Beauty products rake in profits
By Jonathan Drew
Associated Press
COLUMBUS, Ohio — Never heard of triple rose water? The sales associate in the white lab coat can tick off its benefits. Or try something more modern, like a green-tea inspired cleanser developed by a Beverly Hills plastic surgeon.
Kiichiro Sato • Associated Press
It's first thing in the morning at C.O. Bigelow Apothecaries, and the conversation you're overhearing could be part of a staff training session or just a casual conversation — people at this store are serious about grooming products.
Bath & Body Works, along with Victoria's Secret, accounted for the majority of 2004 sales for parent company Limited Brands. Limited has reinvented itself to become "a personal-care, beauty and lingerie company." Those items are seen as less seasonal.
That attitude is shared by Limited Brands chairman Leslie Wexner, who says the future of a company he built on women's apparel now lies in beauty products and underwear. Those items are less prone than apparel to seasonal changes in customer taste, are more driven by brand loyalty and offer predictable profit growth.
"We've reinvented ourselves completely. We are now predominantly a personal-care, beauty and lingerie company," Wexner said in his annual letter to shareholders of Limited Brands, the parent of Victoria's Secret and Bath & Body Works.
Besides C.O. Bigelow, which opened its first store last October near Limited Brand's Columbus headquarters, the company is also testing a new concept for lingerie stores and expanding the department store brand Henri Bendel into stores that sell home and beauty products.
Personal-care products accounted for 30 percent of the company's 2004 revenue, up from 4 percent a decade earlier. During the same period, apparel sales shrank from 71 percent of the company's business to 29 percent, while lingerie grew from 25 percent to 41 percent.
Analysts have applauded the company's efforts. They note that a growing number of specialty clothing chains are carving the market into increasingly smaller segments, while the cosmetics market is relatively less crowded.
The experts also note personal-care products are bought more frequently — people tend to use up hand lotion faster than they wear out jeans — and customers are often more loyal to grooming products than clothing brands.
Paul Vernon • Associated Press
What's hot in fashion changes from season to season, making it harder to earn money at selling clothes, experts said.
C.O. Bigelow Apothecaries is the latest store from Limited Brands, which is also planning to test a new concept for lingerie stores.
"You come out with a new line and the consumer just shrugs her shoulders and goes past that," said Kurt Barnard, president of Barnard's Retail Consulting Group in Nutley, N.J. "It's like playing Russian roulette."
It's a game Limited Brands has been losing. Figures show that two-thirds of its $9.4 billion in sales and nearly all of its profit in 2004 came from Victoria's Secret and Bath & Body Works, while the apparel division has been a drag in profits. In the most recent quarter, a $68 million operating loss in apparel helped drag down profits, while operating profits at the personal-care and lingerie chains grew over the year-ago period.
Founded in 1963, Limited Brands developed and acquired brands to fit nearly every nook and cranny of the clothing market. But the company lost customers to other merchants who offered more casual, classic clothes and lower prices.
Since 1996, it has whittled a lineup of seven clothing chains down to two — The Limited and Express — by selling, spinning off or consolidating stores. The company also spun off a portion of its nonapparel division — which included Victoria's Secret and Bath and Body Works — under the name Intimate Brands in 1995, and then bought it back in 2002 as part of a plan to simplify the company's operations.
