Brian Kenny: According to Orbis Research, the global cosmetics industry is worth upwards of $530 billion and will climb to more than $800 billion over the next five years. What's driving such rapid growth? In a word, vanity.
Aging baby boomers, including men, want to look younger. And selfie-obsessed digital natives are spending 25 percent more on cosmetics than they did just two years ago. Don't forget the rising middle class with expendable income in China and India. People want to look good, and they're willing to spend good money for the next surefire anti-wrinkle cream or the latest organic lipstick, but it wasn't always this way.
Cosmetics have been around for centuries, but for much of that time, they were only available to the highest echelon of society. In some cultures, it was forbidden for common people to wear makeup. In America's old Western saloons in the 1800s, prostitutes were known as painted ladies for the abundance of rouge and lipstick they wore. So, how did we get from there to here? Today, we'll speak with Professor Geoff Jones about his case entitled, Helena Rubinstein, Making Up the Modern Woman. I'm your host Brian Kenny, and you're listening to Cold Call.
Geoff Jones researches the history and impact of globalization. His focus is on the role of entrepreneurs and business enterprises. He is a prolific scholar and author of several books including Beauty Imagined: A History of the Global Beauty Industry, and that is very appropriate for today's conversation. Geoff, thanks for joining us.
Geoff Jones: My pleasure.
Kenny: I thought this was a very interesting case. I think the business history part of what we do here at Harvard Business School probably doesn't get enough visibility, and it is always some of the most interesting content we come across here because it seems like the more things change, the more they stay the same. I think people will enjoy hearing about Helena. What led you to write this case?
Jones: I teach and write about the history and impact of global capitalism. Helena Rubinstein is a perfect case in that story for a couple reasons. First of all, she is a remarkably global person who moved from Europe to Australia, back to Europe, to the United States, and she's a remarkable entrepreneur. She's on many peoples' lists of the best female American entrepreneur of the 20th century. So, she's an amazing person, and the industry she's in is really an amazing lens to view the impact of globalization. If you go back to the early 19th century, what people thought was beautiful or good-looking varied enormously across the world. By the 20th century, what people consider as beautiful has been incredibly homogenized. People like Helena Rubinstein are central actors in that transformation of the concept of beauty.
Kenny: She was very, very interesting. Tell us about her background. What was her childhood like?
"She's an amazing person, and the industry she's in is an amazing lens to view the impact of globalization.”
Kenny: You've discussed this case in class. Any interesting insights, particularly from this generation of students who have grown up wearing makeup?
p>Jones: Her childhood is in a Jewish ghetto in Poland. She was born of Chaja Rubinstein. Poland at that time is part of the Russian empire. It was poor, and Jewish ghettos were even poorer. She doesn't stay there very long. She emigrates to a slightly more prosperous Vienna in Austria, then to Australia where she builds a business. Then she moves to London and Paris. In the middle of World War I, she moves to the United States where she creates one of the very first US-based luxury beauty brands.Kenny: Coming from her family background, you probably wouldn't have expected this. She was an Orthodox Jew.
Jones: She was Orthodox Jew, but from the very beginning, she was a very rebellious Orthodox Jew. She's one of eight sisters, but she was the one who really declined to assume her expected role. She avoided domestic chores, she wouldn't do what she was told. When her mother tried to fix her up to marry an older Orthodox man, she just had had enough and refuses. She went to Australia, which was just about the opposite of the world where she could go. She was a woman who wanted to decide her own destiny.
Kenny: Which was unusual for those times, obviously. Women were in a very different place back then than they are today.
Jones: Well, nowhere could women even vote. Even in the most developed, industrialized countries. And she's coming from a socially conservative background where voting was the least of the restrictions on her.
Kenny: Going to Australia turned out to be a pivotal for her. That's where she first dipped her toe in the water of beauty and the cosmetics industry. Can you describe how that came to be?
Jones: Helena Rubinstein, after a very long ocean voyage, ends up in this tiny rural village in Australia, and she can't even speak English. The place was, funnily enough, not a bad place to start in cosmetics. First, it's very hot so we can imagine women in that town will have had quite parched skin. Second, one of the basic ingredients of skin cream, lanolin, is naturally the oil of sheep that they produce automatically. So, she was in a place full of sheep. You have a perfect supply of raw material, and then she had the most amazing capacity for imagination.
Quite soon after she arrives, she has started to spin a story that she brought with her and 12 bottles of cream made by her mother… She spun a story about the nature of that cream. She called it Valaze, which she described as a Hungarian word for “gift from heaven.” Actually, no such word exists in Hungarian, but it sounded very good, and if you were a rural person in Australia it would sound exotic and good. And that's what the beauty industry is going to spend the next 150 years doing: coming up with exotic sounding creams with secret ingredients that keep you young. She hit very quickly on the formula for success.
Kenny: Her marketing instincts obviously were innate, because she started to think about things like packaging and how things looked. Even the notion of creating a word that had an exotic sound to it. That's all the roots of marketing.
Jones: Absolutely the roots of marketing, but at the time she was doing it there was no textbook saying, "That's what you do." She was making the rules up, which are now ritualized and institutionalized in the cosmetics industry. People forget that it all began with her.
Kenny: This was in the early 1900s. Was there a beauty industry at that time?
“She was making the rules up, which are now ritualized and institutionalized in the cosmetics industry. People forget that it all began with her.”
Jones: Yes and no. What we know is that people had been using adornments of one kind or another to make themselves attractive for thousands of years. At least the rich people. Most people can't afford that, but it was essentially a craft like cooking. People made things in their kitchen, maybe like Helena Rubinstein's mother, or they had their servants make them. What happens with modern industrialization getting going in the 19th century is that it starts slowly to turn into an industry. An industry with brands, an industry where specialists actually make these things and sell them. It's still very slow, and one of the problems which you mentioned is that the use of cosmetics by the 19th century was rather closely associated with gray areas of life with the actresses, or prostitutes. It wasn't really very respectable.
Kenny: What gave her the courage to take this to Europe?
Jones: She had seen the future in Australia, and she's a very fast learner. So when she leaves her village, she moves to the biggest city in Australia, then Melbourne, and quickly recognizes there's a lot of money to be made in services as well as in products themselves. She sets up a salon and realizes very quickly she can make a great deal of money. The case mentions she sold products at eight times their cost. She's already made a great deal of money in Australia, but Melbourne by global standards, is small. London, the financial capital of the world, Paris, the fashion capital of the world, are the big time. This is going back to say she's an ambitious person who's not going to be constrained by her circumstances. I think having proved in Australia that she could do it, she's off for the big time.
Kenny: How did she scale the organization? I know she brought her sisters in, she was loyal to them.
Jones: This is an industry where you need control and you need trust, so using the family was very good. She also met a guy, Titus, who she marries and he's actually a marketing genius in many ways. He comes up with lots of ideas like she should call herself Madame. She is able to rely on other people, people who are close to her in a way, both her husband and her sisters, to expand. She is a woman of enormous energy. She has a couple of kids in Europe, doesn't apparently spend much time with them because she's working and traveling all the time. Before she moves permanently to Europe, she travels there from Australia. She looks at the work of some scientists, dermatologists we would call them now. She's a bundle of energy, always, always active.
Kenny: And she starts to develop her own personal brand around this. You mentioned the Madame thing. She demanded to be called that.
Jones: Madame is very important because at this time, the only luxury brands in the global beauty industry came from France. By the middle of the 19th century, some of the perfume companies, which was already a luxury industry, have gone into cosmetics and other beauty products. It was the cache of Paris that made these products luxury products. So giving herself a name was part of the key to creating a product associated with luxury, not associated with actresses, for example. It's quite a carefully executed strategy. She's in the business all the way through building aspirations. Right from Australia, she links with journalists, she links with opinion makers, and by the time she's in Europe and later in the United States, she's linking with leading artists like Pablo Picasso.
Another plank of her strategy is to build the so-called scientific basis of her brand. She comes up extremely early with the idea or the phrase, “beauty as science,” and is increasingly claiming that she's engaged in deep scientific research to make you beautiful.
Kenny: The case alludes to the fact that she didn't actually study this in the way a scientist would.
Jones: Absolutely not, and this is something that increases over time. By the 1920s, we have a bunch of photographs of her in a laboratory with a white coat. I mean, this is many of the ways in which she pioneers the modern beauty industry, because a whole stream of subsequent brands are going to go exactly down that route that they're scientifically based.
Kenny: She goes to the United States and that's when things start to take off in a big way. Can you talk about her experience arriving in the US?
Jones: She arrives in 1915 or 1916, that's before the United States has entered the World War, and immediately starts building a story that she was this famous European beauty entrepreneur… New York, where she sets up, is well down the curve of people using beauty products, and it's very affluent, so you have the making of a good market there. The challenge is that until then, Americans primarily considered domestic brands as mass, cheaper brands; when they bought a luxury brand, they bought something imported from France. Her challenge or her opportunity was to build an American brand that was a luxury brand, equivalent to French brands. She sets off very soon doing precisely that.
Again, she's very focused initially on salons because they gave her a distribution channel—she doesn't have to sell through other means. Second, she could create the environment in which people purchased her products. She started filling these salons with avant-garde art and other things designed to make the total experience one of affluence and aspiration. She does that very well. Thirty years before, beauty salons were places of ill moral repute. By the 1920s, they're these luxury places where affluent women are proud to see going and spending hours there, and they paid enormously for all the services she provided and that were increasingly sophisticated, and they bought her products. She uses the salon to shape the brand and give it the signals of affluence and luxury.
Kenny: She wasn't the only one doing this in New York. She had somebody she competed with, and you talk about the powder wars in the case.
Jones: A few years before Helena Rubinstein arrived, a lady called Elizabeth Arden had turned up. Elizabeth Arden, like Helena Rubinstein, was not born Elizabeth Arden. She was born Florence Nightingale Graham on a farm in Canada, outside Toronto. Not affluent at all. She moves to New York, works in somebody else's beauty salons, quickly realizes the potential of the market, changes her name in 1909 to Elizabeth Arden, and starts down the path of building a luxury brand. She also starts to build salons.
She had quite a different concept of luxury. They have two different views on life, and they come to hate each other. Oddly, although their salons and their homes were very close to each other in New York City, they never meet, but they do say horrible things about each other. It indeed becomes known as the powder wars. Both of them, you could say are equally influential in creating American luxury brands. That's where it begins with these two women who hate each other, compete with each other, and just have different visions of beauty. Just different personalities.
Kenny: That's remarkable they never met. We’re getting up to the period of the 1920s, in fact leading up to the stock market crash. But prior to that, she strikes a deal with Lehman Brothers. Can you talk about what happens from there?
Jones: We were able to find archives in Baker Library, here at Harvard Business School, which showed for the first time what really happened. At some stage she decides, 1928, to sell part of her stock to Lehman Brothers. Lehman Brothers at this time is building up a consumer products business. It's often described as her selling the whole business. Actually, she sold part of the American business. She kept her other businesses, and it remains unclear why she did that. She wrote that she was trying to keep her marriage. Other people believe that she sensed the US economy was in a bubble, and this was a really good time to cash out. Cash out, she did. She makes a great deal of money selling to Lehman Brothers, and within nine months the stock market crash had occurred. Lehman Brothers didn't really understand the beauty industry, so in the meantime they had managed to rollout her brand in all sorts of places, pharmacies and whatever. When the stock market crash occurred, that turned out to be a problem because although industry sales went down a bit, what did happen was a massive flight to quality. So Helena Rubinstein brand sales shot down. In a famous, often-told story she starts buying back her shares at a dramatically reduced price, and basically by '32, '33, she has got control of the company again and has probably made a profit in our terms of about $100 million dollars from that business.
Kenny: Does her influence carry over to the industry today?
Jones: I think she created some of the most basic fundamentals of the skincare industry today, which is so amazing about her. We've already talked about the medical claims. She already comes up in Australia with the idea that human beings have different skin types: oily, dry, and everything else. That's still a feature of the skincare industry now, even though it's not particularly true in any useful sense of the word. She is also the one who really builds into the industry fear of aging as a selling point. She consistently lies about her age. When she emigrates to Australia, she already claimed she's 20 when she's 24, and from then on she lies consistently, and she's obsessed with age and she's convinced fear of aging is the way to sell her products. Absolutely that's still a dominant theme in the beauty industry. So, yeah. I mean, she is on, I think it's fair to say, the founder of the modern skincare industry and the principles she established are still with us.
Kenny: Yeah. I think about it every time I walk into a department store and I see the clerks behind the cosmetics counters with the white robes on. That was something that she influenced back in the early 1900s.
Jones: Absolutely. I mean, she also invested very heavily in training sales people in department stores. That's one of the things she realized, that each one of those were brand ambassadors for what she was selling. So, they all told the same story, and they all looked the same. Control. She always made sure she controlled her brand, which we know is also the key to luxury branding now.
"She comes up with the idea that human beings have different skin types: oily, dry, and everything else. That's still a feature of the skincare industry now, even though it's not particularly true in any useful sense of the word.”
Kenny: You've discussed this case in class. Any interesting insights, particularly from this generation of students who have grown up wearing makeup?
Jones: I think it's fair to say in the MBA classroom, she's a very contested figure. Some MBAs will emphasize she is an absolutely brilliant female entrepreneur. She's a rags-to-riches story. She's the founder of the modern skincare industry. She creates an industry which employs hundreds of thousands of women.
Some people will argue too that the products she created are big pluses for female consumers, and the reason is that they give women choice about their appearance, and they provide confidence... But at some point in the discussion people will start noticing what also she's doing. She is the pioneer of fear of aging. She's basically saying that a woman in particular by about 30 has to spend the rest of her life fighting against aging and disguising it. That's an extremely distorted view of what beauty is. She is a source of the pressure that has been put on women because of the cosmetics industry. Then of course Helena Rubinstein builds her career by lying. She lies about her mother's cream, she lies about her medical qualifications, she lies about her age.
The more cynical students, including someone who worked in the beauty industry, say that it's an industry which is very casual with the truth and its claims. So, I think it's very contested, and that's true with the beauty industry on the whole. It is an industry which has given people a lot more choice how they look. It's an industry which when you put skin cream on, you can face the day in a more confident way, but it's also an industry that takes confidence away from people if it's too restrictive about how it defines beauty. Helena Rubinstein was restrictive about how she defined beauty. She's not saying some 60- or 70-year old woman is beautiful. She's saying you've got a problem and you've got to fix it.
That's why she raises a lot of discussion in the classroom. It’s not an easy black and white situation, which way you feel about her.
Kenny: Like so many of our cases, really interesting insights. Thank you Geoff for joining us today.
Jones: Great pleasure, thank you.