Drugstore.com has agreed to buy Salu Inc., which owns and operates SkinStore.com, an online retailer of clinical skin care and beauty products.

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Drugstore.com to acquire SkinStore.com

December 28th, 2009

BELLEVUE, Wash. – Drugstore.com has agreed to buy Salu Inc., which owns and operates SkinStore.com, an online retailer of clinical skin care and beauty products.

Plans call for the stock and cash transaction, valued at $36 million, to close in the first quarter of fiscal 2010, drugstore.com said Monday.

According to the Internet pharmacy and health and beauty aids retailer, the deal will create one of the largest online beauty retailers, offering consumers a broad product selection that includes mass beauty products on drugstore.com, prestige beauty brands on beauty.com and clinical skin care products on SkinStore.com.

Drugstore.com also noted that the companies will have a wider array of products to offer across their online stores and gain efficiencies in many operational areas. Under the agreement, Salu will continue to focus on its brands and high level of customer experience and continue to operate in Sacramento, Calif. SkinStore.com carries more than 200 premium brands of skin care and beauty products typically found only in luxury spas, fine stores and dermatologist offices, and it has an aesthetician-staffed call center available to answer customer questions.

"Beauty is a cornerstone of our growth strategy, and we are delighted to expand our footprint with the addition of SkinStore.com to our online portfolio," drugstore.com chairman and chief executive officer Dawn Lepore said in a statement. "This acquisition will further solidify our position as a first choice for beauty consumers and brings us one step closer toward achieving our goal of becoming the leading online retailer of beauty and spa products."

Salu is expected to generate revenue of at least $40 million in 2009, according to drugstore.com. Besides SkinStore.com, Salu has distribution capabilities in Australia and operates the spalook.com web store for Sandow Media, the parent company of NewBeauty Magazine.

"This partnership is a tremendous opportunity to leverage each other's strengths and together become a clear leader in online beauty," commented Jim Steeb, CEO of Salu. "We will continue to build the SkinStore brand and our partnership with spalook and to serve our customers well. We believe drugstore.com, along with Beauty.com, is the best partner to help us do this over the long term."

The acquisition is expected to be accretive to drugstore.com's earnings per share in 2010, excluding one-time transaction fees and integration costs. The company said it expects to record about $2.4 million to $2.9 million of transaction and integration related expenses in fiscal year 2010.

By adding SkinStore.com, drugstore.com continues its strategy to build on its product offerings and create one-stop shopping destinations for certain product categories.

Earlier this month, drugstore.com formed a partnership with optical store chain operator Luxottica Group to expand online access to contact lenses in North America. Last month, the company was steering customers with flexible spending accounts to its online FSA Store for savings on thousands of items. And in October the retailer launched a dedicated site for for sexual wellness products called SexualWellBeing.com, adding to its VisionDirect.com and Beauty.com web stores.