When It Comes To Beauty, Mass Retailers Are Gaining Prestige

Many retail categories have been rendered (temporarily) irrelevant by the COVID-19 pandemic – think formal and occasion dresses, and bottoms, thanks Zoom meetings – but beauty is not one of them.

Kohl’s
KSS
is so bullish on the sector, it’s tripling down on the category. As CEO Michelle Gass recently put it, the retailer wants to “build a sizable beauty business with the goal of tripling sales and driving incremental traffic.”

Target Corp. has its own lofty beauty ambitions. The Minneapolis-based retailer last week hooked up with Ulta Beauty to create shops-in-shop, which will launch in 2021 in more than 100 stores, with plans to scale hundreds more over time. There will be an online component at Target.com.

Sephora for years has been nipping at the heels of department store beauty counters such as Macy’s, with its mix of prestige and indie brands, and knowledgable sales assistants, some of whom are also makeup artists. The open-sell format allows customers to try-on and experiment with the products, however, that’s all on hold due to the coronavirus pandemic.

The decline of beauty sales in department stores opened the door to mass retailers, which have proved to be more nimble than their pricer cousins. Beauty product sales in department stores in the third quarter declined 17% year-over- year to $3.7 billion. “The prestige beauty market is increasingly being shaped by channel shifts and a whole host of indie brands,” said The NPD Group.

Just as sales of dressy apparel, skirts and suiting have been challenged due to the pandemic, so too are lipstick, lipgloss and other products that face mask-wearing consumers have little use for now that the bottom half of their faces are covered with cloth.

Sephora and Ulta, which offer a wider range of price points. The former, partnered with J.C. Penney, which is restructuring, following Chapter 11 bankruptcy protection proceedings. Other beauty specialty retailers such as Space NK and Bluemercury, which is owned by Macy’s, deal in the higher echelons of the price spectrum.

Macy’s CEO Jeff Gennette told CNBC last week, “Our sweet spot is really what we can do with services, and our experience, [in beauty]. That’s something that some of the mass players can’t do as easily…. and all of that is starting to go digital right now.”

Macy’s digital beauty sales are up 75% year-to-date, he said, adding that Macy’s strength lies with prestige fragrances.

But if Gennette believes mass players can’t excel in service and experience, Target and Ulta beg to differ. The two retailers want to redefine the beauty experience for Target consumers with expanded access to curated established and emerging prestige beauty brands, with Ulta-trained beauty consultants manning the new 1,000-square-foot in-store-shops, which will mirror the look of Ulta Beauty stores.

The Ulta shops at Target will be positioned adjacent to, or near existing beauty departments. Target isn’t eliminating any beauty brands in order to make room for Ulta. Rather, Ulta expects to attract new consumers to the brand while building on Target’s existing assortment of beauty options.

The shops-in-shop will be enhanced with Ulta Beauty’s immersive, in-store digital discovery tools such as GLAMLab, a virtual try-on tool that provides safe trial across beauty categories.

Target has upgraded its beauty offerings and service before. The retailer in 2013 introduced to stores the role of dedicated beauty consultants. In recent years, Target expanded its assortment and created a more engaging shopping experience with the investments resulting in strong category sales and market share gains.

Target CEO Brian Cornell cited the importance of beauty during a conference call with retail analysts on November 18, when he discussed results for the third quarter ended September 30.

“We saw comp-store sales growth in the mid-20% range, with the strongest growth in decor and kitchen. Comp sales in apparel grew by nearly 10%, led by results in intimates and sleepwear, as well as men’s apparel,” Cornell said. “Consistent with the second quarter, both our essentials and beauty and food and beverage categories saw third quarter comp growth in the high teens. In essentials and beauty, we saw strength across the entire portfolio.”

Kohl’s is also ready to expand its beauty base with sales momentum and an eager consumer base. The retailer said it has demonstrated ability to grow its beauty business by nearly 40% over the past five years, and successful results from 12 elevated beauty experience stores.

The Menomonee Falls, Minn.-based retailer said it has a leadership position in fragrance, and is expanding color and skincare. Kohl’s is introducing additional relevant national brands, while leveraging its success with Lauren Conrad to beauty. An extensive line of makeup, skincare, bath and body products, and more, Lauren Conrad Beauty also features cosmetics bags with delicate floral motifs on beige recycled cotton with blush-colored vegan leather piping.

Kohl’s has also been also curating unique digital offerings. It’s prestige brands include Lancôme, Philosophy and reVive, with other more widely-distributed labels such as Pure Aura, La Roche-Posay and Vichy.

“While beauty is only a modest low single-digit penetration of our business today, we’ve driven steady growth of nearly 40% over the past five years,” Gass said last week during Kohl’s third-quarter earnings call. “We know customers want a bigger and bolder beauty experience at Kohl’s.

“We’re seeing meaningful outperformance in our elevated beauty shops that we recently expanded to 62 stores,” Gass said. “We’re pleased with the response we’re seeing with the newness we’ve introduced to customers, including our recent launch of Lauren Conrad Beauty.”

To its core areas of active, casual and the wellness needs of families, Kohl’s is adding innovative new ways to serve customers. For example, a new concept, the Curated by Kohl’s platform is expanding to 300 stores.

“The wellness market is a way for us to introduce new categories and see how they come to life,” Gass said, adding that this includes products across home, beauty, personal wellness, baby and pet care, with an emphasis on sustainable attributes. “This umbrella of wellness affords us the opportunity to experiment with many different products. Out strategy gives us a clear lane to experiment.”

Cornell said Target is also planning to kick off the New Year on a positive note with a focus on wellness and nutrition and new exclusives in beauty, among other things.

In announcing the Ulta deal last week on the conference call, Cornell said, “The beauty category is ideally suited to our strategy. It’s been one of our strongest-growing categories over the last few years. [The Ulta Beauty] partnership will help us to build on that success, by providing our guests access to dozens of new beauty brands with elevated service and presentation at select stores.”