Euro Stars

By Grant Rosenberg/Paris

"LET'S NOT BE GREEDY" may not be familiar words from the mouths of most CEOs, but that's what Aliza Jabes, head of the French natural-cosmetics company Nuxe, says about taking her time going wider into the U.S. market.

Sitting in her large office in a classic Haussmann-era building off the Champs Elysees, Jabes, 42, explains how the beauty industry is undergoing a period of major change, with more and more niche brands and organic products on the market today compared with when she bought the then struggling 32-year-old company on a coup de coeur in 1989.

Old Europe has always been a source of innovation in the beauty sector, particularly in fragrance and skin care. Franc,ois Coty made his name by selling fragrance in small, decorative bottles. L'Oreal was started by a young Parisian chemist when he invented the first safe synthetic hair color in 1907. Brands like Helena Rubinstein and Estee Lauder were founded on skin-care formulas based on East European traditions. More recently, big beauty conglomerates such as L'Oreal and Estee Lauder have been shopping for new, innovative brands in old, familiar places like France, Spain and Germany. Even mass-market retailers like Walgreens are looking to capitalize on the niche market for novel, pharmacy-distributed products.

"It's a bit of a revolution," says Karine Ohana, a managing partner of Ohana & Co., a Paris-based mergers and acquisitions firm that works with many European cosmetics companies. "There is a gap in what is being offered--there is high-end or mass--and now the big beauty companies see this masstige niche for brands that are innovative but not expensive. We are about to see deep modifications in the pharmacy market in the U.S."

Of special interest are companies like Nuxe, whose sales have been booming--it reported 42% growth in net profits from 2004 to 2005--and distribution in large markets like North America is on the rise. This past July, for example, Jabes launched her skin-care products inside three Canadian chains in addition to the 80 doors where it is currently sold in the U.S. Not bad for a 140-employee company with $51 million in net profits that boldly gave its icon product--a moisturizer--the whimsical moniker Creme Fraiche, a name that might not have made it past a market test at a multinational.

And that's exactly the advantage and appeal of niche products, according to many owners and CEOs who say the innovative technology, the "storytelling" or the quirky branding of smaller beauty companies is what sets them apart and makes them appealing to the consumer.

"We can move faster than the big brands," says Jabes. "In terms of decision making, it is a much shorter process than in the conglomerates, where it goes through many, many channels." For Jabes, once the R&D process is complete, "if I like a product, I'll launch it."

Wine as beauty regimen? Aeronautically refrigerated face cream? These are not ideas you would expect to come out of a Procter & Gamble or L'Oreal, no matter how many millions of dollars such conglomerates invest in research. But for smaller brands--many of which are hot targets--the more offbeat the idea, the better. Mathilde Thomas, co-founder of the French vinotherapy brand Caudalie, feels that smaller brands can take risks, ultimately, and that's what keeps the consumer interested.

When Thomas launched Caudalie in the early 1990s from the idea of using polyphenol, the antioxidant in grape seeds, for antiaging products, there was nothing like it on the market. Now there are Vinotherapie spas in France, Italy and Sonoma Valley in California, and the brand is sold in 10,000 doors around the world. Thomas estimates that part of the appeal of Caudalie in the U.S. is the bigger picture as well as the patented scientific aspect of their product. "Consumers love the idea--this story of the art of the vine--that is so different," says Thomas.

One of the latest beauty brands to emerge out of Europe is called Icy Beauty, a company that has developed antiaging products that use high-speed cooling techniques pioneered at the European Space Agency. Its growing popularity in the U.S. speaks to the continuing interest in European niche brands. "I spend a lot of time on the sales floor," says Lauren Freedman, who, after two decades at a cosmetics major, started her own company, called Cle Specialty Cosmetic Services, which focuses on bringing emerging European brands to the upscale U.S. market. "They all say they like things that are European, and they still believe that France is the leader in skin care. It's just sort of a given. The French get luxury cosmetics."

While most niche brands, such as Caudalie and Icy Beauty, are distributed in prestige venues like department and specialty stores, mass-market retailers are quickly catching on to the popular European niche trend. This October select Walgreens pharmacies will begin offering more than 130 skin-care products from seven European brands, including Red Water from Greece, Spain's Oli, Art Deco from Germany, the Swiss brand Skincode and, from France, Institut Arnaud, La Fleur Organic and Spa Aquatique.

Paul-Noel Ortlieb, export manager for Institut Arnaud's parent company, Groupe Panther, says the deal with Walgreens is a practical one. "We wouldn't dream of being able to enter the American market on our own because it would be beyond our financial means," he says, noting that the participating brands collectively share the marketing costs. Indeed, selling their skin-care products in an American drugstore chain is a bit different from selling them in French pharmacies, which, unlike their U.S. counterparts with their groceries, magazines, candy and toys, retain an austere, medicinal environment. Ortlieb believes it will be a good fit. "The displays will be strategically conceived, well placed with attractive lighting and marked as a European Beauty Collection on the floor of the aisle. It will give a French-style grand magasin universe in an American drugstore chain."

This "masstige" deal is a bit of a sea change for a chain like Walgreens, which has until now stocked its shelves with the major beauty products from the global leaders. "[American] women are searching for alternatives," says Kathy Steirly, divisional vice president and general merchandise manager for Walgreen Co., "to have the department-store experience without the hassle and at a better price."

One person who has been instrumental in bringing many of these niche brands to the U.S. market is Nick Hudson, co-founder of Excelsior Beauty, the firm that spearheaded the Walgreens deal. Excelsior works with retailers and brands to bring masstige products to North America, and Hudson, formerly of Boots in Britain, is trying to develop the middle market. "In drugstores you have a big range of the multinational brands, while in department stores you've got a wonderful array of premium products. But you don't have what you have in Europe, Asia and elsewhere, a middle ground that gives the mass consumer some choice, a better selection."

So Excelsior has set about increasing that selection, all the while helping each masstige retailer differentiate from the competing drugstore chains. "People don't want to feel they have what other people have in a one-size-fits-all kind of way," says Hudson. "It's about finding something a little different."

And finding it they are. After all, 36% of Nuxe's sales in the U.S. are from the Internet, meaning that even before Nuxe permeates the American market, the American market is finding Nuxe--without advertising in national media. With greater awareness of niche brands through the Internet and elsewhere, the consumer is the driving force, opening up the market like never before. "This is the most exciting time for cosmetics," says Freedman, who is also working with Naturetis, a new organic skin-care brand from Vichy, France. "Right now there's so much possibility, and it's so refreshing after so much sameness. With all these new brands, it's like being a kid in a candy store."