Kissed Off: Stores Ax Max Factor

Exclusive: $400M P&G Brand Cut by Target, Drug Chains; Survives at Wal-Mart

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BATAVIA, Ohio ( -- Max Factor, the cosmetics brand that once glowed from the cheeks of cinema starlets from Rita Hayworth to Marilyn Monroe, has been reduced to little more than a house brand for the decidedly unglamorous Wal-Mart.

The 97-year-old brand -- with $400 million in global sales -- created by the famed Hollywood makeup artist has just been delisted from Walgreens, CVS and Rite Aid as well as Target. That cuts distribution from 26,000 to 10,000 stores -- more than a quarter of them Wal-Marts.

Having a cosmetics brand at only about 7,000 mostly small drug and grocery outlets beyond Bentonville means "you keep the production line going another four minutes after you're done with the run for Wal-Mart," said Don Pettit, a former executive with P&G and Estee Lauder cosmetics businesses and now principal of Bingo Brand Solutions, Baltimore.

Factor owner Procter & Gamble Co. put its best face on the situation. "We've right-sized the brand for our most productive doors," said a spokeswoman, pursuing a "niche strategy" in the U.S. But in truth, no amount of lipstick-or euphemistic marketing speak-can hide what's happening to the aging ingenue.

Heroic measures
The brand had roughly $170 million in U.S. sales last year, according to Information Resources Inc. data and Ad Age estimates for Wal-Mart. Max Factor's shares last year fell 0.7 points to 2.1% in eye makeup, 0.3 points to 2.1% in face makeup and 0.7 points to 5.7% in lipstick, according to IRI data.

The delistings come despite heroic efforts to resuscitate Max Factor under Marc Pritchard, president-global cosmetics and hair colorants, who has the unenviable task of running P&G's two most embattled beauty businesses.

In 2004, P&G hired Pat McGrath (a prominent designer, not the prominent former head of the P&G ad agency formerly known as Jordan McGrath) to give Max Factor a new look. His first fruits are emerging with this year's product line. Ads from WPP Group's Grey Global Group, New York, featuring Carmen Electra as the new face of Max Factor, broke last month. P&G named Grey, which also handles P&G's bigger Cover Girl, to handle Max Factor last year, replacing Publicis Groupe's Leo Burnett, London.

Even though cosmetics is the lowest priority in P&G's beauty portfolio, said one analyst, another discontinuation would be embarrassing, particularly after P&G pulled the plug on Clarion in the early 1990s and Olay cosmetics in 2001.

It would also be costly. Officially discontinuing Max Factor would trigger P&G's "unsaleables" policy with retailers, under which the company agrees to support closeout activity for a year. Olay's demise became a fiasco in which P&G actually shipped and sold more product the year of the closeout than the year before as retailers took advantage of the policy to make it a low-priced value brand. The result was expensive, though accounting rules meant it fueled top-line momentum for P&G at the time.

In any event, Max Factor would remain a global brand -- it gets 60% of its business outside the U.S. already, said a former executive. But he believes its strength in such markets as the U.K. and Japan could also encourage P&G to keep it around in the U.S.

So can Max Factor be saved?

Mr. Pettit isn't sure Ms. Electra will do the trick, but said P&G is right to try a dramatically different approach. "The beauty of Wal-Mart is it's big enough to run programs. ... But you may not be able to do it with mass-media advertising."

How to save it

Here are five recommendations for P&G from industry consultants and executives.
  • Stop the bleeding. Wal-Mart should be primary focus now. Improving the cosmetics-shopping experience there could be crucial.
  • Target, target, target. With limited distribution, media planning and buying are key.
  • Contemporize. Carmen Electra may be a start.
  • Technology. Lipfinity was Max Factor's big recent hit. But the brand had no follow-up act.
  • User experience. Overhauled product line and packaging this year could help. But is it too late?

P&G and cosmetics over the years: It ain't pretty

1909: Famed Hollywood makeup artist Max Factor launches his eponymous cosmetics brand.

1920s: Mr. Factor becomes pioneer in celebrity endorsements, starting with Clara Bow. Faces of the brand would later include Rita Hayworth, Marilyn Monroe, Jean Harlow, Jaclyn Smith and Denise Richards.

1989: P&G buys Noxell Corp., maker of Cover Girl and Clarion.

1991: P&G buys Max Factor from Revlon for $1 billion.

1992: Feeling buyer's remorse over price for Max Factor, P&G demands its investment bank Goldman Sachs stop handling Revlon's initial public offering, The Wall Street Journal reports.

1993: First of many Max Factor restages falters on shipping/delivery issues.

1994: P&G announces it will discontinue Clarion to focus on Cover Girl and Max Factor.

1995: P&G begins testing Olay cosmetics in the U.K. and U.S. in the middle of what would be decade-long hemorrhaging of market share in U.S.

1999: P&G rolls out Olay cosmetics in U.S. and U.K.; signs Madonna to pitch Max Factor in Europe and Asia.

2001: Though it was a $300 million global business, P&G discontinues Olay cosmetics, earmarking up to $200 million in promotion funds to finance the closeout. Launches Max Factor Lipfinity.

2002: Olay volume surges despite closeout as retailers take advantage of generous promotion allowances. Max Factor and Cover Girl also start gaining share for first time in part because financially strapped Revlon's Almay is hit hard by Olay closeout.

2003: Competitors including L'Oreal, Revlon and P&G's Cover Girl pile on long-lasting lipstick category as Max Factor starts to give back gains.

2004: P&G burnishes "Make-Up of Make-Up Artists" campaign by tying in with movie The Aviator.

2005: P&G sacks Max Factor agency Leo Burnett, shifts brand to Cover Girl shop Grey. Makes Carmen Electra new face of brand.

2006: Max Factor delisted at Target and three of four major drug chains. Roughly $400 million global brand's distribution now primarily at Wal-Mart Stores in U.S.

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