Contouring Crowd

Germany's makeup retailer Douglas prepares to take on Sephora

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Gasp! A millennial without a phone! Source: Imago

Special brushes for contouring, liquid eyeliner for making smoky-looking eyes, and an array of perfumes all keep groups of young women flocking to retailers like Douglas, a German perfume and makeup chain.

Millennials wear more makeup than their mothers, according to Douglas’ new CEO, Tina Müller, a trend, she says that is fed by the prevalence of YouTube makeup tutorials. “That’s why we will focus strongly on this target group with our strategy update,” said Ms. Müller.

That’s not the only change now underway at Douglas’ head office in Düsseldorf. Since Ms. Müller took up her post four months ago, she has replaced several members of the management team and has established herself as someone willing to take chances to take the chain — which consists of over 2,500 stores in 19 countries — in a new direction. “We want to be bold and try things out – even if it is not always successful,” she said.

Of course, if the company wants to stay relevant, it has little choice. “The overall market for cosmetics in Germany is stagnating, and at €5.5 billion ($6.77 billion), it isn’t very large either,” said Gerrit Heinemann, an expert in commerce at HS Niederrhein University of Applied Sciences.

The biggest challenge, Mr. Heinemann explained, is that half of the market consists of products customers can find in other kinds of stores, including drugstores, discounters and online retailers. Competitors are well-positioned to take away market share by engaging in price wars, Mr. Heinemann said.

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Tina Müller is ready to shake-up makeup. Source: Imago

And competition is growing. A few months ago, the French cosmetics chain Sephora started building its network in Germany. The company now has seven outlets in Kaufhof department stores and plans to add dozens more. German e-commerce group Zalando, which focuses predominantly on footwear and fashion, plans on entering the cosmetics business too. And on days when German discount supermarket Aldi sells brand name perfumes at bargain prices, Douglas regularly sees its sales slip. “New competitors have made business more complex,” Ms. Müller admitted.

In the past, Douglas frequently entered into price wars and ruined its margins by offering discounts, prompting criticism from the company’s owner, private equity firm CVC. “We’ve made a lot of pricing mistakes,” one CVC manager said. “We need to become a lot more competent in that area.”

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Ms. Müller hopes to avoid direct price competition by adding more of its own brands and exclusive products, thereby reducing the chain’s dependence on the mass market, where margins are low. For example, the group will launch a cosmetics line in collaboration with Karl Lagerfeld, a German creative director who heads Chanel’s fashion house, Fendi, in May.

By following this strategy, Douglas is taking a leaf out of Sephora’s book. The French chain specializes in adding young, trendy brands to its range of products. Douglas is working with trend scouts around the world for the first time with the aim of identifying new trends before competitors do. “I am confident that we have enormous potential here,” Ms. Müller said.

The company is also developing a shop concept that offers pharmacological facial care and nutritional supplements for the skin under the working title “Douglas Pro.”

“Tina Müller doesn't just have to apply the brakes in terms of retail space; she actually needs to go into reverse.”

Gerrit Heinemann, E-commerce expert at Niederrhein University

Ms. Müller needs these ideas to pay off. Despite an operating profit of €354 million and a 3 percent sales increase to €2.8 billion in 2017, the CEO is dealing with €1.8 billion in debts left after her predecessor expanded the group’s network from 1,700 to more than 2,500 stores through acquisitions in Italy and Spain. And given the trend toward online sales, purchasing storefronts is not exactly an investment in the future.

“Tina Müller doesn’t just have to apply the brakes in terms of retail space; she actually needs to go into reverse,” Mr. Heinemann said. “A big problem is the exorbitant rents and the cost of staffing stores, which can quickly become more of a problem when sales are declining.”

The expansion of the group’s e-commerce business is equally important. “We’re number one in the online market and we believe we can expand that further,” said Ms. Müller. Douglas is designing a new online store and has introduced same-day delivery in France, a service the company says it also plans to test in a major German city soon.

If Ms. Müller’s current vision for Douglas does not pan out, sources close to Douglas say the company may consider acquisitions that would further boost its e-commerce business, despite the debts it previously accumulated buying up storefronts. This time around, however, the purchases would involve small online startups rather than physical stores.

Florian Kolf leads a team of correspondents who cover retail and consumers for Handelsblatt. To contact the author: kolf@handelsblatt.com

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