serves as President/CEO of KELLY VAN GOGH Hair Colour Cosmetics, a luxury Private hair colouring and hair colour support products company. Before joining KELLY VAN GOGH, Lauren was Vice President of sales and marketing at Cradle Holdings Inc, a luxury beauty brand portfolio company formed in late 2001 by Fox Paine, a Private Equity firm in San Francisco. While at Cradle Holdings, she managed the responsibility for planning sales and developing and implementing strategic global marketing plans for three world class prestige brands; Penhaligon’s Apothecary, L’Artisan Parfumeur, and Erno Laszlo Skincare.
From 1989 through late 2001, Lauren held various senior management positions, each with greater levels of responsibilities, at the Estee Lauder Companies. Her last assignment at Lauder was that of Vice President of sales, education and retail marketing for Prescriptives, which at that time had net sales over $200 million.