I was interviewed by Rachel Brown from Beauty Independent about a partnership between Sephora and Kohl's to plant 200 Sephora mini shops in Kohl’s locations during the same period and at least 850 by 2023. Here is an excerpt:

“They can benefit massively from one another. They can benefit from the traffic they can generate from one another, and they can benefit from their loyal customer bases,” says Sampo Parkkinen, CEO of beauty technology company Revieve. “Part of the backstory to this for me is that beauty is a massive, massive category that really matters to department stores, and department stores are putting a lot of emphasis on it.”

“This is a distinctly omnichannel partnership. Sephora and Kohl’s have made it very clear that they are going to have shared digital real estate,” says Parkkinen. “That’s a sign of the current environment that they recognize while doing these partnerships that it’s important to make sure they’re omnichannel to span the channels that serve consumers.”

You can read the entire article below or click on the link to Beauty Independent here:

https://www.beautyindependent.com/sephora-open-in-store-shops-inside-kohls-locations/

The beauty retail landscape is being reshaped by marriages between major chains.

Less than a month after the revelation that Ulta Beauty will open more than 100 in-store formats at Target locations in the fall of next year with plans to eventually reach several hundred, Sephora and Kohl’s have answered with a partnership to plant 200 Sephora mini shops in Kohl’s locations during the same period and at least 850 by 2023. The Sephora installations will occupy 2,500 square feet at Kohl’s and be manned by Sephora-trained Kohl’s employees while Ulta will command 1,000 square feet inside Target staffed by Ulta-trained Target employees.

The arrangement between Kohl’s and Sephora suggests Sephora isn’t afraid to take risks to catch up to Ulta, the current top beauty retailer of choice for gen Z consumers and Sephora’s market share superior. It also represents a significant step up in Kohl’s’ beauty development. The moderately-priced department store retailer with about 1,160 locations has been focused on escalating its beauty sales for a while. In 2015, it outlined a Greatness Agenda strategy with a goal that’s gone unachieved of pushing beauty sales from 2% to 5% of its total revenue, which rang in at $19.9 billion last fiscal year. Recently, it expanded and elevated beauty areas in 62 stores, and tested Wellness Market shops with personal care, baby goods and pet merchandise in 50 locations. Writing in a note, Paul Trussell, research analyst at Deutsche Bank, figures Sephora at Kohl’s could add $1 billion in incremental sales upon full rollout.

“Kohl’s has been rebuilding beauty for the past few years, and I think they’ve been doing a nice job. They had started building out their shops and really going after the beauty business,” says Wendy Gottfried, founder of consultancy GottBeauty and former VP/DMM of beauty, fragrance, lingerie and swim at Saks Fifth Avenue. “This is a rapid acceleration of what they were doing on their own and gives them the ability to get it done much quicker.”

In a third-quarter earnings call last month, CEO Michelle Gass pronounced Kohl’s ambition to triple beauty sales. “We’re really excited about the beauty opportunity,” she said. “It’s a large attractive market for us. There’s a lot of disruption happening and transformation in the industry. It is a small business for us today, but we’ve made steady progress over the last five years. Our growth is up nearly 40%. So, the customer is giving us permission here, and we have scale, right? We serve 65 million customers, 70% are women, and they’re looking for a bigger and bolder beauty solution.”

Sephora at Kohl’s is certainly a bigger and bolder solution. Gass informed CNBC that the two retailers have struck a deal that will last a minimum of a decade. Sephora’s mini shops will be placed front and center in Kohl’s stores, and Sephora will have a dedicated exterior façade. About 100 prestige brands are slated to enter the Sephora-cum-Kohl’s spaces, and Jean-André Rougeot, CEO of Sephora Americas, told Women’s Wear Daily they will have 85% of the stockkeeping units of a standalone Sephora, where it’s estimated there are around 9,500 SKUs. Kohl’s will own the inventory and split operating profits with Sephora. At Target stores, Ulta’s in-store shops are set to be located in prominent positions near beauty sections. Target will own the inventory, and Ulta will own the brand relationships.

Beauty industry insiders and Wall Street responded positively to the news of the partnership between Sephora and Kohl’s. Kohl’s stocks soared as much as 16% on Tuesday. “They can benefit massively from one another. They can benefit from the traffic they can generate from one another, and they can benefit from their loyal customer bases,” says Sampo Parkkinen, CEO of beauty technology company Revieve. “Part of the backstory to this for me is that beauty is a massive, massive category that really matters to department stores, and department stores are putting a lot of emphasis on it.” Sephora at Kohl’s customers will be eligible for Sephora’s Beauty Insider loyalty program rewards.

“A relationship like this bodes well for Kohl’s. Prior to Kohl’s, Sephora had a relationship with J.C. Penney and, when many retailers struggled, especially J.C. Penney, Sephora was its secret weapon and allowed it to stay afloat much longer,” says Jharonne Martis, director of consumer research at financial insights firm Refinitiv. “A partnership like this can improve market share for both parties, increase profit margin and increase customer satisfaction.”

Sephora’s decision to team up with Kohl’s is undoubtedly guided by lessons learned from its tie-up with J.C. Penney that began in 2006. Earlier this year, Sephora found itself in a legal dispute with J.C. Penney as it attempted to leave the flagging retailer by April 2021. The legal dispute was settled, but the settlement isn’t stopping Sephora from departing J.C. Penney. It’s scheduled to vacate roughly 600 Sephora at J.C. Penney shops by 2023.

In Kohl’s, Sephora has a retail companion that’s well-thought-of in the beauty industry. “Unlike J.C. that just gave Sephora real estate, Kohl’s will be more active and hands-on in the business,” says beauty industry veteran Jeffrey Ten, CEO and managing director of Global Brand Development. “I love Michelle Gass. She is an experienced executive that has helped turn Kohl’s around. She is creating a paradigm shift widening the Kohl’s appeal and customer base. J.C. never did this nor did they have the right talent in management to deal with the changing times.”

Sephora is heading into its association with Kohl’s with its eyes wide open about the ascendance of e-commerce. In an interview with WWD, Rougeot disclosed that e-commerce constituted 40% of Sephora’s sales pre-pandemic and has soared 70% to 80% since the pandemic interrupted business in the United States. Kohl’s has been enhancing its digital presence. In the first quarter, e-commerce sales accounted for 45% of its business, compared to 21% in the first quarter last year. Kohl’s accepts Amazon returns at its locations and has integrated curbside pickup. Sephora’s selection at Kohl’s will be available on the department store retailer’s website.

“This is a distinctly omnichannel partnership. Sephora and Kohl’s have made it very clear that they are going to have shared digital real estate,” says Parkkinen. “That’s a sign of the current environment that they recognize while doing these partnerships that it’s important to make sure they’re omnichannel to span the channels that serve consumers.”

Kohl’s will enlarge Sephora’s geographic reach—it has 500 stores in the United States primarily at traditional malls and urban hubs—in suburban off-mall locations not as plagued by the footfall decline troubling enclosed shopping center dinosaurs. “When the original J.C. Penney deal was signed, malls were more at the center of shopping gravity,” says Tiffany Hogan, principal analyst for beauty and apparel at market research company Kantar. “We have seen the shift to power center or strip center locations with retailers like Target and Ulta, and these retailers are following that growth.”

As Sephora travels to strip centers, it will abut Ulta locations. To stand out and draw customers, it will have to have a compelling merchandise collection at Kohl’s. A huge challenge will be to perfect that collection. Luxury brands are expected to shy away from in-store shops in order to protect their cultivated status, although, as industry experts apprised WWD, they’re probably going to be more willing to sit in Kohl’s than Target. In general, they’re probably more willing to consider settings they may have avoided previously to compensate for lost department store sales.

“You have to weigh the pluses and the minuses of gaining the extra distribution and the greater footfall you would get and the visibility for your brand if you are in the shop-in-shop versus your brand ethos and the perception of your brand,” says Hogan. “If you are Chanel, you may not want to wind up in a mass retailer or value department store. You will be [wondering], does it damage your brand in any way?”

Alexandra McClay, a beauty industry consultant at Next Level Strategy, predicts La Mer might not fit Sephora’s assortment at Kohl’s, but The Ordinary or The Inkey List probably would. “These are brands that carry cachet. They are cool and unique, but they are not at the La Mer price point,” she says. “Kohl’s is going to be able to benefit from them because it will increase that treasure hunt mentality.”

Meg Pryde, founder of the beauty dupe app Brandefy, believes brands across the price spectrum could be winners for Kohl’s at Sephora. In an instant Instagram poll she conducted on Tuesday, 54% of 246 beauty enthusiasts reported they combine affordable and prestige brands in their makeup bags. “There is no such thing as a one brand consumer anymore,” says Pryde. “My mom might have been a Clinique woman, but that person doesn’t exist anymore. Today, consumers have a mix of The Ordinary, Skinceuticals, Hourglass and NYX.”

For indie beauty brands, it’s unclear whether Kohl’s’ affiliation with Sephora will be a boon or bust. WWD spelled out that Kohl’s will be exiting underperforming brands to clear square footage for Sephora installations. The exits could disproportionately impact emerging indie brands. “I really feel that indie brands are going to lose,” says McClay. Gottfried argues the opposite will occur. She says, “It will open up opportunities for indie brands to expand their distribution into Sephora because I think they will be looking for a wider assortment.”

Executing the type of customer service expected in a prestige environment within a value department store will be a challenge, too. Upscale beauty brands prize education and don’t favor stores that lack it. Pryde says, “Sephora has incredible training programs for employees, but, when you think about a Kohl’s employee in a place like Winchester, Va., is he or she the right person to be giving Sephora-level advice?”

The success of Sephora’s relationship with Kohl’s, however, could depend primarily on their joint commitment to making it work and their individual strengths. Speaking of Kohl’s, Parkkinen says, “Right now, they are investing in beauty and recognize the important of it. What happens if the department store changes strategy and decides other categories are more important?” Hogan says, “A lot of it will rest upon how Kohl’s does as a retailer on its own. As we have seen with J.C. Penney, Sephora can’t carry it. If Kohl’s can bring along its end of the bargain and be the kind of resurgent retailer people expect it to be post-COVID, the partnership is expected to do well.”

As competitors to Ulta, Sephora, Kohl’s and Target take their shots at the beauty industry, there could be further retail marriages. McClay proposes a collaboration between QVC and Walmart could be interesting. Hogan says Walmart is climbing a steep hill “trying to build credibility in the beauty space from the ground up rather than partnering with someone who already has credibility. Who knows, we could see another partnership come from Walmart, but it will be a challenge for retailers trying to get into the beauty space now that they don’t have the luxury of partnering with two of the retail leaders.”

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