Chains seek better hair care margins

Drug Store News, April 25, 1994 by Barbara White

All in all, the hair care category suffered at drug stores this year. As drug stores struggled to keep the flat category profitable, they experimented with new methods of alloting shelf space and debated whether or not to keep niche brands with slow turns on the shelves.

Keeping the category profitable was a problem. Commodity hair care prices were so competitive that may chains were retailing top-selling shampoos slightly above cost, often at a retail price of 99 cents or 89 cents, which represents a margin well below 10 percent.

Even so, drug chains lost share to mass merchants, who drove the price on brands such as Suave and White Rain down to the bare minimum, often as low at 79 cents.

Mass merchants posted 17 percent increases in both dollar and unit sales in shampoo.

Drug store shampoo sales were down in both units and dollars. In unit sales, shampoo was down 7.1 percent, according to Information Resources Inc. In dollars, the category dropped 4.7 percent to $451 million, from $474 million the previous year.

The category was also down at food/drug combos, showing a decrease of 3.2 percent in dollar sales and 2.4 percent in unit sales.

Space management crucial

Drug retailers struggled over how to best utilize their shelf space. One school of thought held that since 20 percent of the brands on the market generate 80 percent of the business, retailers should give more facings to those "power brands," making up in unit sales for what they were losing in dollar profits.

Helene Curtis, one manufacturer proponent of the philosophy, recommended eliminating slow-moving peripheral brands from the shelves.

Some retailers agree, claiming that it gives them an opportunity to make a greater shelf statement in commodity hair care.

Said one retailer: "We are using the value brands as a lure to draw customers into the store in the hopes they will also pick up products with higher margins."

Retailers have indeed found that when they run a killer promotion on a major brand, it boosts the entire category.

More space for fast turners

To make room for multiple facings of top-selling brands, retailers have trimmed the slow-moving brands from their commodity hair care departments.

Scanning allows them to quickly determine which SKUs are moving and which won't make the cut.

One retailer, who reviewed the category every six months, said he pulled items from the department each time he reviewed it.

And chain drug stores were getting tough when it came time to accommodate new products.

Manufacturers were almost universally willing to pull slow-movers out of the planogram to introduce a new, innovative product.

While retailers remain uniform n their objections to keep slow-moving products on the shelves, they are not unanimous about what "slow-moving" means.

Many retailers cling to the idea that drug stores should provide variety, and for them, that means keeping smaller, niche brands that may not have the unit movement of a Suave on the shelves to keep customers loyal.

"How many 99-cent shampoos can you carry and continue to make a profit?" asked one retailer.

Niche brands mean profits

Retailers say obscure niche brands give them the opportunity to earn back some of the margins that have all but disappeared in the bulk of the commodity hair care category.

Indeed, research showed that the fastest-growing niche brands had the highest share of drug stores sales.

Since drug stores recognized these brands first and were willing to give them valuable shelf space, they benefited from the greatest market share for niche products, such as Wash 'N Curl and Frizz-Ease. And these are the products that carry the greatest margin.

Higher-priced products formulated for specific hair types have provided the greatest excitement in the category. Hair care lines formulated for color-treated hair and those that added a dash of color also proved popular.

CCA's Wash 'N Curl and Wash 'N Tint, L'Oreal's Permavive and Colorvive and Pantene's ProV continued to hold their places as top-moving brands.

Clairol's ColorHold System of shampoos, conditioners and color refreshers designed especially for color-treated hair was a strong premium-priced addition to the category.

The brand was the first to introduce a color refresher product, available previously only in salons, to the mass market. Redmond and Revlon followed with their own introductions. CCA's Wash 'N Tint and Redmond's Aussie Intermissions gave women a wash-in color option and created some additional excitement in the hair color category.

Pro hair gets mixed in

Professional hair care sets were weeded out at some chains. Following the example of Wal-Mart, some chains decided to do away with pro hair care sets, which are dependent on distributor's sets and merchandise, and order product directly from suppliers like Clairol, Advanced Research Labs, Alberto-Culver and Redmond.

While retailers and manufacturers universally agreed that direct distribution was desirable, they had mixed opinions about eliminating pro sets.

Proponents of the move said pro hair care sets are too dependent on diverted salon goods that are difficult to get on a regular basis.