Just two weeks into Kohl’s rollout of an initial 200 Sephora in-store shops, Kohl’s CEO Michelle Gass said the partnership is showing the potential to offer benefits in a myriad of ways.
According to Ms. Gass, the Sephora shops in Kohl’s are driving “extraordinary growth” in Kohl’s beauty business and boosting average unit retails (AURs) in the category. “This is prestige beauty into categories that we’ve really never offered to this level,” said Ms. Gass on Kohl’s third-quarter analyst call. Early standout sellers include Fenty, Too Faced, NARS and the entry price point Sephora collection in makeup, Tatcha in skincare, Olaplex in hair care and Gucci and Armani fragrance.
Across the store, Sephora is supporting a mid single-digit sales lift to sales in stores where in-store shops were introduced and that’s expected to build in the months ahead as more customers learn about the shops.
Ms. Gass said Sephora customers are purchasing across a wide range of beauty categories and price points and tend to shop across the store. Roughly half are making purchases in at least one other category.
Kohl’s is positioning the 2,500-square-foot shops at the front of its locations, and placing growth categories, including active, alongside the shops.
In addition, over 25 percent of those shopping Sephora are new to Kohl’s. Ms. Gass said, “They are younger and more diverse, and we are successfully driving loyalty signups.”
“We’re finally in the beauty business,” Ms. Gass added. “It’s prestige. It’s making us an even more relevant, useful retailer. And then on top of that, we’re going to build a very big beauty business. So there’s a lot to like with this partnership — the traffic, getting into beauty and relevancy.”
Management plans to have an additional 400 Sephora shops open by late spring 2022 and 250 in 2023. Kohl’s owns the Sephora inventory and the two retailers share profits generated by the shops.
Discussion Questions: What’s the most encouraging sign that Kohl’s partnership with Sephora is off to a strong start? How transformative do you see the partnership potentially being for Kohl’s?
Comments from the RetailWire BrainTrust:
The fact that Kohl’s is seeing a significant lift in loyalty sign-ups is encouraging, plus its commitment to adding an additional 650 Sephora shops over the next two years.
Kathleen Fischer, Director of Retail Marketing, enVista
The latest results from Kohl’s were weak. While most retailers are seeing gains over 2019, Kohl’s is not – its sales are down 0.5 percent. This in an environment where the consumer is spending like crazy and Kohl’s should be benefiting from elevated return rates via Amazon and its handful of new Sephora shops. That tells you all you need to know. Sephora is a great win and it will attract footfall. However, unless Kohl’s improves its own offer, that traffic will not convert into substantial incremental sales. Indeed, in some stores the addition of a bright shiny Sephora shop-in-shop has left the rest of Kohl’s looking extra drab. As we saw with J.C. Penney, having a great brand like Sephora as a part of the mix does not transform fortunes!
Neil Saunders, Managing Director, GlobalData
If you haven’t been in a Kohl’s store lately, brands like Calvin Klein, Eddie Bauer, Nine West and Cole Haan represent quite a reinvention of the retailer’s positioning. The Sephora installation is the most significant move yet to capture a new and more upscale customer. The history of Sephora at J.C. Penney suggests that the shop will draw new customers to Kohl’s, but in this case there is other compatible merchandise to buy.
On a personal note, I usually point out that I worked for Kohl’s from 1982 to 2006. I started as the cosmetic buyer, and the store’s brands included Cover Girl, Maybelline and so forth. (I exited those businesses as the company sought to move away from discount and drug competitors.) It’s surreal for me to walk into a Kohl’s store today, and to find brands like Clinique and Lancome represented, but I certainly applaud Kohl’s newly ambitious approach to the category.
Dick Seesel, Principal, Retailing In Focus LLC
The success in prestige beauty is a particularly interesting callout – it’s a great reminder that most consumers cross-shop across price points. While the Sephora/Kohl’s partnership was at first a bit surprising, given the slightly different profile of consumers externally, the success of higher-end brands shows the gains of simply more eyeballs on brands. Though at first blush, it seems like Sephora is better positioned for benefit than Kohl’s.
Katie Thomas, Lead, Kearney Consumer Institute
Encouraging signs include the percent of new Kohl’s shoppers Sephora is bringing in, and that they are younger and more diverse. And the fact that Kohl’s is opening more stores signals strength too. As for being transformative, I think the other panelists are right, Kohl’s has to work on their store experience and merchandise adjacencies on the path to and within sight of Sephora and ensure they impress those new shoppers. I think understanding the insights into new shoppers and their consideration of other Kohl’s offerings is important. They should then act on those insights in a constructive way. You don’t want people coming in, making a beeline for Sephora and then leaving.
Kohl’s is making other good moves in the business operations. I am traditionally a Kohl’s naysayer but I think it is a viable shopping place for many and they appear to be trending in the right direction.
Raj B. Shroff, Founder & Principal, PINE Strategy & Design
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