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Beauty industry undergoes own online make-over

Call it e-tailing's beauty make-over.

The make-over, that staple of women's magazines, uses professional tools and expertise to transform someone with promise into a dazzler. That's the kind of thing traditional retailers and manufacturers are doing these days as they bring glamour and Madison Avenue-quality images to online shopping sites.

And now it's the beauty industry's turn.

Last month, cosmetics giant Estee Lauder Inc. paid an estimated $20-million in cash to acquire Gloss.com, one of three leading online beauty sites. Gloss.com also is one of what may be an endangered species _ the online-only retailers called "pure plays."

The Gloss.com move made a splash because Estee Lauder, far from being a simple brand name, is a cosmetic conglomerate that represents more than a dozen top beauty brands and takes in 45 percent of all U.S. premium-cosmetics revenue. Estee Lauder, Clinique, Prescriptives, Origins, Bobbi Brown Essentials, M.A.C. _ they're all Estee Lauder brands.

Lauder's clearly the corporate giant of the mascara-and-blush world. And the firm made its electronic move as high-tech stocks were losing their luster, making many e-tailing upstarts financially attractive targets for acquisition.

The beauty pure plays _ Eve.com, Beautyjungle.com, Ibeauty.com and others _ aren't the only e-tailers in this vulnerable position. Elaine Rubin, who runs a Woodbury, N.Y., online-commerce consulting company, points out that right now there may be as many as two dozen players in any one category of online retailing, be it beauty or weddings or books.

"There's definitely going to be a shakeout," she said.

Left standing in each category will be two or three strong survivors able to compete in multiple channels, including mail-order catalogs and traditional stores.

Lisa Allen, an analyst with Forrester Research Inc., said she expects Lauder, the French Lancome and Sephora, a European beauty retailer that is rapidly expanding in the United States, to eventually be left standing among those selling cosmetics online.

"The myth . . . is that the first movers always win," David Pecaut, Boston Consulting Group's senior vice president, said at a meeting last month sponsored by the online industry trade group Shop.org.

The truth may turn out to be that, as in the fable of the tortoise and the hare, "slow but steady" wins the Internet race.

For years, Estee Lauder had been cautiously dragging a toe through the online waters, starting in 1996 when it put up its Clinique Web site. Clinique didn't begin selling products on the site until two years later. Lauder added sites for its Origins and Bobbi Brown Essentials products last year, but most Lauder products were off limits online.

Even department stores that sold Estee Lauder products from their cosmetics counters were barred from selling them in cyberspace.

With $4-billion in revenue, the company felt it could afford to take its time in assessing the Internet. "They're not in a big hurry," said Carol F. Warner Wilke, an industry analyst with Credit Suisse First Boston. "It's not like someone else has 15 great brands."

Earlier this year, the waiting paid off. Online beauty-site fortunes began fading, and Estee Lauder pounced.

But Estee Lauder bought Gloss.com not for the site itself, but for the talent that built it, said Angela Kapp, who heads Estee Lauder's ELC Online division. And the company still isn't in a hurry. Kapp said the firm will take the rest of the year to transform the site into something that conveys the right image.

"What's happening with the beauty space online is a microcosm of what we'll see in online commerce as a whole," said Forrester's Allen.

"I think there's going to be a whole lot of intense hybridization," combinations of traditional retailing or manufacturing with Internet play, said Ben Narasin, chief executive of Fashionmall.com, a fashion portal with links to Eve.com and the Bobbi Brown Essentials site (www.bobbibrowncosmetics.com). "All these brick-and-mortar players who did not have an intelligent Internet strategy are going to swoop in and buy up that Internet presence by buying pure-play space.

"There are certain things you cannot do on the Web in a profitable way if you have to build it," he said. "But if someone else has already sunk the costs, and you acquire it at the right price, that can be a very good business."

More than a dozen cosmetic sites, some hatched as recently as November, are trying to create that business, selling general beauty _ and offering advice to make up for the fact that they can't sell the major brands. Both Narasin and consultant Elaine Rubin expect the pure plays to survive only in small niches where they don't face competition from more dominant companies.

What the retailers and manufacturers need from the pure plays is quite specific: their talent. A shortage of online retailing talent is one of the major barriers to greater growth.

"One of the things we talk about most is employee acquisition and retention," said Donna Iucolano, vice president for interactive services at 1-800-Flowers.com.

And one reason traditional retailers have created separate entities to run their online operations is to attract young, talented netpreneurs who wouldn't look twice at an old-line department store, for instance.

"How do you gain the culture and business acumen and entrepreneurial spirit in a more traditional, structured, bureaucratic environment?" asked Rubin. One answer is that you buy it, just as Estee Lauder has done.

"We wanted to get a quality team," said Estee Lauder's Kapp. "Looking over the options, the Gloss team was the strongest in terms of experience in the beauty world and the Internet world."

Estee Lauder lineup

Estee Lauder is more than just Estee Lauder. The makeup mammoth takes in 45 percent of U.S. premium-cosmetics revenue under several well-known labels:

Estee Lauder boasts a sophisticated upper-income WASP image. Elizabeth Hurley, the brand's current face, usually appears in sleek modern interiors.

Clinique's name and pale-green packaging suggest a quasi-scientific image, makeup that's good even for feminists.

Bobbi Brown Essentials, M.A.C. and Stila are clearly younger, aimed at the fashion and MTV crowds.

Origins and Aveda are touchy-feely brands, emphasizing natural ingredients, environmental sensitivity and New Age-type mind-body connections.

Prescriptives' niche is custom colors, including 115 shades of makeup base. Custom "colorprinting" is the buzzword.

La Mer, a super-rich skin cream created by a NASA scientist for a facial burn, has a price _ $150 an ounce, $1,000 for a six-ounce tube _ that just adds to its mystique.

Aramis is what Estee Lauder thinks men should smell like.

Tommy Hilfiger and Donna Karan Cosmetics are registered aliens in Estee Lauder's world, sold under license.

Top beauty sites

Beauty.com offers live chats with beauty advisers, magazine-style make-overs and gifts.

Beautyjungle.com divides the beauty goods into department-store names, foreign, herbal and "Main Street." Also magazine-type features, advice.

Bluemercury.com, the online arm of Washington, D.C., retailer EFX, offers no chat, just high-end fragrance and skin-care lines.

Eve.com has a whole package of makeup tips, celeb "news," make-over sweepstakes, girl-boy advice and, oh, yes, makeup and skin-care products.

Ibeauty.com has a truly offbeat selection of makeup and other toiletries. A horoscope, plus pix from the Seventh Avenue runway shows. Martha Stewart's on the board of directors for some reason.

Sephora.com, a slick European entry from the Louis Vuitton Moet Hennessey luxury products group, has brands "both cutting edge and classic."

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