Beautiful Dreamers.

Cosmetics head for a makeover.

IT POSES AS THE PERFECT E-MARKET. It racked up US$18 billion in traditional sales last year, and consumer demand holds strong and steady. The products are small in size, easy to store and convenient to ship. But Latin America's cosmetics industry could prove a deadly beauty for e-retailers looking for profits that shine like gloss on a model's lips.

That's because the market for personal care products is a tricky niche. And e-sales eliminate the essential personal contact, the helpful saleswomen who show shoppers makeup tricks, recommend lipstick colors and turn cosmetics buying into an experience, rather than an errand.

The risk stands even greater at this early stage of Internet use in the region because cosmetics e-retailers are pinning their success on just a tiny bloc of shoppers.

"How many cosmetic sites can this limited market support?" asks Lucas Graves, senior analyst at Internet research company Jupiter Communications. "I certainly suspect that we'll see a lot of failures."

Although web watchers are fast to quote burgeoning statistics to predict the future of e-commerce in the region, the actual number of wired consumers is small. The number of women who use the web is even smaller. And the number of web-using females likely to buy their cosmetics online is smaller yet.

Last year's Nazca Saatchi & Saatchi Internet user study of Latin America finds only 38% of all users in the region are female. In Argentina, Uruguay, Mexico and Costa Rica, the occurrence is even lower--with women accounting for about only one of every four Internet surfers. When it comes to people likely to shop online, overall only 26% are female.

Missing Link. The recent teaming of Internet giant StarMedia with Latin America's leading luxury beauty brand, L'Oreal, sets the groundwork for the region's official foray into the online makeup market. But the joint venture's female-focused website, www.cadamujer.com. launched in Mexico in March, and Brazil and Argentina a month later, has something conspicuously missing from its pages: a way to order beauty products.

StarMedia says that's no oversight. It's simply stepping cautiously in a volatile, competitive market. "The rationale behind what we're doing is that, first, you have to build a community. And then you sell to it," says Peter Blacker, StarMedia's senior vice president of sales strategy.

Blacker remains mum on when the retail elements will appear, but it will have to be by August or September for the sites to capitalize fully on the pre-Christmas season shopping frenzy. Even then, the new Spanish- and Portuguese-language website will sell more than cosmetics. A variety of retail links with a female focus will appear on the home page.

The new website will aim at a limited pool of consumers (a study by The Laredo Group at the end of 1999 finds that only 26% of all StarMedia Network's users are female), but there's more to the story.

"The important thing to understand is that almost half of the new users are women," says Adriana Kampfner, senior vice president of global sales and strategy at StarMedia. "So obviously there is a great push on the user front of more women in the region. The percentage is growing slowly, but it's growing."

Latin America's online niche sites are racing to replicate their counterparts in the United States. Cosmetics e-retailers are expected to follow suit--and if they do, they'd better learn a lesson from the beauty dot-coms that failed. Intense competition in the United States, where a 2-year-old e-cosmetic web page is considered a weathered veteran, knocked some sites out of business and forced others into alliances. Those that successfully defended their turf did so by adopting highly interactive strategies.

At U.S. site reflect.com, for example, an online questionnaire asks everything from hair and skin characteristics to psychological preferences. Responses are "analyzed" and web visitors are given recommendations for "customized" shampoos and skin care products. Net surfers who tap into www.gloss.com can choose among a collection of online faces to create a model upon which they daub lipstick shades, mascara or even eye shadow in a "virtual makeover." At www.eve.com, women can sign up for a newsletter and free samples. Other U.S. websites let visitors "chat" directly with beauty advisers.

Latin American sites will have to cultivate similar "personal" touches if they want makeup and perfumes turning up in digital shopping carts. Price discounts may play a small role, but brand name recognition and personal attention will be the essential tools for luring Latin American cybershopping women, who number about 6 million, according to Nazca Saatchi & Saatchi.

In its quest to personalize its interaction with women, www.cadamujer.com is customizing its site by country. That means its visitors in Mexico are not reading the same news stories as their counterparts in Argentina. And they're not getting the same beauty and makeup tips as the site visitors in Brazil. When the merchandizing elements of the site go up, they, too, will feature different products in different countries.

"The hair types in Brazil are different than hair types in Argentina. Argentine and Mexican women don't dye their hair for the same reasons," Blacker explains. "These are distinct markets:'

The joint StarMedia-L'Oreal web page stands out as the first designed to pitch beauty items to an exclusively female market. But it's not the region's first to feature personal care products. E-beauty sales are already taking place via general retail sites like www.fiera.com and at online drugstores. And Avon, an industry powerhouse with regional sales of US$1.6 billion annually, sports a retail page in Brazil at www.avon.com.br.

However, Avon still emphasizes direct sales through its representatives rather than online purchases.

Avon's online shoppers may order products from the site in Brazil, but most are tapping it simply to check new products or to ask a rep to visit to their home or deliver samples. In New York, Avon spokesperson Laura Castellano says the website in Brazil has grabbed interest, but she has no figures on how many actual sales are taking place digitally.

Avon's new ballyhooed U.S. website, which will be unveiled later this year to replace a site offering a limited roster of products, promises to boost the efficiency of many of the sales reps by offering links to their websites, allowing them to replenish their inventories online and letting them track their orders. But the site will not include links to Latin America.

"The traditional direct selling door to door has worked very well in Latin America. In fact, it's one of our stronger traditional markets," Castellano says.

Another cosmetic company dependent on door-to-door sales, Mary Kay, lists its "beauty consultants," as the saleswomen are known, in Argentina, Brazil, Chile, Guatemala and Uruguay on www.marykay.com. But only their addresses, phone numbers and fax information--no website links--are available.

Name recognition. At the bottom of the www.cadamujer.com home page, L'Oreal and its Lancome name, as well as its Maybelline and Biotherm brands, appear as cickable boxes. Most of the rest of the page is dedicated to feature stories about families, opinion polls, fashion, relationships and health.

Why no sales pitch for makeup? L'Oreal must establish name brand loyalty online first. While traditional sales ring up in the billions of dollars, online cosmetics sales through mixed-product sites are so small that Jupiter Communications doesn't even bother tracking them yet. Even in the United States, electronic cosmetic purchases accounted for only about 1% of the $25 billion-plus market last year, according to research by Media Metrix and The NPD Group.

Convenience is part of what is expected to drive Latin American women to Internet cosmetics. Customized treatment, rather than just cut-rate prices, is what will keep them going back.

There are other obstacles facing purveyors of beauty. The cosmetics industry has never benefited from the efficient distribution networks that characterize the books and CD market. (One U.S. cosmetics site, www.beauty.com teamed up with www.Drugstore.com to obtain a built-in infrastructure.) Sales strategy must be carefully planned. Some North American online sites took the bulk beauty route, offering as wide a range as cosmetics as they could. Others did what L'Oreal intends by promoting a select line of upscale products with higher profit margins.

The online retail niche will also likely require partnerships; it will be a rare independent player that can survive the competition. Even then, the partnerships could require both name recognition and deep pockets. French luxury-good group LVMH Moet Hennessy Louis Vuitton looked like it had a sure thing when it acquired U.S. cosmetics company Urban Decay, a wildly popular nail polish maker, but it couldn't match bigger and better known competitors like Clinique and Max Factor.

There's money to be made in the e-beauty business, but the stakes are high in Latin America. Dot-coms seduced by the online cosmetics market may find themselves pumping heavy cash infusions--as they scurry for a market that is small in scope.

                     TRADITIONAL SALES FOR COSMETICS &
                        TOILETRIES IN LATIN AMERICA
          US$ millions
Brazil      7,933.8
Mexico      3,084.7
Argentina   2,492.6
Colombia      911.2
Chile         805.6
Venezuela     769.1
SOURCE: Euromonitor
                               Cybershoppers
Male   74%
Female 26%
SOURCE: Nazca Saatchi & Saatchi
                           INTERNET USER PROFILE
            Male Female
Costa Rica   78%   22%
Argentina    77    23
Uruguay      77    23
Mexico       74    26
Chile        70    30
Venezuela    70    30
Brazil       54    46
Puerto Rico  54    46
SOURCE: Nazca Saatchl & Saatchl