Cosmetic Center to liquidate

Chain will close remaining 124 stores, Columbia offices

In bankruptcy since April

Demise is blamed on competition in crowded marketplace

July 10, 1999|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

The Cosmetic Center Inc. ended a once successful but more recently troubled run yesterday, announcing that it will close its remaining 124 stores and its Columbia headquarters by the end of the year.

The discount cosmetics retailer, which started as a wholesaler in 1957 and grew to a 260-store chain at its peak, had been in bankruptcy since mid-April. It had announced plans to close 116 stores this year, 73 of which have been shuttered.

"Based on an increasingly competitive marketplace and the company's financial position ... the board of directors, with management support, thought this was the best alternative," said Wendi Kopsick, a company spokeswoman.

The company said it will start going-out-of-business sales by the end of the month at its 31 Cosmetic Center stores in Maryland and Virginia and at 93 Prestige Fragrances & Cosmetics outlets in 27 states.

All stores, including 16 in Maryland, should be closed by mid-November. The chain has 1,200 employees, including 125 at its office and warehouse headquarters.

Plans to liquidate are subject to approval by U.S. Bankruptcy Court in Wilmington, Del., where the chain filed for Chapter 11 protection April 16, listing debts of $71,129,062 and assets of $95,080,389.

As part of the bankruptcy process, the company will continue trying to sell the business or portions of it.

Yesterday's announcement hardly surprised analysts and consultants familiar with the chain, which sold upscale cosmetics, fragrances and beauty supplies at discounts of up to 20 percent.

"I think at one time, when they had brands off-price, they offered a reason to go there," said Howard Davidowitz, chairman of Davidowitz and Associates, a national retail consulting firm in New York. "In recent years, there was less and less reason to go."

He attributed the chain's demise to stiff competition, as more retailers crowded into the cosmetics marketplace.

`Competition on every block'

"You've got the biggest explosion of drugstores in the history of the U.S., and they're all expanding their beauty sections like mad," Davidowitz said. "The Cosmetic Center suddenly had competition on every block. You have the discount stores, and all of them have this at super-low prices."

Also, as a small but growing chain selling brands such as Estee Lauder, Clinique and Elizabeth Arden, Cosmetic Center had taken on a formidable foe: department stores that were fighting to maintain dominance in cosmetics and apparel. Department stores put pressure on brand-name cosmetics suppliers to stay out of discount chains, said Kenneth M. Gassman, a retail analyst with Davenport & Co. in Richmond, Va.

Cosmetic Center's founder, wholesaler Louis Weinstein, opened his first retail store in 1973, offering discounted products he had bought as excess merchandise from other wholesalers. The chain grew to nine outlets by 1986, when the company first sold stock to the public.

Acquisition problems

By the early 1990s, the chain's presence and marketing reach had expanded, and its problems in acquiring supplies had intensified, analysts said.

"When they reached critical mass, you can no longer count on your supply channel to have enough product to drive sales in those stores," Gassman said. "When the growth ceases, Wall Street loses interest, and suppliers want to go with a winner."

After Weinstein's death in 1995, the chain began suffering losses. In April 1997, it entered into a merger with Revlon Inc., which operated Prestige Fragrance & Cosmetics Inc., with 197 stores in outlet malls nationwide that sold excess Revlon inventory.

The merger of a family business with an outlet business turned out to be a mismatch, and Revlon took a $32.7 million loss in December when it sold its 85 percent majority stake in Cosmetic Center to Prestige Holdings I, which is controlled by a New Jersey-based investment and management company.

Pub Date: 7/10/99

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