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The Evolution of Beauty Retail: Who’s Gaining Share, and Who’s Losing It

E-commerce, curbside pickup, Ulta Beauty with Target and Sephora with Kohl’s. The beauty retailing shifts you should pay attention to for 2021.

The beauty retail landscape is poised for further evolution in 2021.

In 2020, beauty shopping changed, largely because of the onset of the coronavirus pandemic, which had consumers shopping for everything from moisturizer to perfume online versus in stores.

A dizzying logistics puzzle ensued, as well as an industry-wide scramble to implement curbside pickup and buy-online-pick-up-in-store options. Then came the new partnerships — Ulta Beauty with Target Corp. and Sephora with Kohl’s Corp.

Sephora is partnering with Kohl’s to open 850 shop-in-shops in three years. courtesy

“There are so many retailers that want to get a slice of this beauty market, including Target with Ulta and and including Kohl’s with Sephora,” said Neil Saunders, managing director and retail analyst at GlobalData Retail. “A lot of these retailers see it as a way to increase the appeal of their stores, make them more of a destination, increase the productivity of their stores by bolting on beauty.”

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Those two deals are expected to have the biggest impact on the beauty retailing environment going forward, experts said, with all retailers involved taking beauty market share from department stores and drugstores. Retailers are also expected to work to improve their online shopping experiences, as well as smooth out the curbside pickup and buy-online-pick-up-in-store processes.

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“This is a trend that’s here to stay, store within a store,” said Unilever president of beauty and personal care, Sunny Jain, during an interview with WWD’s Jenny B. Fine during the Beauty Inc Awards event. He added that partnering up to invent on behalf of consumers is the way forward.

“For both Kohl’s and Target, it keeps them relevant, and for Sephora and Ulta, it allows them to reach a whole new demographic of customers,” said Mousumi Behari, a retail and e-commerce expert at Avionos. “It’s only going to increase their sales.”

The Ulta-Target partnership is meant to help Ulta gain market share and secure more of the beauty shopper’s wallet, Ulta chief executive officer Mary Dillon told WWD when the deal was unveiled. Some of Ulta’s prestige brands will be sold in 100 Target doors in 1,000-square-foot shops-in-shop, as well as online.

For Sephora, teaming up with Kohl’s adds access to shoppers outside of declining mall settings. Sephora has significant exposure to malls with its own stores, as well as through a long-standing but ending partnership with J.C. Penney. With Kohl’s, Sephora will open 850 2,500-square-foot shops-in-shop over the next three years, and launch on the Kohl’s website. Jean-André Rougeot, ceo of Sephora Americas, said the partnership is also expected to help Sephora gain market share.

“If you take 850 stores and multiply by X million — it is a lot of money,” he told WWD.

Dillon and Rougeot may be able to pick up market share from department stores, as well as drugstores, experts said.

“The main channels that potentially lose out over the next few years [are] definitely the drugstores, they haven’t done anywhere near enough to bolster their beauty credentials, mass merchants lose out a little bit of market share…and department stores as well,” said Saunders. “Kohl’s may grow, but I don’t think Macy’s and Nordstrom are going to see much growth in beauty.”

Saunders does indicate that the deals are not entirely without risk. Historically, there have been roadblocks to lower-end retailers carrying higher-end products.

“There is this weird psychological barrier that goes something along the lines of, ‘you know what, I’m not going to put a $30-plus moisturizer into my basket because it’s going to push up the cost of this shop quite a lot.’ However, the same customer, even on the same day — we’ve done studies on this — may go to Ulta or Sephora and buy that same $30 product because it’s a separate transaction in their mind,” Saunders said.

Right now, that customer may not be going out in person to do much shopping at all. Jefferies analyst Stephanie Wissink said despite the positive vaccine news, she anticipates shopper apprehension around going into physical stores next year. That caution could mean that some of the e-commerce sales gains the beauty industry saw during the pandemic stick around long-term.

“COVID[-19] has accelerated the digitization of retail broadly. Companies like Target and Kohl’s that are a little bit more general merchandise are going to have an advantage over a traditional specialist in terms of consolidation — building a single basket with a single shop for curbside pickup,” Wissink said.

Beauty retailers should create an estimate for e-commerce sales going forward, then build out operations around that, said Janet Gurwitch, a former Neiman Marcus executive and operating partner at Advent International.

“For the retailers, the question is what percent of their business do they perceive will be of e-commerce, because they need to improve infrastructure and keep their sites extremely exciting and probably move people from other areas,” Gurwitch said, estimating that for some beauty retailers, e-commerce could perhaps make up roughly 40 percent of sales coming out of the pandemic.

“The market is still very big. The question is, what will be the right size for everything?” Gurwitch said.

Beauty retailers should revamp digitally enabled experiences going forward, like buy online, pick up in store and curbside pickup, with branding and customer service carefully implemented. Those options were put in place in a hurry and are often riddled with friction points for consumers, experts said.

“We’re set up in terms of infrastructure, but I don’t think we’re sophisticated or efficient,” Wissink said.

In a recent curbside pickup experience at Ulta, Wissink said she had to call the store again despite having indicated her arrival previously and park in the fire line with her hazard lights on until an employee put her order in the front seat of her car. Overall, the experience left much to be desired.

“I’m a platinum loyalty member in your system. You haven’t said, ‘hi, how are you?’ You haven’t addressed me by name, [asked] ‘did you get everything you were looking for today, is there anything else I can bring out,’ [or said] ‘here’s a couple of samples for you, thanks for being a platinum member’ — none of that,” she said.

“A lot of people use online for convenience. As soon as you start putting friction in place it becomes really unattractive. There is friction for the beauty specialists on that front,” Saunders said, noting that experiences around prestige beauty should be more elevated.

They should be more personalized, too, according to Behari, who noted that customization is more easily executed online than in stores.

“I see e-commerce getting smarter, doing a lot more product recommendations. ‘You’ve tried the hair shampoo, why don’t you try the conditioner.’ I see e-commerce going more toward personalization,” Behari said.

Added online personalization gives retailers the opportunity to differentiate that experience from IRL shopping, Behari noted. “You can’t offer personalized recommendations to people when they walk into a store. That would be creepy,” she said.

Experts said there will still be a place for brick-and-mortar in beauty shopping, especially as it becomes more viable for customers to spend more time in stores experimenting with higher-end products. Behari experts to see more “showrooming,” which could help elevate brand stories and connect consumers with brands in retail environments.

Digital tools are expected to play a bigger part in beauty retailing, too, as virtual try-on offerings expand in the wake of in-store testers. Ulta, for example, is launching Glam Lab try on in Target as part of its shops-in-shop there.

“You’ll also start to see more sample sizes of skin care and hair care, things that you can’t really try on by a virtual app,” Behari said.

In stores, retailers should focus on creating environments where shoppers want to be.

“The top beauty retailers will have to create excitement and energy in their brick-and-mortar. They’re going to have to do some things differently to invite the consumer back,” Gurwitch said. “There still will be both channels, it’s just the percentages will be re-weighted and you have to study by location what are your strongest locations.”

Some stores may need to close — Wissink noted there is a surplus of beauty-shopping square footage in the U.S.

“The future of real estate in retail is going to be partnership, not shovels in the ground,” she said.

For more from WWD.com, see: 

Sephora and Koh’s Sign Long-Term Partnership

Target and Ulta Beauty Team Up

Racism at Retail: Beauty Segment Needs to Revamp, and Fast