The announcement this week that Sephora would open shop-in-shop departments within about 200 Kohl’s stores starting next fall is a redefining game-changing moment in both the specific beauty space but also in the larger general merchandise channel for so many reasons:
• For Kohl’s, it gives them a high-profile prestige brand that will attract a new demographic to its stores. And with the ultimate goal of having Sephora shops in up to 850 of its stores Kohl’s will prove it can scale up a partnership, something it has failed to do so far with tests with Planet Fitness and Aldi.
• For Sephora, it provides a new outlet as the retailer looks to find off-mall distribution for its products. As shopping center traffic continues to decline the Kohl’s real estate becomes more attractive, a cornerstone of the company’s strategy going forward.
• For JCPenney, which has had a similar deal with Sephora going back more than a decade to the Mike Ullman era, it’s the beginning of the end of this partnership following bankruptcy-related renegotiations of its contract. This is a big hit for Penney which desperately needs a marquee third-party brand like Sephora to anchor its own weak in-house beauty offerings. The retailer will need to come up with a replacement and the pickings are slim out there right now.
• And for Target and Ulta, which linked up in a similar arrangement earlier this year, it’s of course affirmation that the model is the right one but it also provides a stronger competitor to each of them. Target and Ulta still have the upper hand in this race due to scale and the former’s inherent strength in the marketplace but it does heat things up a bit.
• For everyone else fighting it out in the mid-tier beauty space — department stores like Macy’s, Dillard’s and Belk as well as drug chains likes CVS, Walgreen and Rite-Aid — it changes the playing field…and not necessarily in a good way for them. One-stop shopping in the pandemic (and post-pandemic) era will continue to be an attractive proposition for many shoppers.
Most of all, this Kohl’s-Sephora deal addresses the elephant in the virtual room: beauty products are one of the last bastions of physical retailing in its battle to retain market share versus e-commerce. Beauty customers may place reorders online but when it comes to most of their shopping, they want to do it in person, to see how the make-up looks on their face, smell the fragrance and generally interact with the salesperson-cum-beautician.
It’s why the beauty category is so key for all retailers in this sector. It’s why this deal is much more than just skin deep.