Formula for Success : In a Rough Market, St. Ives, a Maker of Beauty Products, Milks Its Swiss Connections

The shampoos and skin lotions made by St. Ives Laboratories come in colorful containers touting the products’ “Swiss Formula.” They also display the St. Ives logo of a sleepy Swiss village, along with the French version of St. Ives’ corporate name, Cosmetiques St. Ives SA.

St. Ives does maintain a small laboratory in Sion, Switzerland, and imports Swiss ingredients to make its beauty products. But the company’s headquarters and its main production plant are anything but Alpine. They’re in Chatsworth.

In a business aimed at people’s appearance, appearance is everything. So St. Ives pushes the Swiss angle to help it survive the hotly contested personal-care market.

This and other St. Ives marketing strategies are getting their first review by outsiders because St. Ives, which earned $2.8 million on sales of $78 million in 1986, last month sold 28% of its stock to the public. The money will be used mainly to expand St. Ives’ manufacturing facilities and to finance new product lines, such as hair spray.

St. Ives raised $12 million from the stock sale, and its stock now trades on the over-the-counter market, where it has remained near the $13-a-share level. But St. Ives executives and other insiders still own 72% of the company.

St. Ives’ president, Robert A. Neher, in a recent interview agreed only to elaborate on the company’s history and on other information in St. Ives’ stock-offering prospectus so as not to run afoul of the offering’s “quiet period.” That’s the 90 days after a stock offering during which the Securities and Exchange Commission prohibits the company from promoting its stock or disclosing important information that was not in the prospectus.

Personal-care goods mass-marketed under the St. Ives brand name bring in about 75% of St. Ives’ sales; the balance comes from products that St. Ives sells to commercial clients for resale under their brand names.

Natural and Man-Made

St. Ives says its Swiss Formula, a registered trademark, is based on a Swiss practice of blending natural products with scientific advances to produce a skin lotion or shampoo. Its products list such ingredients as herb extracts and plant proteins that are imported from Switzerland.

But lots of companies brag about having herbal this or aloe vera that in their products, all to enhance what a cosmetics industry ad man has called “the eternal concept of hope in a bottle.”

St. Ives’ products generally aren’t found in high-rent specialty stores. Instead, the company’s creams and lotions inhabit the shelves of discount stores where there is plenty of competition.

At a K mart store a few blocks from St. Ives’ headquarters, for example, a visitor recently found St. Ives’ shampoos and hair conditioners in a row with 40 other brands. At a nearby Thrifty Drug Store, next to St. Ives’ skin creams and lotions, there were 30 different competitors.

And it’s not just the number of competitors that makes St. Ives’ job difficult. Some of its rivals are huge companies with advertising budgets to match, including Revlon (Flex shampoo), Helene Curtis (Finesse shampoo), Chesebrough-Pond’s (Vaseline Intensive Care lotion) and Noxell (Noxema skin cream).

The toiletries/cosmetics industry now spends nearly $2 billion a year on advertising, much of it on television and in magazines, in the hope that consumers will remember their brands.

St. Ives, unable to match the likes of Revlon and Alberto-Culver in media advertising spending, has taken a different approach. Convinced that most people are impulse buyers, St. Ives opted to snag their attention in the store with attractive packaging, competitive pricing and promotions done in concert with the retailer.

“We fight our battle at the point of sale,” Neher said.

St. Ives points to a survey of buying habits conducted last fall for the Point of Purchase Institute, a trade group based in Fort Lee, N.J., that represents makers of signs and displays for point-of-sale advertising. The survey, covering 50,000 products bought at 100 supermarkets, showed 66% of the buyers decided on a particular brand after they entered the stores.

“Particularly in the area of beauty products, where the consumer is sufficiently confused, a lot of the buying is impulse buying,” said industry consultant Solomon R. Mester, former president of Redken Laboratories, a hair-care concern in Canoga Park.

But Michael Balsamo, national sales manager for Rachel Perry Inc., a rival beauty-products firm in Chatsworth, said the key to St. Ives isn’t fancy packaging, but low prices. “I’m not at all sure it has to do with displays or perhaps not even their formulas, because they’re not all that unique,” he said. “The primary factor in their success is price.”

Guiding Force

The man behind St. Ives is 43-year-old Gary H. Worth, St. Ives’ chairman, chief executive and its biggest stockholder, who sold $6.9 million of his stock to the public and still owns 36% of the company’s stock, worth about $33 million.

Worth could not be interviewed for this story because he was vacationing abroad. According to Neher, Worth grew up in Burbank and was working for his father’s insurance company in Van Nuys in 1971 when he discovered a fledgling fragrance-development firm. Worth, then 27, bought the business for several thousand dollars, called it Fragrance Development, and built it into a supplier of private-label beauty products, later changing the name to Cosmetic Laboratories.

In 1980, Worth and Robert Van Dine formed another company, called St. Ives, to produce personal-care goods for the mass market. Two months ago Cosmetic Labs and St. Ives merged in anticipation of the stock offering. The newly merged company, of which Van Dine is vice chairman, retained the St. Ives name. Worth and Van Dine, 49, also started a third beauty-products company, Mill Creek Natural Products, in 1976. That company was sold in 1982 to Richardson-Vicks, which is now owned by Procter & Gamble.

St. Ives and Cosmetic Labs have posted steadily higher combined sales since 1982.

Steady profits, however, have so far eluded the company. Its performance lagged behind industry averages in 1986, although St. Ives has shown improvement this year. Last year St. Ives’ profit margin was 3.7% for every dollar in sales, well below the 6.3% average margin of the major cosmetics companies tracked by Value Line Investment Survey, a securities research firm in New York. But in this year’s first quarter, St. Ives’ margin jumped to 6.2%.

One reason why St. Ives’ profit has been inconsistent in recent years stems from a 1985 decision by the company to deviate, just once, from its marketing philosophy.

St. Ives introduced a shampoo called Pure and, instead of following its impulse-buying strategy, gave Pure a premium price and promoted it with advertising on national media. A year later, however, Pure had run up $3 million in losses and was dropped.

The Pure episode didn’t sour St. Ives on looking for something new. But then, $12 million buys a lot of hope.

“The prime reason we went public is to get back into the new-products business,” Neher said.

ST. IVES LABORATORIES CORP. AT A GLANCE St. Ives Laboratories Corp. in Chatsworth makes shampoos, skin lotions and other personal-care products that are sold to the mass market under the St. Ives “Swiss Formula” brand name. The company, with 400 employees, also markets its products to commercial clients that resell the goods under their brand names. Last month St. Ives sold 28% of its stock to the public.