P&G cosmetics save face

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Procter & Gamble Co. is defying predictions of analysts who for years thought it would never figure out the cosmetic business and should quit trying.

P&G's 41-year-old Cover Girl brand, riding a streak of seven consecutive quarterly share increases, now ranks with Nike and Abercrombie & Fitch among coolest brands with teens, according to Teen Research Unlimited. Once-moribund Max Factor, which started on faces of silent-screen stars more than 90 years ago, has bounced back to life in the past year with Lipfinity, the eight-hour lipstick touted in uncharacteristically sultry ads from Bcom3 Group's Leo Burnett Co., London, as being "Pizza-proof, pasta-proof and passion-proof."

Along with its Cover Girl cousin Outlast, Lipfinity has become one of the most successful launches in industry history, with annual sales of $100 million in the U.S. and $140 million globally. Not bad, especially for a Max Factor brand on divestiture watch among analysts less than 18 months ago as President-CEO A.G. Lafley reviewed P&G's $800 million U.S. cosmetic portfolio.

"It's been five years and a lot of work," said Marc Pritchard, president-North American cosmetics. He credits new products, improved retail displays and better ads, which, in typical P&G style remain benefit-driven but use music, multicultural celebrities and sex appeal to make their points.

P&G's cosmetic successes have paid tangible rewards for Grey Global Group's Ericsson-Fina, New York. In a recent interview, P&G Global Marketing Director Jim Stengel cited a desire to reward success on Cover Girl, among other factors, behind Grey getting the coveted $100 million Clairol hair color account.

more shelf space

Mr. Pritchard said Max Factor is gaining 4,000 feet of precious retail shelf space this spring, what he calls "a good sign that our trade customers see we're on the right road."

Banc of America Securities analyst William Steele still isn't convinced P&G has mastered cosmetics, noting overall market share, while up from 2000, was down a point to 22% in 2001 from two years ago. But he said: "They're having some definite new-product successes."

Not everything is rosy hues for P&G-discontinued Olay cosmetics, handled by Publicis Groupe's Saatchi & Saatchi, New York, is exiting as its $200-million promotional fund is being turned over to help keep the former $300-million business' shelf space in the P&G family.

Cover Girl, whose median consumer age is 35 despite its teen appeal, is stretching further to capture middle-aged Olay consumers by adding vitamins and sunscreens to recently launched AquaSmooth foundations. Meanwhile, Cover Girl's biggest customer, Wal-Mart Stores, targets the brand's youngest consumers with newly launched house brand Mary Kate & Ashley.

But Mr. Pritchard said Cover Girl also looks to appeal to a broad segment, including girls, with Fresh Complexion oil-control makeup to be launched in July.

P&G has also taken advantage of turmoil at Revlon, which struggles more with a crushing debt load than anything else, said Deutsche Banc Alex. Brown analyst Andrew Shore.

But he still credits P&G for doing more than benefiting from Revlon's woes. Mr. Shore acknowledges he's long doubted P&G, based in Cincinnati, could ever beat New York-based rivals in a business driven by sex and fashion. But he said a new generation of managers at the Hunt Valley, Md., cosmetics operation is making strides, particularly in lipstick, the most sensual part of the business.

"You've got younger kids moving up running these brands now," he said. "They have a broader perspective. [Mr. Lafley] and everyone around him are really starting to understand this business a lot more."

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