News Might Be Skin Deep, But So Are Its Margins

Cosmetics retailer is piggybacking on its parent's infrastructure to eke out a profit.
Depressed dot-commers aren't the only ones moving in with their parents. Inc., a pure-play Web cosmetics outfit, is looking to its parent, Inc., to handle all of its technology, while the cosmetics site gets a thorough revamp.

Beauty originally sold a wide variety of cosmetics and hair- and skin-care products. But beginning this fall, only brands that bring in bucks will be on the site. Beauty will create miniboutiques called Virtualkits, each showcasing a specific brand that, in turn, will have the opportunity to create bundled product packages. Meanwhile, brands that can't justify their presence with revenue are getting the ax altogether.

For customers, a service called Your List is available to help keep track of past purchases. Knowing that the online economy can be fickle, Matt Lucas, senior director of merchandising at Beauty, says repeat business is critical. Both the Virtualkits and Your List features are designed to make it as easy as possible for online shoppers to maintain a close relationship with their brands and products of choice--and keep Beauty as their intermediary. Paula Dorf-brand cosmetics, for example, are very high quality and hard to find, and therefore attract a loyal following to the site, Lucas says.

Key to offering these services and, it's hoped, increasing profits is Beauty's recent move from New York to Seattle, where it can operate alongside its parent company, Drugstore. The company is integrating into Drugstore's system so it can cross-sell products easily, to the point of shared shopping carts between the two sites, despite unique site images and URLs.

Drugstore, which purchased Beauty in February 2000, is having some woes of its own, however. While it has $114 million cash in hand, the company has lost $358.5 million since its 1998 launch and doesn't expect to show a profit until 2004. But Lucas says the two ventures are on the track toward success. "If we keep the combination of carrying the right brands, selling loyalty-driven products, and using the right customer-focused technology, we'll be successful," Lucas says.

But one analyst thinks it'll take a little more than good brands and strong technology for the pure-play Internet seller to go up against brick-and-mortar competition that most likely has its own Internet presence.

Gene Alvarez, a Meta Group analyst, says this is primarily a cost-reduction move to help the company reach profitability. But the true task in attaining that goal will be to win consumers over in light of declining public confidence in dot-coms. Says Alvarez, "It's going to come down to execution fulfillment and if their pricing can meet or beat the brick-and-mortar stores."