Chain has big ambitions in tough market

March 19, 1995|By Jay Hancock | Jay Hancock,Sun Staff Writer

CLARIFICATION

A story in the Business section on March 19 may have been unclear about Cosmetic Center Inc.'s pricing of professional hair-care products. Cosmetic Center does not plan to sell Redken-brand products at markdowns from the manufacturer's suggested retail prices.

It's Saturday night in Reisterstown, and Karen Partee is getting ready to go out.

Her shampoo is from the Hair Cuttery. Her facial cleansers and foundation are from Mary Kay. Her perfume is from the Cosmetic Center. One-stop beauty shopping is not catching on with this woman.

"Where you go a lot of times," she says, "depends on what you need."

That's a problem for Cosmetic Center Inc. The Savage-based company wants to rule the makeup and perfume business the way Toys 'R' Us dominates the toy trade.

But instead of verging into a few powerful streams, the flow of beauty products from manufacturer to customer keeps breaking into new rivulets.

Cable-TV pitchwomen like Cher and natural-product chains like the Body Shop and Garden Botanika account for two rapidly growing pieces.

Specialty perfume shops are springing up. Cosmetics manufacturers such as Estee Lauder are opening their own stores.

They join a crowded fray of drug stores, department stores, supermarkets, expanding discounters such as Wal-Mart and direct-sales outfits like Mary Kay.

"There is a growing body of alternative ways to sell cosmetics that is hurting the rest of the market," said Donald Davis, editor of Drug & Cosmetic Industry, a New York-based trade magazine.

The fact that Cosmetic Center itself is part of the new wave doesn't diminish the challenge it faces.

The chain wants to triple the size of its store roster to 200 by the end of the decade and build sales from $123.6 million last fiscal year to $500 million, said Chairman Louis Weinstein.

That's a tough enough order even in a growing, healthy industry.

But sellers of cosmetics and perfume have struggled lately, suffering an especially spotty 1994.

Some analysts worry that the same women who are dressing down to slacks and T-shirts in the increasingly casual workplace are wearing less-formal faces, too.

Cosmetic Center raised an ugly blemish in the October-December period, usually its biggest quarter. After rising by a modest 4.2 percent for the 12 months ending in September, sales in stores open for at least a year dropped by 9 percent during the remainder of 1994.

Company profits declined by 38.3 percent to $1.3 million in the December quarter.

The price of Cosmetic Center's nonvoting A shares fell as low as $7 apiece last month after selling for more than $20 at one point last year.

Recently the stock has recovered a bit, closing last week at $9.50.

"The company has had greater than expected expansion problems and had a merchandising miscue" in December, said Steven Saltzman, a financial analyst for investment house Chicago Corp. "While we like the business, we would rather stay on the sidelines for now until we feel more certain as to what the near-term earnings outlook holds."

Can Cosmetic Center quickly fix its smudged image?

Company managers, blaming the beauty slump on a surge in auto, jewelry and furniture sales that siphoned off consumer spending last year, said they are optimistic.

"We certainly agree from our perspective that the first quarter was disappointing," said Mark Weinstein, Cosmetic Center's chief executive officer.

But, he added, "The fragrance business had a very down year, and it's a result of people using their disposable income on all these high-ticket items. All retailing has cycles, and this is a major contributing factor to what happened in our first quarter."

Cosmetic Center has Wall Street's attention. Ever since Toys 'R' corraled the Barbie and Fisher-Price market, investors have loved "category" discounters that focus on one kind of product, buy in huge quantities, offer matchless selection and undercut prices of established stores.

The trend has swept home-improvement products, office supplies, electronics, sheets and towels, sports equipment and, lately, pet supplies.

The pancake and eyeliner trade, however, differs from some of the best-known category successes.

The $25 billion industry isn't as big as, say, home improvement. The items aren't as expensive as stereos and computers, which makes the company work harder for a profit. And they're available at dozens of other stores.

When Hechinger Co. built itself into a Baltimore-Washington home improvement powerhouse, its competition was limited to the corner hardware store and mass merchandisers such as Sears, Roebuck & Co. By contrast, the field arrayed against Cosmetic Center is bigger and more diverse.

But the chain has three strong marketing suits.

Its prices generally are 10 percent to 20 percent lower than those of competitors, analysts said. Its 6,500-square-foot stores offer unrivaled selection. And Cosmetic Center sells "prestige," department-store brands such as Clinique and Estee Lauder next to less expensive lines like Cover Girl and Revlon.

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