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BERLIN-Berlin Cosmetics was once the toast of Eastern Europe. Then the Berlin Wall fell.

Suddenly, women in the former Eastern bloc were faced with a dazzling array of western brands and abandoned products like Berlin Cosmetics, a coveted luxury under communism. And companies like Berlin Cosmetics, which failed to attract a deep-pocketed multinational partner, are now struggling to reestablish themselves in a reunified Germany.

Ironically, the job of rebuilding has fallen to American Raymond Learsy, chairman of Berlin Cosmetics, which he acquired in a March 1993 privatization. Mr. Learsy has no prior cosmetics experience and developed his skills with a family-operated trading company. His strategy involves a healthy dose of capitalism: A low budget ad campaign aimed at former Eastern Bloc countries who look back nostalgically to Communism.

But the company's paltry budget still can't come near to matching that of multinationals which now command Berlin Cosmetics' former shelf space in Eastern Europe.

"It's true there was a pent-up demand for Western products after the [Berlin] Wall came down," said Mr. Learsy. "But the tragedy is that this has now been used as a rationale to kick us out of the market," he said, referring to his brand being squeezed out by more chic and wealthy competition.

Only five years ago, Berlin Cosmetics' Indra lipsticks, eyeshadow and mascara; Koivo and Rainbow ranges of shampoos and shower gels and Unter den Linden perfume were the closest thing consumers could get to Western-style cosmetics, and they were exorbitantly expensive.

Today, the brands are priced on the low end of the middle price segment but are still having a rough time establishing themselves in united Germany's $9 billion cosmetic and bodycare market. While Berlin's lines are of similar quality to western brands they are less slickly packaged and promoted. Brands like Berlin's Koivo shampoo, selling at $2.29 for a 250 milliliter bottle, are fighting an uphill battle competing against Beiersdorf's Nivea Formel shampoo, priced only slightly higher for the same size bottle at $3.01 and Procter & Gamble's Wash & Go at $3.11.

Berlin Cosmetics is also up against some fragmented competition. In the German shower gel segment, for example, SmithKline Beecham's Duschdas has 10.6% of the market, followed by Beiersdorf's Nivea brand with 9.6%, P&G's Litamin with 7.3% and Henkel's Fa with 5.9%. Berlin's share is so small it doesn't show up in the research.

Moreover, the former East Germany, where the brands are most well known, accounts for only a small portion of Germany's total cosmetic sales. The total German soap, bath and shower category was $1 billion in last year, but only $187 million of that was concentrated in the former East Germany, according to market research from Beiersdorf.

To create demand, Berlin Cosmetics last spring started running a gutsy local TV campaign from an agency the company deliberately chose from East Berlin, called Fritzsch & Mackat. The :15 spot shows middle-aged East German actress Karen D?val praising the products and talking about how the colors suit her. The theme: "What was good yesterday doesn't have to be bad today."

Locally, the advertising has paid off: Department stores in west Berlin such as Karstadt, Hertie and KaDeWe are now stocking Berlin Cosmetics and sales are expected to triple to $12 million for Berlin's fiscal 1993 year ending in 1994. That's up substantially from $3.6 million for the 1992 fiscal year ended last year.

"We see that when we do get in the stores, sales are reasonably strong," said Mr. Learsy.

The larger German chains are unsympathetic. A spokesman for Kauhauf department stores, based in Cologne, said, "We've tried to help these [small] companies, but it's not our fault if their products don't leave the shelves. The problem is they don't put enough marketing muscle behind their products."

As a result, Mr. Learsy finds himself in a vicious cycle. He can't advertise nationally because his products are only in eastern Germany. Yet he won't get shelf space from the national chains until he comes up with ad spending in the same league as competitors.

Ellen Betrix, for example, spends $27 million annually on advertising through Michael Conrad & Leo Burnett, Frankfurt. By comparison, Berlin Cosmetics' total ad budget is only $606,000.

So Berlin is playing on its strengths with consumers in other eastern countries, namely Russia, where is it strong already and China, the latter market in which it will enter in a joint venture by year's end.

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