BW Confidential - Issue #7 - July/September 2011 - (Page 46)

Market watch: US Drugstores Beauty rush Drugstores in the US continue to upgrade their beauty offer and take share from other retailers. What’s next for channel? by Laure Guilbault S Drugstores are taking the beauty world by storm. They have seen their share of the cosmetics market grow from 18% in 2008 to almost 23% in 2010. This makes drugstores the number-two channel of choice for beauty after mass merchandisers (with a 34% share) in 2010 and they continue to eat away at department stores’ share, according to How America Shops 2010, a study by WSL Strategic Retail. Some 21% of skincare sales in the US and 17% of haircare sales are now generated in drugstores. And while in the past drugstores were favored more by older women, now the difference in terms of age of consumers shopping there is small, according to the study. Drugstores have come up with new beauty concepts and new ways of reaching more younger and affluent shoppers. Gone are the days when they were considered as dark, dingy and cluttered. “Drugstores had turned beauty into a commodity,” says WSL Strategic Retail president Candace Corlett. “But they realized they were losing share to Sephora, where shoppers were discovering a nice environment with service.” She continues: “They have done a lot of physical improvements, trying to make the beauty category special and separate it from groceries. And they found out that shoppers were ready to pay $30 for a skincare product.” Best in class Walgreens has been anxious to play a bigger role in beauty. The chain, which had already begun to implement a program to simplify its stores, last year made a $1.1bn 46 U bid to acquire New York drugstore retailer Duane Reade. The purchase of Duane Reade, which operates 257 stores in New York state (the largest drugstore market in the US) and had sales of $1.8bn in 2009, almost quadrupled Walgreens’ footprint in the “ Drugstrores have done a lot of physical improvements, trying to make the beauty category special and separate it from groceries. And they found out that shoppers were ready to pay $30 for a skincare product WSL Strategic Retail president Candace Corlett area. In addition to gaining market share, Walgreens also wanted to acquire expertise in developing a strong urban retail format, especially in the high-margin beauty category. Duane Reade’s stores have been undergoing a facelift, and in beauty its new store-in-store, Look Boutique, has been praised for its creative merchandising and product assortment, which includes niche and prestige brands. Duane Reade’s Look Boutique concept ” was spearheaded by Joe Magnacca, the retail veteran behind the success of Shoppers Drug Mart in Canada (now president of Daily Living Products at Walgreens). At the Herald Square Duane Reade flagship store, shoppers can stop in for a quick brow fix or head to the skincare consultation area, staffed by beauty advisors 24 hours a day (see box). The skincare section called Look RX features European brands, such as Vichy, Lierac, Avène, La Roche Posay and niche lines 100% Pure or MD Skincare.“They have beautiful displays, lighting and make-up stations, making up a real specialty store, which is brilliant,” WSL’s Corlett enthuses. The company also created private-label brand DR dedicated to health and beauty. The marriage of product and design has made Duane Reade stand out. Analysts say that if Walgreens can replicate this model in its own stores it could raise the bar for beauty and develop a blueprint for innovative urban formats in other US markets. However, it remains to be seen if it is scalable. As Walgreens’s general merchandise manager for beauty Shannon Petree recently pointed out, it works for Manhattan’s ”captive audience of beauty enthusiasts. It’s a haven for them. But the concept would not work in every market.” In addition, in terms of its recent purchase, some skeptics say that Walgreens will have a hard task remodeling Duane Reade’s heterogeneous network of stores. Also on the acquisition front, just last month Walgreens bought Drugstore.com, the online July-September 2011 - N°7 - BW Confidential http://www.Drugstore.com

Table of Contents for the Digital Edition of BW Confidential - Issue #7 - July/September 2011

Cover
Comment
Contents
Update
- Brand & retail news recap
- Companies on the move
Take note
- Market facts, figures & trends
Best of BW
- Highlights from our e-publication
Launches
- The latest in fragrance, skincare & make-up
Interview
- Chalhoub Group co-ceo - Patrick Chalhoub
Insight: Haircare
- Category overview
- Prestige retailing
- The latest trends
Wellness
- Wellness & spas
- Spa case studies
Retail
- New store concepts
Market watch: US
- Analysis: Market overview
- Department stores
- Sephora
- Drugstores
Radar
- Six up-and-coming beauty brands
Packaging
- Make-up market analysis
- Make-up trends
Last word
- G-group managing partner Judy Galloway

BW Confidential - Issue #7 - July/September 2011