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Shoppers Drug Mart buffs up its beauty business

Shoppers Drug Mart is under pressure to hold on to its top position in cosmetics and fragrances.

Deborah Baic/The Globe and Mail

Shoppers Drug Mart Corp. is beefing up its bricks-and-mortar offerings as online competition in lucrative beauty products looms from U.S. powerhouse Inc.

Toronto-based Shoppers is even considering taking another look at a standalone specialty cosmetics and fragrance store, even though it has closed two of its eight upscale Murale beauty retail outlets in the past year or so.

"We're invested in the beauty business in a big way," Domenic Pilla, chief executive officer at Shoppers, told a CIBC retail conference on Thursday. "Our customers respond to that."

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Shoppers' vision for its high-margin beauty business comes at a critical time for Canada's largest drugstore chain as its sales are being pinched by provincial generic drug reforms, forcing it to look at beauty and other categories to offset the hit at its pharmacy counter.

But it is feeling pressure to hold on to its top position in cosmetics and fragrances as rivals try to snatch away business. On Thursday, launched more than 80,000 beauty, health and household items on its e-commerce site in Canada, a move that is expected to squeeze players such as Shoppers.

Low-cost purveyor Wal-Mart Canada Corp. rolled out some beauty and personal care items on its e-commerce site late last year, with plans to expand its offerings this year. And U.S. discounter Target Corp. is opening 124 stores in Canada with a focus on beauty items.

Even so, Shoppers is not standing still. It's adding more beauty brands after having launched last November a prototype beauty boutique at one of its Toronto stores; at 4,000 square feet, the boutique is almost twice the size of the firm's regular 2,500-square-foot beauty boutiques within its mainstream outlets.

This new beauty boutique, at the Bayview Village Shopping Centre, stocks luxury brands such as Chanel and YSL, which are carried at Murale but not at other Shoppers' beauty boutiques, spokeswoman Tammy Smitham said. It features fragrance testing stations for customers and "play stations" for customers to "touch and feel" cosmetics.

"Given that they're not a transactional e-commerce retailer, they have no choice" but to focus on bricks-and-mortar beauty offerings, Perry Caicco, retail analyst at CIBC World Markets, said in an interview. "The great advantage that Shoppers has is a stunning amount of built-in traffic to its stores, partly for the prescription counter."

Shoppers also has an edge with the largest consumer database in Canada flowing from its Optimum rewards program, he said.

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Still, Shoppers is dipping its toes in the cyber-beauty waters: Last year, it launched its e-commerce site to sell high-end beauty items online, an initiative that the company is pleased with, Mr. Pilla said. "We're very much going in that direction and we're doing it as fast as we can."

Mr. Pilla said the drugstore chain is also moving to be more mobile friendly, including plans to let customers tap into their mobile devices to scan its Optimum loyalty card – which it internally calls its "stealth fighter."

He said the single biggest reason customers don't use their Optimum card is because they don't have it with them in the store. But almost 70 per cent of customers walk into a Shoppers store with a smartphone, he said. "Everyone has their phone."

Indeed, 66 per cent of Shoppers' customers have a smartphone, compared nearly half of Canadians overall that have one, according to the retailer's research.

Loyalty card holders not only buy more but they also provide the retailer with an array of information about their personal buying habits, helping Shoppers to tailor promotions increasingly to particular consumers.

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