Cosmetic Center selling, growing


August 02, 1993|By Mark Guidera | Mark Guidera,Staff Writer

Just as the critical Christmas shopping season was shifting into high gear in 1988, Louis R. Weinstein got some of the worst news of his career.

The computer system for The Cosmetic Center, a discount retailer and wholesaler that he had started in his kitchen nearly 30 years earlier, crashed.

The Savage-based chain couldn't track purchases at its nine stores, or ship popular items in timely fashion. Orders from longtime wholesale customers backed up, too.

Sales nose-dived. Profits plunged. And following the financial chaos, Mr. Weinstein wiped out the entire management team, purging six executives.

He recalls: "It was very devastating. . . . But all my life I've been swimming upstream. I knew somehow things would be pulled back together."

Today, the publicly held company is racking up record profits -- $2.4 million in the 1992 fiscal year -- and basking in the glow of Forbes magazine, which ranked it two years running as one of the best small companies in America. The company also is charting an expansion of its 46-store chain that would make it the nation's dominant discount fragrance and cosmetics retailer.

"This company will be a national chain; it's not a question of when, but how soon," Mr. Weinstein says of The Cosmetic Center, which has groups of stores in Baltimore, Washington and Chicago. Wholesale and retail sales totaled $101.1 million last year.

Some stock analysts agree -- even though the company's stock

price, like that of other retailers, hasn't shown much punch over the past year.

"They are my favorite small capital stock," says Michael L. Mead of Legg Mason Wood Walker, the Baltimore-based investment firm.

Analysts attribute the turnaround to the company's management team, including former Trak Auto and Dart Drug executive Ben S. Kovalsky, who serves as president and chief operating officer. And they voice confidence in Cosmetic Center's high-inventory, low-prices retailing strategy, which has worked for other "category killers" such as Home Depot and Toys R Us.

Cosmetic Center stores offer a blend of mass market and prestige lines of fragrances and cosmetics -- about 25,000 products in all -- to a clientele that is about 95 percent women. And they discount,discount, discount.

"True discounters usually cherry-pick product lines for those that are fast movers," says Mr. Mead. "But The Cosmetic Center carries as complete a selection as you'll find in the industry. It's proved very popular with the customer."

"Mass lines" of fragrances and cosmetics, including Revlon and Maybelline, are typically carried by drugstores and budget department stores such as Caldor. Teen-agers are the target customer.

Higher-priced lines, such as Calvin Klein and Estee Lauder, are carried by department stores, a key competitor in the cosmetics and fragrances market. Middle-aged and older women are the target customers for these products.

The Cosmetic Center stores offer most -- but not all -- products at 10 percent to 50 percent off the suggested retail price, says Bruce Strohl, the company's chief financial officer. A 1.7 ounce bottle of Poison, a Christian Dior perfume, sells for $34.99, about $12 less than the price at a major department store.

The company offers such savings by keeping overhead costs low, Mr. Strohl says. For example, it puts stores in strip shopping centers,rather than malls, where rents can run 15 percent to 20 percent higher.

It also has significantly increased the number of manufacturers it buys from directly, says H. Bernard Dorshow, director of research for The Chapman Company, a Baltimore-based investment house tracking the company.

In 1985, The Cosmetic Center purchased 40 percent of its inventory from manufacturers and 60 percent from secondary sources such as other wholesalers or overstocked retailers, he says. Today, about 80 percent of its inventory is bought directly from manufacturers, giving the company an edge on pricing in its stores, Mr. Dorshow says.

Foot in the door

Getting manufacturers to sell directly to The Cosmetic Center was difficult, Mr. Strohl recalls.

"We were able to get our foot in the door with a few of the manufacturers by showing them that we differentiate ourselves from what we call the 'drugstore presentation' -- where things are just thrown on the shelves with no customer support. We have a cosmetics bar with trained cosmeticians; it's an upscale image similar to department stores."

The biggest threat to the company today is the effort by Wal-Mart and other large discounters to buy directly from manufacturers of prestige cosmetic and fragrance lines, Mr. Dorshow says.

"So far, the prestige-line manufacturers have resisted," Mr. Dorshow says. "The Wal-Marts of the world have been knocking hard on their doors, but their worry has been that the prestige products will lose their high standing if they are sold in the Wal-Marts. Also they are worried it would tick off their department store customers."

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