Now would not seem to be a great time to introduce a retail business, much less one devoted to luxury items. And reviving an Internet site devoted to prestige beauty products sounds borderline masochistic, given that investors long ago hung consumer e-commerce companies out to dry.
So when Gloss.com, a purveyor of high-end cosmetics, skin care and perfume went live late last month after a hiatus of more than a year, it appeared, at first glance, to be a case of unfortunate timing. But a second look indicates that the site may have a fighting chance, thanks to its backing by some of the biggest names in the beauty industry, including Estee Lauder, Chanel and Clarins.
That those companies anointed Gloss as the sole Internet-only retailer to carry an array of their products means the site has an immediate advantage over rivals like Drugstore.com's Beauty.com and LVMH Moet Hennessy Louis Vuitton's Sephora.com. But analysts said Gloss still faced a multitude of challenges -- not the least of which was maintaining peace among a group of investors who are fierce competitors offline.
"This is the first example in this market where directly competitive manufacturers have joined forces to offer products that compete side by side at traditional stores like Macy's," said Evie Black Dykema, an analyst with the consulting firm Forrester Research. "They're certainly unlikely bedfellows, and the fact that it took so long to launch raises questions about the quality of the working relationship between them."
`A good time for starting dotcoms'
Gloss executives claim the working relationships among the various parties are fine, and note that the site's debut went off, as planned, in time for the holidays. Furthermore, said Peter Hirshberg, Gloss.com's chief executive, now is an ideal time to start a dotcom business. Not only has the site been able to attract employees at lower salaries than during the dotcom boom, he said, but the company is under no pressure from its corporate parents to grow quickly and offer shares to the public.
Gloss was purchased for an undisclosed sum in April 2000 by Estee Lauder, which then received investments from Chanel and Clarins, which agreed to market their skin care products, makeup and perfumes on the site. These brands account for most of the sales in the US$7 billion prestige beauty market, with one exception: L'Oreal's Lancome.
Until recently, these companies deemed online retailers unworthy of their products. As the ranks of online beauty sites swelled in 1999 -- by some estimates, there were more than 300 at the peak -- the high-end manufacturers said they could not trust their brands to start-ups that might vaporize at a moment's notice. Instead they used their own sites to sell online.
In some cases, the brands allotted limited product lines to department store Web sites, like Federated Department Stores' Macys.com. Meanwhile Internet-only companies like Eve.com, now defunct, and BeautyJungle.com, now part of fashionmall.com, were left with no prestige brands to sell as they struggled to attract customers and make a profit from cheaper, lower-margin goods.
Some analysts have suggested that the prestige brands had planned all along to wait for the competition to die off, then set up a site and reap Internet profits directly.
Estee Lauder, in particular, "has been extraordinarily cautious in terms of sharing products, and wisely so, because by doing that, they forced the dotcoms out of business," Dykema, of Forrester, said.
"It's interesting that Estee Lau-der is now becoming more flexible with department stores online," she said, "just as they basically launch a direct frontal assault on them."
Indeed, Estee Lauder has become more generous, allowing Macys.com to offer Clinique and Estee Lauder products the same week that Gloss.com did. More department store chains will follow, said William P. Lauder, a group vice president at Estee Lauder.
Still, the company is not exactly swimming in revenue generated from the Web, as total Internet sales make up 0.5 percent of Estee Lauder's sales in the US. "We firmly believe the Internet is not purely a commerce engine," Lauder said. Online sales "are just a nice little byproduct of it."
Lauder said he preferred to focus on using the company's online efforts to build sales off-line -- through e-mail messages promoting in-store events, for example. In recent months, Estee Lauder's in-store sales were 5 percent higher in markets where such promotions occurred. Lauder would not quantify the total sales gain. "But it's a very big number," he said.
Lancome will also start to appear on more department store sites, said Sarah Williams, the company's vice president for interactive marketing. Currently, Lancome products appear on several sites, including Nord-strom.com and Macys.com.
To ensure complete control over the retail process -- as they do in the physical department stores -- Lancome builds online brand boutiques, or stores within stores, which the company then syndicates to the department store sites. One cause of the delay in rolling out additional sites, Williams said, has been technological hurdles in integrating the boutiques with the department store sites.
Despite the lag, executives of the department store Web sites are happy to have the big beauty brands. Dawn Robertson, president of Federated Direct, which oversees the catalog and online operations of Macy's and Bloomingdale's, said prestige beauty manufacturers represented about 5 percent of the company's online sales. "But we believe that could grow to as much as 10 percent," she said.
Beyond the direct sales, Robertson said, such goods are critical in drawing women to the site who will then buy other products.
Robertson said she was not put off by the fact that Estee Lauder, Chanel and Clarins were also competing with her company, through Gloss.com. "Our brand partners have had their own retail stores for some time," she said. "If we execute our strategy well, we'll still win."
Strange bedfellows
But she does expect equal treatment. When told that Chanel customer service representatives had informed customers that Gloss. com was the only place to find Chanel products online -- when Macys.com also carries Chanel -- "We'll have to look into that one," she said.
With the arrival of Gloss.com, and the bolstering of the big beauty brands among department stores, other beauty sites "will have a really difficult time competing," said Mark Brooks, an analyst with the NPD Group, a research and consulting firm.
But executives of both Beauty. com and Sephora.com say they are happy with their businesses, even though they do not have all of the prestige brands on their sites. "Chanel and Clarins both broke ranks and sold with us in the last few months," the chief executive of Sephora.com, Jim Wiggett, said. "And we've had Stila for years, which is a Lauder brand. You'll see more brands arriving, too, I just can't announce anything yet."
Meanwhile, Gloss.com is trying to figure out how to satisfy its customers and its owners, which will be critical in marketing the site.
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