BAD HAIR DAYS.

Today, few ethnic haircare products are owned by black companies. Their decades-long legacy has been lost to mainstream manufacturers.

AFTER GROWING THE HAIRCARE MARKET FROM THE roots, black-owned haircare manufacturers are splitting at the ends. Close inspection of shampoo and relaxer labels uncovers a worrisome prospect: Owner by owner, blacks are losing control of the ethnic haircare industry.

Like heavy machinery toppling buildings to leave barren inner-city lots, multinational conglomerates are demolishing one of the foundations of the African American economy. Company by company, mergers and acquisitions are dismantling black-owned haircare businesses. In 1993, majority-owned WAX, a Florida-based generic drug company, acquired Johnson Products Co. Then, in 1998, L'Oreal bought Soft Sheen. Ownership of Johnson Products changed hands that same year from IVAX to Carson Inc., a mainstream company based in Savannah, Georgia. In March 2000, Alberto-Culver, a $1.6 billion personal-care products manufacturing company in Melrose Park, Illinois, bought Pro-Line., the third largest black-owned manufacturer, for an undisclosed amount.

The moment of truth came last summer when L'Oreal acquired Carson. When the dust Settled, the top two black-owned haircare companies (Johnson Products and Soft Sheen) Were joined under the L'Oreal umbrella.(However, L'Oreal is being required by the Justice Department to divest the Johnson name and several of its products.) Based in France, L'Oreal is the world's dominant manufacturer of ethnic haircare products, with Soft Sheen/Carson brands such as Dark & Lovely and Optimum (Care as its top sellers. Soft Sheen/Carson is the name L'Oreal has given to the newly merged Soft Sheen Products and Carson Products businesses.

"What we're getting now is a Microsoft of the haircare industry with L'Oreal," says Nathaniel H. Bronner Jr., executive vice president of Bronner Bros., based in Marietta, Georgia. "That's fundamentally what: we are dealing with, a totally different scale of money." With gross sales of $33 million in 1999 Bronner Bros., maker of BB products and African Royale, ranks No. 80 on the BLACK ENTERPRISE INDUSTRIAL/SERVICE 100 list.

Sales of L'Oreals ethnic market divisions are in the $AN million range, and those of Alberto-Culver are in the $100 million range, estimates Lafayette Jones, president and CEO of Segmented Marketing Services Inc. Jones is also publisher of Urban Call, a trade magazine for urban retailers and businesses, and Shades of Beauty, a magazine for multicultural salons.

"The combination of L'Oreal's massive marketing power plus the acquired brands of Soft Sheen and Carson will work to squeeze black manufacturers from the retail shelf," says Alfred Washington, chairman of the American Health and Beauty Aids Institute (AHBAI) in Chicago, the group responsible for the Proud Lady logo on all black-owned haircare products.

AHBAI estimates L'Oreal's position will be 61.9% of the hair color market and 51.2% of the women's relaxer market, cementing its position as the world's largest manufacturer of ethnic haircare products. In mass merchandise stores alone, it will represent 71.8% of the hair color market, according to AHBAI.

L'Oreal disputes those numbers, noting that according to its calculations, it will control slightly more than one-third of the relaxer market--about 35%, according to a L'Oreal spokesperson. Yet even by its own conservative estimates, this is more than a third of the market controlled by just one company.

HOW THE HAIR WAS LOST

Whoever said never do business with family members obviously had the players in the haircare industry in mind. "Johnson Products, Soft Sheen, and Pro-Line were family corporations, as opposed to a company like Alberto-Culver or Revlon," says Washington. "And in all three cases, it was family situations that led to their sale."

Carson opened an old wound for the black community by acquiring Johnson Products from WAX in 1998. In 1971, Johnson Products became the first African American-owned firm listed on the American Stock Exchange. In 1993, after George and Joan Johnson were involved in a somewhat messy divorce, Johnson Products Corp. and all of its brands, including Ultra Sheen, Gentle Treatment, and Posner, were sold for $67 million to WAX. Talk about devastating. The leaders of the Rainbow/PUSH Coalition at that time called for a boycott of IVAX. Incidentally, George and Joan remarried in 1996 (see "Where Are They Now?" August 2000).

With Soft Sheen, Washington believes internal squabbling among Gardner family members who owned the company also led to the sale of the company to L'Oreal. "Again, I think that the internal situation overrode the commitment to stay a black corporation in a black industry," says Washington.

Edward and Bettian Gardner began Soft Sheen as a black family-owned business over 30 years ago. Soft Sheen was the originator of Care Free Curl, Wave Nouveau, Optimum Care relaxer, and some 150 other haircare and cosmetic products. At its pinnacle, Soft Sheen stood as a major economic and political force in Chicago. The company grew from an obscure $500,000 haircare-products manufacturer into an industrial powerhouse, exiting the BE INDUSTRIAL/SERVICE 100 list at No. 18, with $95 million in sales for 1997, as the top haircare manufacturer.

Terri Gardner, daughter of Edward and Bettian Gardner and former president and CEO at Soft Sheen and current president of the Soft Sheen/Carson division at L'Oreal, admits that selling the company freed up other family members to explore other interests. She also claims that selling the company was a matter of growth and survival.

"We wanted to get to the next level, and doing so on our own would have been very difficult," says Gardner, who decided to sell completely instead of compete. According to sources, at the time of the sale, Terri and her brother, Gary, who were running the company, were at odds. Instead of fighting it out with Terri, Gary relinquished control and went on to begin Namaste, producer of the Organic Root Stimulator brand of haircare products.

Under totally different circumstances, Comer Cottrell, CEO and founder of Pro-Line Corp. (No. 39 on the BE INDUSTRIAL/SERVICE 100 list with $65 million in sales for 1998), sold the company to Alberto-Culver, manufacturer of Alberto VO5 and St. Ives Swiss Formula skincare brands. In March of this year, Alberto-Culvet added Cottrell's Pro-Line brands, Soft & Beautiful and Just for Me, to its ethnic line. Industry insiders suspect Cottrell sold the company because he was just tired of fighting his competitors. In 1998, he received a $5 million growth investment from Patricof & Co. Ventures in New York, hoping to grow through acquisitions, but failed. Cottrell expressed interest in Johnson Products when it was being sold by IVAX, but Carson won the bid at $70 million.

"The companies that are buying these larger (black) companies are a hundred times larger than we are," said Bronner. "Black companies simply cannot come up with that kind of financing power."

"M&M Products was doing great--a $40 million company," AHBAI chairman Al Washington says, "but the partners, Cornell McBride Sr. and Therman McKenzie, didn't see eye-to-eye on how to operate the corporation. They got into a financial bind, and had to sell the company a decade ago." McBride and McKenzie were the originators of the Sta-Sof-Fro brand. They sold the company to Johnson Products in 1989. McBride is currently president and CEO of Atlanta-based McBride Research Laboratories, maker of Design Essentials and Wave By Design.

"As far as the others that remain in the industry--the Lusters, the J.M. Products, the Summit Labs--I see less of those kinds of internal problems and lack of commitment to the industry," says Washington, who is also CEO of AFAM Concepts in Chicago. Founded in 1978, AFAM produces Vitale products, and sells primarily in the professional market to salons.

TIME FOR A MAKEOVER

Blacks used to own 100% of the haircare retail market. Now they own perhaps 30%, estimates Washington.

"We have to look at different ways of doing business in order to compete in the marketplace. We don't have the resources, so we can't compete on the basis of resources," says McBride. "We have to compete based on ingenuity and a different way of approaching the market."

Chicago-based Luster Products Co. is the highest-ranking hair product manufacturer on this year's BE INDUSTRIAL/SERVICE 100 list. Luster, ranked No. 44, employs 316, and had $65 million in sales in 1999, but even its future is a toss-up. Of all the black-owned manufacturers, Luster will have to compete the hardest with L'Oreal because they both sell in the same place--the beauty supply store.

"Time will tell how well any of the companies do in this environment. Luster has some terrific brands, and so does L'Oreal, so it will be a battle of the brands in respective subcategories," says Segmented Marketing Services' Jones, adding that shelf space is equivalent to real estate.

One of the advantages that a L'Oreal or similar-sized manufacturer has is more resources and stronger relationships with the trade that will result in better shelf placement and the ability to force prices down.

In Luster's favor, says Jones: "Smaller companies like Luster have certain advantages. They can respond at a much faster rate than companies five times their size."

In fact, according to Joyce Roche, former president and COO of Carson Products, size may be a serious disadvantage. "When you go large, you're in danger of losing your nimbleness and the ability to move quickly to the ever changing needs of the consumer." Adds Roche, "Also, large companies have to be concerned with meeting Wall Street's earnings expectations. Smaller companies can just be innovative."

To others not as brazen as Luster in their fight for retail space, survival means taking it all back to where it began--the salon. "That's where this industry started. It didn't start in retail; it started in the professional market," notes Michael Joshua, whose father founded J.M. Products in Little Rock, Arkansas, in 1977. J.M. Products manufactures the Isoplus brand.

Dudley Products Inc. (No. 88 on the BE INDUSTRIAL/SERVICE 100 list with $30 million in sales for 1999) markets to salons as opposed to retailers. Founder and CEO Joe Dudley's success proves that it's a viable outlet.

"We are concerned about the acquisitions but we are not threatened," says Ursula Dudley Oglesby, vice president of marketing and legal at Dudley, which also owns 16 beauty schools, Dudley Cosmetology University, and the DCU Inn in Kernersville, North Carolina. "We have two totally different market bases. Our market is totally through salons. Carson does mainly retail establishments."

The professional market is a reliable one, but the major companies have a strong foothold there too. Many majority-owned companies are also able to offer salon owners more marketing options.

Edith Younger-Huff, owner of the salon A Cut Above in New Brunswick, New Jersey, was a faithful customer of Dudley products for seven of the 14 years her shop has been in business.

Recently, Dudley began selling products online, which infringed on the strictly professional relationship it had with the salon owner. In addition, Younger-Huff says Dudley refuses to advertise and doesn't promote salons on its Website, in contrast to some majority-owned companies.

Younger-Huff also sells Avlon products, created in 1984 by a Pakistani named Ali Syed. Avlon's products include the KeraCare brand and Affirm, which is a professionals-only relaxer system. Younger-Huff says Avlon lists her shop as a retailer of its products on its Website.

"In two weeks [after being listed], a woman called who had visited Avlon's site looking for their products locally," recounts Younger-Huff. "The customer purchased six or seven products at my shop, then made a hair appointment. Then she came back and got color."

A Cut Above's orders from Dudley have sunk from approximately $400 to $100 a week.

"The lifeline is innovation," says Lou Roppolo of Lou Roppolo & Associates, a Montvale, New Jersey, beauty industry consulting firm specializing in the ethnic market. "If you are innovative and resourceful you can survive and be of value to the marketplace," Roppolo says.

Other survival tactics include broadening the scope of the products to lotions and cosmetics, to name some options. In addition, some suggest expanding the market.

"Besides black people using relaxers, there are a lot of people--Hispanic, Asian, European, Indian--whose skins aren't black that want to get their hair straightened or take the wave out of their hair," says Washington. "There's a multicultural, multitextural trend that black companies can tap into."

Then there's a large pool of people of color outside of the United States. "You've got to look at the other billion people of African descent that are around the world, not just the 40 million that are in the U.S.," says Joshua, who has J.M. Products joint venture operations in Jamaica, South Africa, and Ghana, and a sales office in London.

But while it's easy to say that expansion and innovation will level the playing field, these days a large part of being innovative is contingent on research and development--costly research and development that smaller companies simply cannot afford.

That's why the black manufacturers and AHBAI are resorting to their 1980s strategy. In 1987, when Revlon President J. Bottner said majority-owned companies like his would inevitably absorb all black-owned companies in the field, AHBAI was outraged. The trade association then stepped up its Proud Lady campaign to try to induce black consumers to buy black. It worked pretty well in the '80s, but the tactic seems to be of minimal effectiveness in this age.

While some manufacturers believe the majority of black consumers really want to buy a product made by a black company, loyalty alone can't grow a business.

"I really respect all that Joe Dudley has done as a black entrepreneur," says Younger-Huff. "But I'm barely cracking $200,000 a year, and I'm not wasting my tiny bit of money on a company that's not helping me."

Even with this attitude out there, the best defense AHBAI has to offer is a grassroots "buy black" campaign.

In future months, AHBAI will include an educational pamphlet in all black-owned relaxer kits. The notice is to educate consumers about which products are black-owned. AHBAI also plans to team up with churches to get its message out.

"We need black consumers to understand that they've got a choice when they buy our products out there. It's not just whether the white companies or the multinational company will just take over. it's whether or not we'll let them take over," asserts Joshua, who was chairman of AHBAI from 1997 to 1999.

"If you ask most people, they think Dark & Lovely and TCB are made by black people because they see a black person on the package, but they are not."

NO GRAYING OF THE INDUSTRY

AHBAI has more than 20 member companies, so the issue is not that the industry's black population is thinning. Mainly mature, decades-old enterprises are just being forced out.

"There are still a lot of small startup companies, particularly on the professional side of the business," says Joshua. "There are several very viable companies out there. These companies' revenues are between $500,000 and $5 million." These revenues are a far cry from $95 million. And, unfortunately, if the remaining companies don't consolidate with one another, more hairs will fall.

"In terms of capital, human resources, and economies of scale, the larger operations like L'Oreal have some very potent strategic advantages vs. independent, privately held smaller companies," says Segmented Marketing Services, Jones.

SELLING PATTERNS OF B.E. 100s HAIRCARE COMPANIES

Company            Johnson Products        Soft Sheen

Sold to                 IVAX                 L'Oreal

Date of Sale            1993                  1998

Then Sold to        Carson Products            --

Date of Sale            1998                   --

Then Sold to          L'Oreal(*)               --

Date of Sale            2000                   --

Popular Brands       Ultra Sheen,          Optimum, Wave
                       Posner,               Nouveau,
                   Gentle Treatment        Care Free Curl

Company               Pro-Line

Sold to            Alberto-Culver

Date of Sale           2000

Then Sold to            --

Date of Sale            --

Then Sold to            --

Date of Sale            --

Popular Brands        Soft &
                    Beautiful,
                   Just For Me,
                    Comb Thru

Source: B.E. Research

(*) Department of Justice requires L'Oreal to divest the Johnson Products name.

HISTORY OF B.E. 100s HAIRCARE COMPANIES

            No. of         No. of
Year        Companies     Employees

1975           2              447
1980           3              809
1985           6            2,310
1990           4            1,317
1995           5            1,706
2000           3            1,016

Source: B.E. Research