Sales of cosmetic and toiletry products through alternate channels have exploded over the last five years, fueling a 5.2% growth in direct sales that is outpacing the total market more than three-fold. While conventional person-to-person sales are declining gradually since 2005, multi-media driven channels have snapped up sales, with e-commerce growing by more than 26%, home shopping networks up nearly 20%, and infomercials posting just over 17% growth. This upward trend is expected to continue as mobile technologies, social media, and online deal-hunting converge to help bricks-and-mortar and direct sales-only retailers reach a wider, more diverse, and engaged audience.

Manufacturers’ Sales of Cosmetics and Toiletries by Retail Channel, 2005 and 2010

Faced with increasing competition from alternate channels, bricks-and-mortar stores have looked to physical enhancements to their retail space to build beauty momentum, with upgraded fixtures, increased floor/shelf space, and expanded brand lines. However, while all this revamping has spurred some sales, particularly in the drug store channel, bricks-and-mortar growth remained paltry in comparison to alternate channels. This begs the question: if you can’t beat ‘em, why not join ‘em? Rather than continually try to reinvent themselves to draw customers out of their homes and into the store, perhaps bricks-and-mortar retailers should take a lesson from the alternate channels and look at ways to leverage the tactics that seem to be working so well.

Online Channels Open New Doors
The omnipresence of the Internet combined with the convenience of online shopping have drawn beauty customers to the web in droves. The channel also enables retailers to reach a huge audience with incredibly affordable marketing tactics.

Online stores connect easily and seamlessly with free social media networks like Twitter and Facebook that can be used to build a following, connect with shoppers, and grow loyalty with easily distributed discounts, “how to” tips and other useful content, and special members-only deals. YouTube videos that demonstrate how to use and/or apply products, show before/after results, and incorporate testimonials offer a multi-media appeal that engages shoppers and overcomes the physical/tactile barrier of the Internet.

Some of the big players are working the online angle, but there is definitely room for expansion. RiteAid.com, Walmart.com, and Macys.com now offer e-commerce beauty sales, and Walgreens’ recent purchase of drugstore.com is obviously aimed at capturing this channel. In fact, Walgreens is even experimenting in some markets with a “double-play” of sorts: letting consumers buy online, then pick up their purchases in-store in a bid to work both channels.

However, none of the major retailers seem to have fully tapped the social media potential as of yet, at least specific to their beauty lines. With this option in place, retailers could even easily run their own flash sales (similar to HauteLook, Rue La La, and Gilt Groupe), Tweeting and Facebooking deep-discount, exclusive offers to fans and followers with a built-in sense of urgency that spurs consumers to act now to get in on the special limited-time-only offer.

The Power of the Demo
With more consumers staying at home, either by virtue of unemployment, telecommuting, or simply going out less to save money, the Internet was not the only place for beauty purchases. This dynamic has also helped to boost sales for home shopping networks like HSN and QVC. Combining product quality, value, and selection with information and entertainment, this channel is becoming a growth-leader in the beauty business, leveraging how-to-use and product application demos as an incredibly powerful sales tool.

With a storytelling platform that focuses on problem solving, home shopping channels are able to create a personal connection with consumers, weaving expert advice and customer testimonials into the presentation to help drive viewer engagement and sales in a way that straight-up traditional advertising never could. Luxury brands like Elizabeth Arden and Shiseido have worked with HSN to leverage the power of the demo with special packaging and other promotions exclusive to HSN shoppers, and earlier in 2011, Lancôme launched a new eye cream exclusively on HSN for a limited engagement specifically to demonstrate the product.

But, devoid of a massive television audience, how might bricks-and-mortar retailers leverage the power of the demo to beef up beauty business? In fact, Duane Reade is already making headway with its urban-located Look Boutiques boasting full-time beauty advisors, in-store aestheticians, and other on-site beauty services. The chain (now owned by Walgreens) is banking on its interactive motif, premium brands and upscale décor to attract more shoppers and build beauty sales. Other retailers could launch a similar approach, even if on a limited engagement: a Saturday morning Covergirl eye makeup demo at Rite Aid, for example, or a Lancome-sponsored anti-aging clinic at Macy’s.

Infomercials Tell the Story
Infomercials have also emerged as a beacon of growth in the beauty business. Combining effective storytelling with contemporary celebrity spokespersons, endorsements and abundant customer testimonials, Guthy-Renker is the industry’s powerhouse having pioneered the channel and launched many well-known and successful beauty brands, including ProActiv, Meaningful Beauty, Natural Advantage, Youthful Essence and Wen by Chaz Dean. In fact, its ProActiv acne treatment formula is the company’s largest selling product with $310 million in sales for 2010 introduced through infomercials.

Leveraging the same powerful storytelling model as the home shopping networks, infomercials take a truly multi-channel approach that offers consumers virtually unlimited purchase options. For example, Guthy-Renker’s ProActiv is available through toll-free numbers flashed during the 30-minute spot, by mail order through direct response cards tucked into magazines and coupon mailers, online at the company’s website (complete with video testimonials snipped from the full-length infomercial), and even at vending machines positioned strategically at shopping malls throughout the country.

Without a doubt, diversification is the most powerful lesson for retailers to learn from the infomercial model. The industry has managed to create multiple consumer touchpoints and purchase channels that have made it incredibly easy for consumers to buy no matter what their media preference or location. It is exactly this kind of ubiquity that consumers crave, and retailers must evolve to provide in order to catch shoppers at every available opportunity. stry has managed to create multiple consumer touchpoints and purchase channels that have made it incredibly easy for consumers to buy no matter what their media preference or location. It is exactly this kind of ubiquity that consumers crave, and retailers must evolve to provide in order to catch shoppers at every available opportunity.

The Marriage of Fun and Function
Perhaps more effective than the specific tactics employed by the alternate channels is the overall strategy: make it easy, fun and entertaining to buy. By integrating social media and interactive tools to engage customers in conversation, reach into their homes, and permeate their daily lives, alternate channels are appealing and effective for their immediate call to action and effortless purchasing options that reduce friction for consumers. By taking a lesson from the best practice tactics of the alternate channels, traditional beauty retail channels can use these same tools to marry fun with function and hold onto market share in the digital age.

Karen Doskow, Industry Manager, Consumer Products

Most consumers are completely unaware of the critical role excipients play in delivering the beneficial medicines millions rely on to fight diseases and stay healthy. Yet it is the fillers, binders, disintegrants, lubricants, and coatings that ensure the accurate, timed delivery of drugs required to safely maintain optimum active ingredient levels in our system and give the OSDF drugs we take every day their palpable size, texture, and flavor.

With average growth forecast to exceed 4% through 2015, the excipients market for OSDF is expected to keep pace with the 6% growth on the pharmaceutical horizon. While the two industries commonly track together for obvious reasons, the volume-based excipients market typically lags the value-based drug market.

Challenges at Home and Abroad
U.S. excipients manufacturers are facing some formidable new challenges. Consolidation in the pharmaceuticals industry is beginning to shrink the number of potential customers as merged/acquired drug makers tap into pre-existing supplier agreements with their new partners. Increased focus by the U.S. Food and Drug Administration on the quality and documentation of OSDF clients is resulting in tighter regulation and oversight.

Meanwhile, growth in the outsourcing of drug manufacturing to lower-production-cost countries in Southeast Asia and South America is whittling away at domestic market share. And, in the fillers/binders business, a run-up in the price of pulp, particularly carboxymethylcellulose, is driving up the cost of cellulosics and contributing to the shift of manufacturing/tableting operations to developing markets like India and China.

Stable Market Drives Steady Growth
Despite these challenges, the competitive landscape and overall market remains quite stable. For the most part, there is stability at the customer base, as drug makers are prone to sticking with a formulation that works, rather than make changes and risk alterations in the safe delivery, timed release or effectiveness of their product. Foreign competition from imported excipients remains a minor concern, as most manufacturers are hesitant to switch to more cheaply made Asian ingredients over fears of specification adherence, as well as the real or imagined risk of reduced quality or issues such as radiation contamination.

With the market for generic drugs still going strong, thanks in large part to the recession and continued weak economy, this tried-and-true formulation business has enabled excipient manufacturers to worry more about maintaining market share and less about technological innovation. However, as the economic cloud lifts, excipient manufacturers are shifting their attention back to R&D, working to develop new formulas to optimize drug delivery for the patient and manufacturing processes for drug makers.

Innovative Coatings, Disintegrants Support New Drug Systems
One of the most quickly evolving areas is the formulated coatings business, where interest is growing in both instant- and controlled-release products. Instant-release coatings enhance the drug flavor, making them more palatable, and enable the rapid delivery of medication to speed relief of pain and other symptoms. On the other end of the spectrum, it turns out some patients are not very compliant about taking their maintenance drugs when they should. Controlled release products that combat this problem and deliver sustained effects are also growing at about 5.5%.

Another fascinating area of growth and innovation is the disintegrants market, which is expected to add 5% over the next four years. By enhancing the rate at which the drug is made available to the body, these agents play a critical role in disintegration of the tablet as well as dissolution of the active ingredient. For the patient, it is the disintegrant that enables tablets and capsules to pack a powerful punch of medication in a tiny form that is easier to swallow, particularly for children and the elderly. The demand for rapid-relief, fast-melt tablets is driving 6% volume growth in crospovidone, which has become the disintegrant of choice for its better solubility and functionality compared to sodium starch glycolate and croscamellose sodium.

Blends: The Next Big Thing
Without a doubt, the biggest opportunity in the oral solid-dosage-form is in the development of custom-blended products that provide a one-stop-shop supply for drug makers. Pharmaceutical makers are eager to optimize their processes and reduce production. Customized blends or packaging programs that include a binder, filler, disintegrant, and coating specifically designed for the clients’ drug delivery goals allow the drug manufacturer to have greater control over their active ingredient, and save time and money in the blending process.

The problem is most excipient suppliers are not set up for this kind of broader service and customer-intimate relationship. In fact, the majority is very product-centric, and the industry as a whole is quite siloed in terms of expertise. However, this environment is actually quite perfect for strategic partnerships and alliances with non-competing suppliers of complementary products to meet drug makers’ more specific needs.

In fact, we’ve already seen early signs of this trend with the 2007 “controlled release alliance” between Dow and Colorcon. The deal, aimed at providing a broader solution set and more agile product development to drug makers, combines Dow’s expertise in controlled-release cellulosics with Colorcon’s proven experience and deep portfolio in the formulated coatings business.

Calling the alliance, “a natural progression for both companies in providing increased value to the pharmaceutical formulator,” Colorcon VP Jim Coward also accurately characterized the opportunity in custom blends for the entire industry. It is a natural progression that will no doubt better meet the needs of the market and provide for exciting innovations that will drive growth for years to come.

Anna Ibbotson, Industry Manager

We will be sharing valuable data and insights from our personal care, home care, healthcare, and chemicals reports. These webinars will not only provide you with an excellent view of the entire value chain, but will also explain the benefits of Kline’s highly reliable and helpful reports, which are unmatched in the scope and detail of their coverage.

	Beyond the Lotions - Tuesday, July 19, 2011, 09:30 AM EDT – Today’s skin care market offers a wide range of products that are becoming increasingly customized to meet individual needs. To see and compare how these products perform, attend this webinar covering skin care markets across all channels, and uncovering the latest insights on the emerging market of at-home skin care devices in the United States.  REGISTER
	Which Cosmetics and Toiletries Sell and Why? – Wednesday, July 20, 2011, 09:30 AM EDT – Want to learn  where consumers shopped for cosmetics and toiletries, and which products performed or lagged behind in this competitive market? Did value-oriented retailers perform better than usual in today’s economy? Or how are upscale retailers tackling the change in consumer spending habits? All this will be discussed in the webinar focusing on the cosmetics and toiletries market and retailing in the United States. REGISTER
	Clean and Fragrant Homes Boost the Market – Tuesday, July 26, 2011, 09:00 AM EDT – Cutbacks on travel and dining out have driven a growing number of consumers to reinvest in their homes to make them a more welcoming and inviting space. The escape-to-home trend sent the U.S. home fragrances and the household cleaning products market into recovery mode back in 2009. See what happened in 2010, and where the market will go in 2011 in this webinar. REGISTER
	Anti-ageing Remains Key for Specialty Actives – Wednesday, July 27, 2011, 09:00 AM EDT  - Functional activity has become a key marketing focus for skin care in recent years. An array of actives for skin care have been rolled out by raw materials suppliers sourced from plants through to biotech-based ingredients. In this webinar, learn about the market for specialty actives, namely those used in cosmetic applications for anti-aging, anti-acne, anti-inflammatory, and so on. REGISTER
	Natural OTCs and Private-label OTCs Thrive in 2010- Wednesday, July 27, 2011 , 11:00 AM EDT -  During 2010, price-conscious consumers turned to private-label OTCs and the market for natural OTCs is also becoming a threat to traditional OTCs.  Kline’s in-depth look at the natural OTC segment reveals that the market for these products was up nearly 6.0% in 2010 while sales of traditional OTCs were flat.  The relative size of natural OTCs compared to traditional OTCs and revelations on how consumers use natural OTCs will be shared at this informative webinar. REGISTER

Over the past few years Rx-to-OTC switch brands have emerged as one of the strongest growth drivers in the market. While the OTC market as a whole is expected to see a modest CAGR of 2.6% over the next five years, future switches are set to explode by nearly 75%, adding more than $1.5 billion in absolute dollars to the OTC market. These products will not only contribute to growth, but also expand the OTC market by adding product categories that do not currently exist.

Organized by the Consumer Healthcare Products Association (CHPA), the annual Market Exchange event that brought together OTC manufacturers, consulting firms, and information service providers, was held last month. Kline’s Healthcare Industry Manager, Laura Mahecha, was in attendance. On focus this year, was marketing accountability, retail and advertising trends for OTC drugs, including current and future states of markets, and growth strategies retailers are likely to pursue.

While at the Market Exchange, Kline met with many companies, both large and small, all of whom were eager to share news about new OTC products that have been launched recently or are currently in development.  New OTC product trends are leaning towards non-drug products or “natural” OTCs used to treat and/or prevent ailments typically treated with OTCs.

Companies also have broadened their marketing strategies for OTC brands using a full battery of promotional tools, traditional media advertising, and more targeted advertising on the web, social media sites, and smart phone apps to drive performance of OTC brands.

The largest OTC company, Johnson & Johnson’s McNeil Consumer Healthcare, has been plagued by a series of product recalls recently and this has widespread repercussions to the OTC industry. The problems have ranged from moldy odors and contaminated shipping palettes, to concerns about levels of active ingredients in products, and concerns about product safety and manufacturing quality controls at the firm’s Fort Washington, PA site. The recalls have prompted Congressional hearings and have affected several major brands across multiple categories including both adult and children’s medications in the Tylenol, Motrin, Benadryl, and Zyrtec lines.

The recalls and the related media coverage have understandably shaken consumer confidence in OTC products and in the coming months could end up being a boon to private-label or store brand OTCs. In the case of the pediatric OTC recall by Johnson & Johnson for Children’s Tylenol, Children’s Motrin, Children’s Benadryl, and Children’s Zyrtec, many confused parents were instructed by their pediatricians to throw away these branded OTCs and rather than substitute with other branded OTCs to use store brands instead. This endorsement by physicians for private-label OTCs coupled with private-label’s lower price point and retailers’ aggressive promotions will drive many consumers away from national brands and towards store brands. Novartis has tried to take advantage of the market absence of Children’s Tylenol products by launching children’s acetaminophen liquids under its Triaminic brand name recently.

Since the Johnson & Johnson recalls the major drug chain Walgreen’s is running advertisements noting that all of Walgreen’s store brand OTCs are FDA approved and made with strict quality standards that consumers can trust. This marks a large role reversal as private-labels are typically not advertised at all and Johnson & Johnson has spent millions of dollars over the years building Tylenol’s image as the “Brand you can trust.”

Laura will share:

• Topline highlights from our research for this report
• Key trends driving costs for the OTC industry for the past 18 months
• The effects of the recession on OTC cost structures

Wednesday, September 29, 2010
10:00 AM EDT
02:00 PM GMT

Kline’s Healthcare Industry Manager Laura Mahecha will discuss current trends in the U.S. nonprescription drugs market in a web conference, followed by a live question and answer session. REGISTER

Laura will share:

Highlights from our reports including:

• Industry trends and new product activity
• Retail distribution
• Market size, brand and company sales and market share for 36 OTC categories and hundreds of brands and companies
• Recent regulatory developments
• Five-year forecasts

Wednesday, August 4, 2010
10:30 AM EDT
02:30 PM GMT