Making a Name, Product for Itself : Cosmetic Group USA to Launch Hair-Care Line in Bid to Diversify

You may have never heard of Cosmetic Group USA. But you’ve probably run across their products. Or rather, their products probably have come to you.

The Sun Valley company manufactures makeup for door-to-door marketing companies such as Avon Products and Mary Kay Cosmetics, and for infomercial cosmetics queen Victoria Jackson. Unlike Revlon or Maybelline, which make their own products, these other big names in the makeup industry focus on marketing cosmetics rather than actually producing them. According to this strategy, a name and a sales technique is all that’s needed to peddle beauty wares, while their manufacture is left to generic, contract packagers like Cosmetic Group.

This approach has allowed Cosmetic Group, based in Sun Valley, to make dramatic strides in the crowded and competitive cosmetics marketplace. Between 1991 and 1992 the company’s sales more than doubled to $8 million and a key to that success was Victoria Jackson, a beautician who has rocketed to sort-of stardom with a series of infomercials hawking her namesake makeup.

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Last summer, the company netted $1.7 million in a public offering, and is gearing for further expansion. Thanks to big contracts with Avon, Heico Cosmetics Inc., Physician’s Formula Cosmetics Inc. and others, Cosmetic Group’s income quadrupled to $403,000 for the nine months that ended Sept. 30. Revenue in that period increased 35% to $6.9 million.

But the business is not without its dangers. The chief one is that the company’s success is dependent on short-term contracts with a few big customers. “The key to any packager is what customers they have,” said Abraham Karp, a cosmetics industry specialist and principal at New York-based Karp Financial Group. “If they have Avon great. But if they lose it next year, that’s no good.” It’s a lesson Cosmetic Group learned firsthand. For example, when a large contract with Mattel Inc. for children’s makeup ended abruptly in 1993, the company’s annual sales dropped 17% from the previous year to $6.6 million, and it posted a $670,000 loss for the year.

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Cosmetic Group is looking for ways to ease its dependence on big contracts. The company is about to launch a line of expensive hair care products financed in part from the proceeds of its recent stock offering. It plans to market the line directly to beauty salons.

But for the most part, the company is counting future growth based on its ability to produce a wide range of colored powders and creams under contract for other brand-name cosmetics firms. Cosmetics Group was founded by CEO Alfred Booth, a former cosmetics distributor, and stylist Judith Zegarelli in 1986. The company got its start by selling so-called “mood lipstick”--lipstick that looks green or clear but turns red once on the lips.

The company expects future growth from a boom in direct sales of cosmetics overseas--epitomized by the much-publicized invasion of South America by Avon ladies--and from the rise of infomercials of a means of marketing cosmetics.

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The key word here is color . Although there are scores of small companies that make cosmetics, few have the resources to mass-produce a variety of colors in lipsticks, eyeliners and other products consistently, and in large volume for customers such as Avon and Mary Kay. “If you have a bathtub you can make a cream or lotion,” Booth said. “The trick is to get the same color.”

Colored cosmetics consist of pigments mixed into a base, often consisting of oils and wax or, in the case of powder, talc. Cosmetic Group buys the raw materials from chemical and other suppliers. But doctoring the colors so that they are the same batch after batch is a tricky process that requires a fully staffed laboratory. That’s because mixing additional pigments to darken or lighten the base requires adjusting all the other ingredients.

Cosmetic Group has only a few competitors. But the few other contract cosmetics packagers that produced colored products are larger and better capitalized than Cosmetic Group. Rivals include the Canadian chemical firm CCL Industries Corp.

Cosmetic Group promotes itself to potential customers with glitzy videos that emphasize its proximity to a glamorous L.A.-fashion scene. But the plant itself is a more pedestrian affair.

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Flanked by a swap shop and encircled by barbed wire fences, the huge Sun Valley facility houses rows of women in smocks and hair nets who toil on assembly lines that reek of perfume.

Here, vats of goo become lipstick and buckets of talc are pounded into discs of face powder. Huge machines spin caps on bottles, and plop dollops of perfume into tiny bottles.

The companies that hire Cosmetic Group to produce their products often provide their own recipes.

Cosmetics can differ in terms of the quality of ingredients and certain additives, but most are made from very similar base materials. And, as is often the case in cosmetics, price has more to do with marketing than formula.

Asked whether lipsticks that Cosmetic Group sells under different brand names have different consistencies, Booth replied: “You can’t do much to wax and castor oil.”