Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, November 21, 1993 TAG: 9311170314
SECTION: BUSINESS PAGE: F1 EDITION: METRO
SOURCE: MARK MORRISON Staff Writer
DATELINE: LENGTH: Long
On the surface, there doesn't seem like much of a connection.
New York: The Avenue of the Americas, the polished corporate sheen of the Burlington Building with its vistas of Central Park, the Hudson River and Midtown Manhattan. Giant blow-ups of Vendela, the pricey fashion model.
Roanoke: Plantation Road, the assembly-line monotony of a vast factory. Framed permits for use of industrial alcohol.
Look closer at Elizabeth Arden: There is more of a link between the Big Apple and Big Lick than you might think.
The two are indeed connected. And together, they have turned Elizabeth Arden Co. into a growing force in the $5-billion-to-$6-billion-(in-sales)-a-year prestige cosmetics business.
Since 1989, when Arden was bought by international corporate giant Unilever, the company's annual sales have increased by $50 million and its share of the prestige cosmetics market has jumped from 2.8 percent to 6 percent.
That ranks Arden fourth among the major prestige cosmetics companies, according to Jack Salzman, an industry analyst for Goldman-Sachs in New York. "They're doing very well," he said.
However, Arden still is far behind prestige cosmetics leader, Estee Lauder Inc. and its subsidiary, Clinique. Around Arden offices, they refer to Estee Lauder - which is nearly three times the size of Arden in sales - as the "2,000-pound gorilla." Lancome, owned by Nestle SA of Switzerland, also ranks above Arden.
Prestige cosmetics generally are higher-priced, higher-quality cosmetics sold at department stores. The term is to set them apart from brands sold at supermarkets, drug stores and mass merchants.
The Arden spin on why the company has gained ground over the past four years is simple: innovation.
It's a mindset established at Elizabeth Arden's headquarters in New York. But it has spread to Roanoke, where the company has its primary U.S. manufacturing plant and its distribution operation.
In New York, the company cites the innovation of its product lines, packaging designs and marketing campaigns. In Roanoke, it cites the innovations made in the manufacturing processes.
There also has been some luck involved.
An Arden fragrance called Sunflowers launched quickly by the company this spring sold much better than expected, for example.
Arden anticipated that sunflowers were becoming a trend in fashion and design, fueled by Americans' interest in native culture. But the company underestimated just how much of a trend. Now, it is projecting Sunflowers sales for 1994 of $100 million.
"It's one of those hits," said Susan Arnot Heaney, Arden's spokeswoman. "We hit it in terms of timing. . . . Everything is sunflowers."
Another factor in Arden's growth has been the stability and support under its new owner, Unilever, following a period of corporate uncertainty in the late 1980s.
In 1987, Faberge purchased Elizabeth Arden from the pharmaceutical firm, Eli Lilly & Co., which had owned the cosmetics company since 1970.
Then only 18 months later, Unilever purchased both Faberge and Arden. The reported sale price for both operations was $1.5 billion.
Unilever is a leading manufacturer of name-brand consumer goods, mainly foods, detergents and toiletries.
Salzman, the analyst, said Arden definitely has benefited. Almost any company would benefit from Unilever, he said. "It's a very big, deep-pocketed company that invests in its holdings."
Unilever itself has grown significantly since the Faberge/Arden deal. In 1989, it posted annual sales of $31 billion. By last year, sales had grown 41 percent to $43.7 billion.
Still, Arden officials insist, innovation has been the real key to Arden's recent gains.
But even some of its innovation can be linked to the marriage with Unilever. Its Lip Spa brand of lipstick, for example, was developed using some of the same emulsion technology another unit of Unilever uses to make its Country Crock and I Can't Believe It's Not Butter brands of margarine.
The lipstick was the first of its kind to successfully use water as a main ingredient, instead of wax and oils. Previously, attempts at water-based lipsticks had failed because the final product wouldn't maintain a rigid shape.
Lip Spa is produced in Roanoke and, with this margarine-making technology, it has become Arden's leading lipstick.
Other technological innovations, though, have originated within Arden. The company just introduced a new line of eye shadow that is milled at Mach 2 speed, using what is essentially a modified jet engine.
This jet-milling is done in Roanoke. The system micro-pulverizes the base powder with the color pigment to a much finer consistency than previous systems, the company says.
To the consumer, that translates to smoother eye shadow that can be applied more evenly, said Carol Malouf, director of marketing for color at Arden's offices in New York.
Malouf also cited the change in the new line's packaging. The old compacts included four different colors. The new compacts have only two shades.
Again, she said this is a benefit to the consumer. In the past, women sometimes wore three or four shades of eye shadow, she said. But fashions change and now women are wearing one or two shades. They don't want extra colors, which consumers consider wasteful, she said.
So, given the choice, she believes women will buy a two-color compact over a four-color compact. It may seem like a small innovation, Malouf said, but the potential effect on sales isn't small at all.
New York is where such innovations are planned. It is the glamorous end of the business; the creative side, where the products for next year and years to come are being mapped out today.
The Arden headquarters occupies two floors of the Burlington Building in midtown Manhattan. About 500 people work there, in offices that are decidedly upscale.
The two floors are connected by a spiral staircase and each level has its own reception area, dominated by larger-than-life photographs of Vendela, a fashion model who commands $5,000 to $10,000 a day. Her face is Arden's exclusive photographed image.
The offices are furnished with a mixture of traditional and antique pieces. Thirty-three-ounce facsimilies of Arden perfume bottles and a two-part mural on the history of beauty - commissioned by Elizabeth Arden herself in the 1930s - line the walls.
It's a workplace with no shortage of cosmopolitan women. "It's cosmetics," explained Susan Arnot Heaney, the company's spokeswoman.
In fact, women make up 34 percent of the company's New York management team. In Roanoke, women make up 53 percent of the work force.
In New York, Clare Cain is vice president of market development for fragrances, Arden's fastest-growing area totaling 50 percent of the company's overall business.
Cain is the woman behind many of the Arden fragrance and perfume lines, including the successful series of Elizabeth Taylor fragrances.
She and Taylor are friends. Cain said she takes perfume samples to Taylor's home for the famous actress to test. "She has strong ideas," Cain said, about the perfumes that bear her name.
But that is one reason she believes the Elizabeth Taylor line has done so well. Cain said Taylor is very involved with the products bearing her name.
Her personal appearances to promote her fragrances are considered public relations coups. In 1991, when she visited a Macy's department store in New York to plug White Diamonds, 11,000 people showed up. Macy's had to close to control the crowd.
Cain was responsible for the marketing coup of matching the White Diamonds name with the diamond-loving Taylor. "Who but her is more into jewelry?" she said.
A spinoff line, the Fragrant Jewels, was just launched last month. Cain also came up with the Sunflowers name. She said she is brainstorming ideas through 1996.
She also is researching names.
Part of her job is to ensure Arden has exclusive rights to its product names. Often, she said, that means purchasing the names from other companies and individuals.
From the name comes the rest: the packaging, the advertising, even the product itself. All of them are tied together.
Sunflowers, for example, is a "fruity floral" of peach, melon, tea rose and jasmine scents. It was was marketed as a fun, spring or summer fragrance. White Diamonds has a more exotic edge to it and it was marketed as a more serious and sensual product.
Taking these concepts and turning them into marketable reality then becomes the job of Mike Lombardi, who heads up Arden's package engineering and purchasing.
Lombardi, who also is based in New York, is the compromise guy. He takes the ideas and the packaging designs and figures out how they can be mass-produced in Roanoke - at a reasonable cost.
"Our theme is: Make it happen," he said.
But Lombardi acknowledged that sometimes adjustments have to be made to make a concept work.
Sometimes, that means slight changes to the product or its packaging. More often, it means changes on the manufacturing end.
Lombardi cited the Roanoke plant for its flexibility. Roanoke produces 1,500 different products including cosmetics and perfumes, The plant also handles more than 10,000 components, including bottles and packages as well as the products. Often, the manufacturing changes can be dramatic. And they come often; seasonal changes in cosmetics follow the fashion industry.
Imagine a corn-flake factory, where the product and the shape of the box are radically changed. Imagine the adjustments.
"Without a plant that can turn on a dime, that's a problem," Lombardi said.
Roanoke has to be responsive.
Roy Drilon, director of logistics at Arden's distribution center in Roanoke, cited the surprise success of Sunflowers as an example.
Arden planned for about $10 million worth of the product when it was launched this spring, he said. When it became a hit, the stores demanded more.
Quickly, Drilon had to ready more shipments. At the factory, Plant Manager Don Hergrueter had to step up his Sunflowers production.
All of it had to be done immediately. "Stores are very unforgiving about [being] out-of-stock," Drilon said.
For Sunflowers, the company had reinforcements in the stores within 10 to 15 days. But it had all the product and packaging materials it needed already in stock. When it doesn't have the materials on hand, Hergrueter said, the turnaround time can be 10 days longer or more.
It would seem to complicate matters that the Arden manufacturing plant and the Arden distribution center are located a few miles apart. The plant is on Plantation Road. The Logistics Centre is in the Roanoke Centre for Industry and Technology off Orange Avenue.
The distribution center was not built adjacent to the plant because of concerns over truck traffic on Plantation Road and potential flooding, Hergrueter said. The Plantation Road plant was flooded by Tinker Creek in 1985.
Both Hergrueter and Drilon admit the distance isn't ideal, but they say it doesn't significantly affect Arden's responsiveness.
As many as eight trucks typically jockey between the plant and the Logistics Centre. During the Christmans shipping peak - in September and October - the number of trucks swells to 15.
The two-month Christmas rush accounts for about 40 percent of all the shipments out of Roanoke each year. "It's a logistical nightmare," Drilon said.
Both the plant and the distribution center hire extra workers during this period: as many as 600 at the plant and 200 for distribution. These temporary workers typically earn about $4.75 to $6 an hour, according to Hergrueter.
In addition, between the two operations there are approximately 675 full-time people. That is up from about 550 full-timers in 1989, when Unilever bought Arden.
Payroll for Roanoke's operations comes to approximately $26 million annually. The highest non-management hourly wage is $15 an hour.
Arden's growing work force in Roanoke has corresponded to an increased workload, Hergrueter said. In 1991, the Roanoke plant produced 64 million units of product shipped to retailers. For 1993, that number is projected to reach 101 million units, a 58 percent increase. "That gives a feel for the volume of growth in the plant," he said.
Hergrueter arrived in 1991, coming from Estee Lauder. He said his first tasks at the plant were to eliminate any activities deemed nonessential and to bring an essential one, the lipstick assembly line, into the company.
One of the unessential activities was a plastic bottle molding operation, left over from Arden's days under Eli Lilly. "It's not core business, so we farmed it out," Hergrueter explained. The plastic molding equipment was sold.
He said core business is primarily the actual manufacturing of products - powders, lipsticks, fragrances - and then the packaging of those products for sale to retailers.
Arden does not want to be involved in the plastic-molding business or the box-making business or any similar non-core operation, Hergrueter said.
So, perfume bottles, bottle stoppers, compacts, boxes, printed materials and other product components all are made elsewhere. Arden spends about $250 million worldwide to buy materials. The Roanoke plant spends $156 million of that amount, with nearly 70 percent of its materials coming from Europe.
In Roanoke, these materials are filled with the corresponding cosmetics and assembled for shipping to retailers. In this way, it is much like a car assembly plant.
Hergrueter's other task, bringing lipstick production in-house, has meant an investment of $1 million since 1991.
Previously, Arden's lipstick had been manufacturered by an outside company. Now, the Roanoke plant produces 60,000 tubes of lipstick a day.
"We supply the world," Hergrueter said.
He said making cosmetics is almost like cooking, only more complicated, of course.
But basically, it is a matter of measuring, stirring, sometimes cooking or cooling, and finally packaging.
For fragrances, the "juice," as it is called in the industry, also has to age for 14 to 21 days. "Like a wine," Hergrueter said.
All in all, it can be messy work sometimes.
And on the surface, it seems a long way from the glitz of Arden's New York headquarters.
In Roanoke, there is no view of Central Park and no two-part mural on the history of beauty. In Roanoke, Arden workers wear white coats and hair nets - not power suits.
Still, the connection is undeniable. New York views Roanoke as a valuable commodity and has no plans to relocate it.
And workers at Arden's Roanoke operations don't consider themselves provincial.
Consider the clocks. In the Roanoke offices, there are clocks set on U.S. Eastern time, on London time, and for France and Switzerland - parts of the operation that Arden people in Roanoke deal with on a daily basis.
In New York, all the Arden clocks are set on New York time.
On closer look, too, you can even find in Roanoke the occasional poster on display of Vendela advertising some Arden product. Maybe they don't have the same larger-than-life impact of the blow-ups in New York.
But they are a touch of glamour nonetheless.
by CNB