In the battle for beauty market share, the opening salvo has been fired.
The first Sephora at Kohl’s, a partnership between the LVMH Moët Hennessy Louis Vuitton-owned beauty behemoth and the midtier department store, opened in a Kohl’s store in Ramsey, N.J., on Friday. Measuring about 2,500 square feet, the shop-in-shop is located front and center in the 85,000-square-foot store, positioned squarely between the two main entrances, one of which now has a prominent Sephora sign above it.
The move has the potential to be transformational for both retailers. Kohl’s gains instant access to about 125 leading prestige beauty brands (and the customers who love them), while Sephora gains scale and a foothold in the off-mall real estate sector, which has been dominated by Ulta Beauty up till now.
“We are at a pivotal moment in beauty,” said Jean-André Rougeot, chief executive officer of Sephora Americas. “We are seeing these large movements of the top players positioning themselves for the gold medal.”
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This year alone, Ulta Beauty unveiled a partnership with Target Corp. to bring prestige beauty to that retailer, while, in addition to the Kohl’s partnership, Sephora made a deal with Zalando in Germany and bought Feelunique in the U.K., while leading U.K. e-commerce player The Hut Group acquired Cultbeauty.com last week.
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“It is quickly becoming a much smaller group of players that have a legitimate chance of leading this business,” said Rougeot. “With this move, we are positioning ourselves to be the dominant leader in selective beauty for years to come. The market share with Kohl’s is quite large.”
The numbers are indeed big — Kohl’s had 1,162 stores in 49 states at year-end 2020, with an active consumer base of 65 million people in the U.S. But the hitch is that — up until now at least — those shoppers aren’t visiting the store to buy beauty products.
“We can now be a true beauty destination,” said Michelle Gass, CEO of Kohl’s. “We’ve been working on our strategy of pivoting Kohl’s from a department store to a leading omni-retailer serving an active and casual lifestyle. Beauty is a key part of our strategy.
“All of this transformation is coming together,” she continued. “This is a new Kohl’s, more fresh. A modern, relevant experience.”
Under Gass, the retailer has dramatically trimmed its assortment, cutting 25 apparel brands and focusing on names like Nike, Adidas, Champion, Under Armour and Calvin Klein. While the Menomonee Falls, Wisc.-based Kohl’s has dipped its toes into beauty in the past, partnering with the Estée Lauder Cos. Inc. in 2004 for example on a trio of brands exclusive to the retailer, it was never able to gain traction in the category.
“We’ve done some experimentation along the way, but we haven’t ever really been in the beauty business,” said Gass. “The little we did do and the more we put in front of our customer, though, she was voting that she wants beauty at Kohl’s. Our beauty business grew 40 percent-plus over the last few years — and though it was small, it was resonating.”
Gass declined to comment on sales expectations for Sephora at Kohl’s and how beauty is expected to rank versus other key categories, but did say she expects the business to be “significant.”
“You can see the investment we’re making in the business — the store-in-store concept we built, the investment in the digital experience, the investments in marketing,” she said. “We are making a very big bet on beauty, specifically Sephora at Kohl’s.”
If this first outpost is any indication, Kohl’s has put its money where its mouth is.
“They definitely get points for the ‘wow’ factor,” said Jefferies analyst Stephanie Wissink. “It was distinctly and distinctively Sephora — everything you need and a bit more.
“Partnership works when each is allowed to do what they do best and that happened here — Sephora gets to be Sephora and Kohl’s gets to be the host, leveraging its off-mall real estate, customer loyalty and omni-platform,” she continued. “The rest of the store is brand-rich and Kohl’s-curated, but Sephora is figuratively and literally the centerpiece. It’s game on in beauty and Kohl’s brought a ‘pretty powerful’ weapon to the fight.
To that end, Sephora at Kohl’s feels like a stand-alone Sephora store, set apart from the rest of the box with its signature gondolas, signage and black-and-white color scheme, down to the striped floor. Each store will have a team of 15 Kohl’s employees manning the area who have been trained by Sephora. Even the lighting is different from that in the rest of the store.
“Lighting is crucial for the success of beauty,” said Rougeot. “This is top-notch, luxury lighting — not even all of our stores have it. This store checks the box of what our consumers and brands expect.”
As reported, the brand lineup is very robust, with about 125 brands overall and more than 8,500 stock keeping units. The space is evenly divided between skin care on the left and makeup on the right, with hair care and fragrances lining the back walls. The Sephora Collection is housed on a full wall adjacent to makeup, and multibranded Sephora merchandising areas like Beauty on the Go, Clean at Sephora and Top Picks are also featured.
Legacy brands include Estée Lauder, Clinique, Lancôme and Kiehl’s. Buzzy players like Olaplex, Fenty Beauty, Drunk Elephant, Charlotte Tilbury, Milk Makeup, Briogeo, Ilia and The Ordinary are well positioned, while newer names like Gisou in hair care and Patrick Ta’s One Size round out the offering. Fragrance features luxe brands like Tom Ford, Giorgio Armani and YSL, as well as niche players such as Nest Fragrances (the first brand to sign on, said Rougeot) and Juliette Has a Gun. Signage featuring “Clean Beauty Under $20” and “Sephora Collection Under $20” call out the value-driven aspects of the proposition.
Artemis Patrick, executive vice president and global chief merchandising officer of Sephora, noted that she and her team had an amazing reaction from the brands, and that about 90 percent of the offering in a stand-alone Sephora is represented at Kohl’s.
For their part, brands seem equally as bullish on the concept. “This new distribution that completely mirrors the high-quality experience people love at Sephora combined with Kohl’s 60-plus million database, most of whom are incremental to Sephora’s Beauty Insider program, will mean that we have a big awareness and trial opportunity with clients, but also an opportunity to build stronger relationships with existing clients,” said Tim Coolican, CEO of Milk Makeup. “We expect that this is a significant opportunity that could grow our U.S. business by at least an additional 50 percent once Sephora at Kohl’s reaches full distribution.”
Plans call for 70 Sephora-at-Kohl’s to open this month, with 200 total by yearend. That number will reach 800 total within the next few years. The size and speed of Kohl’s was one key reason Sephora chose to partner with it for expansion, rather than go it alone and open more off-mall stores on its own.
“Kohl’s is a bit of a magic wand — doing 200 stores in eight weeks is quite remarkable,” said Rougeot. “We are basically tripling the size of our fleet in two years. That’s something that this partnership allows us to do. We are getting reach, which is very important to us, at a much higher speed and we are getting it with great quality.”
Tapping into Kohl’s real estate strategy is another key advantage for Sephora, particularly vis-à-vis archrival Ulta Beauty, which has about 1,250 stores in all 50 states, primarily in strip malls.
“We are just not very convenient for most of the American population today. To be fair, Ulta has done a phenomenal job of taking advantage of that,” said Rougeot. “They are a more convenient retailer — as of yesterday. Looking forward, it’s a completely different ballgame. Completely different.”
Wissink estimates that there is overlap between Kohl’s and Ulta stores in about 70 percent of locations, and here, in this New Jersey location alone, there is an Ulta Beauty across the street and a Sally Beauty about 10 doors down in the same strip mall.
Rougeot expressed confidence that Sephora’s proposition will win in the end. “Since I came [to Sephora Americas], I’ve talked about reach and being more competitive with Ulta,” he said. “This is a very aggressive drive to offer customers an alternative. I believe strongly that when we fight head-to-head, we win. We have a better assortment, a more interesting story, better service levels.
“Ulta is a great company and I respect them for sure,” said Rougeot, who worked closely with that retailer when he headed up Benefit Cosmetics. “But I think our stores are better and the fact that we can now bring the Sephora experience to pretty much everywhere Ulta is, is a huge win for us.”
Already, online sales, which launched Aug. 1., are trending well. All categories are beating estimates, said Patrick, who noted that hair care and fragrance performing exceptionally well.
“The brands are very comfortable with this — we are already getting great feedback on the dot-com,” said Patrick. “The numbers are significantly better than forecast — well above what we expected. There is strong pent-up demand.”
Moreover, the Kohl’s shopper is not expected to cannibalize Sephora’s existing base. “The power of this partnership is scale,” added Doug Howe, chief merchandising officer of Kohl’s, who noted that 70 percent of the 65 million active customers are women. “And there is very little overlap with the Sephora shopper,” he added.
Rougeot said early indicators from online sales show that this is a consumer who is eager for what’s trending and relevant and new in the category.
“Exclusivity continues to be very important. Beauty is fun. Beauty is play,” he said. “As a consumer, you’re always looking for new.
“Patrick Ta and Charlotte Tilbury are two of the biggest successes on [Sephora at Kohl’s] dot-com thus far. I didn’t necessarily expect that,” Rougeot continued. “But the consumer is smart. The Kohl’s consumer knows exactly what is happening in beauty. She just couldn’t find those brands before, and now they are within her grasp.”
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