Beauty and the Biz

By Ylan Q. Mui
Washington Post Staff Writer
Monday, August 4, 2008

At Bluemercury's luxurious beauty boutiques, founder and chief executive Marla Malcolm Beck regularly dispenses tips on choosing the right sunscreen and the perfect summer bronzer. But the most valuable advice that she has ever received is a much less glamorous five-letter acronym: DROOM. Or, don't run out of money.

The advice came courtesy her mentor, Washington entrepreneur and dealmaker Jonathan Ledecky. Beck took it to heart when she started Bluemercury nearly a decade ago. Since then, she has slowly built a profitable, multimillion-dollar chain with 28 stores across the country and plans for aggressive growth.

"It was literally one store at a time," Beck said over coffee during a recent interview. "I just wanted to build a great company."

Though Beck won't disclose exact figures, each 2,000-square-foot store averages about $3 million in sales a year, putting the company's total revenue at roughly $84 million. She plans to open as many as 20 new stores annually.

Expansion in a downturn is a potentially risky move. Concerns about consumer spending have led stocks of luxury-goods retailers lower, with shares of both Saks and Nordstrom hitting a 52-week low last month. An analyst recently cut her rating on Tiffany to "sell" from "neutral." And while luxury handbag maker Coach last week reported 20 percent growth in fourth-quarter earnings per share, it cautioned that "consumer malaise" would probably last through 2009, significantly affecting its business.

Beck said she hopes to take advantage of increased vacancies and slipping rents in many of the chain's target markets as other companies shutter stores and slow expansion plans. She believes that her affluent customers -- the average shopper is a 38-year-old woman with $130,000 in annual income-- are less vulnerable to the downturn than most. And, adhering to DROOM, she shored up capital before the current credit crunch, allowing Bluemercury to continue to grow.

"DROOM taught me to raise capital when we don't need it and to always be frugal in everything we do," Beck said.

While specialty beauty retailers ring up just half of the $8 billion in sales at department store cosmetic counters and one-fifth the $21 billion in sales at mass-market outlets, they've been driving the growth in the beauty industry in recent years, according to consumer research firm NPD.

The niche began in the 1990s, when several retailers -- namely, Bath & Body Works, Sephora and Ulta -- allowed women to experiment freely with a wide array of products in an inviting atmosphere. Women no longer had to wait in line for service at a department store or surreptitiously test lipstick at CVS or Wal-Mart.

"They democratized the experience in the sense that they allowed consumers to say, 'I can choose. . . . I can experience them,' " said Karen Grant, senior analyst for beauty at NPD.

Bluemercury is an edited version of its larger rivals, selling the Cadillacs of the cosmetics world. Think $50 sunscreen by Darphin, $84 candles by Molton Brown and $90 eye creams by MD Skincare. Bluemercury is also famous for its ample product samples.

Though the early explosive growth among specialty beauty retailers has slowed -- and the sluggish economy has not helped -- Grant said many chains are still doing well. But the industry can no longer simply ride the tide of strong consumer demand.

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