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Beauty Inc issue 12/12/2014

For all of the gnashing of teeth over the future of department-store beauty retailing, the solution was clear as day, right in the middle of central London, earlier this year. There, on Oxford Street, the 105-year-young Selfridges staged a six-week store-wide happening called The Beauty Project. A huge sign over the main entrance proclaimed, “Hello Beautiful” in hot pink, while inside, customers found an inclusive, experiential, experimental wonderland devoted to beauty in all of its manifestations. There were seminars and workshops and hair, makeup and nail services; there was product customization and in-store experiences designed to create new pathways to purchase.

This story first appeared in the December 12, 2014 issue of WWD. Subscribe Today.

“It was stunning,” rhapsodizes WSL Strategic Retail chief executive Wendy Liebmann. “It was ‘everybody is welcome.’ It was transgender, it was gay, it was old, it was young, it was taking the propositions of Dove and MAC and broadly saying, ‘We are the beauty business and everybody is welcome.’”

As the beauty industry gears up for a wave of department store openings over the next 12 to 36 months, coming at a time when the channel is facing unprecedented challenges, the need for all retailers to convey such a strong message is more urgent than ever. Consider that although the prestige beauty market in the U.S. has had a relatively healthy 2014, with total sales up about 4 percent according to The NPD Group, department stores lagged, with some key categories notching just negligible gains. This as Macy’s has just opened a new store in the Bronx and plans international expansion in Abu Dhabi; as Bloomingdale’s debuts a new, smaller format in Palo Alto, Calif.; as Saks Fifth Avenue plans a new Manhattan store downtown at Brookfield Place, a renovation of its Fifth Avenue flagship, as well as seven stores for Canada, with the first set to open next fall in Toronto; as Neiman Marcus readies its first New York City outpost, at Hudson Yards, for 2018, and as Nordstrom continues its ambitious expansion plans with five stores planned for Canada—the first just opened in Calgary—and a New York flagship on 57th Street for 2018.

Is the world ready for so many new department stores?

Maybe, say experts inside and outside of beauty—provided the retailers are willing to evolve along with the consumer base they hope to attract. “You change or die,” says John Demsey, group president of the Estée Lauder Cos. Inc. “There is a shift taking place in the world right now. This was a world that was owned by the Baby Boomer. It is increasingly a world owned by the Millennial and the Boomer. That shift has fundamentally affected what the department store is about,” he continues. “With the advent in the last 15 years of fast fashion like Zara, of category killers like Sephora and Victoria’s Secret, all taken with the backdrop of e-commerce, social media and online search, the department store no longer exists in a vacuum.”

Paco Underhill, the founder of Envirosell and author of “What Women Want” believes American retailers must transform themselves into destinations, as Selfridges in London and Le Bon Marché in Paris have done; he describes both stores as “temples to luxury consumption.”

“For all of the disparity in terms of the rich and poor, there is a class of people desperately looking to spend their cash,” he says, noting U.S. department stores, in particular, have lagged when it comes to effectively targeting international shoppers. “Part of the problem is the stores are often very data focused, which means they are backing into the future, rather than facing it.”

The answer to the department-store dilemma seems to lie both in the past and the future. Retailers must reach back to the genesis of the format, when they were truly merchants, to rediscover their raison d’être, while harnessing the power of emerging technologies to increase their relevance with future consumers. “Department stores used to be much more social places,” says Ron Pompei, the founder and creative director of Pompei A.D., a design and branding firm that has created retail environments for companies including Coca-Cola, Disney, Anthropologie and C. Wonder. “They need to take a much more cultural approach to the marketplace, not just a commercial approach. People need a reason to go there, whether it’s a launch or a performance or an exhibit or event. It’s not just a matter of walking around looking at product on a shelf. That is a very old model.”

The Future Laboratory took just such an approach at Selfridges, where it created a renegade way to sell fragrance as part of The Beauty Project. Called Fragrance Lab, customers paid 65 pounds, about $100, in advance for a one-on-one consultation with an expert who would choose a fragrance for them. A 50-ml. bottle of the chosen scent was included in the price. According to Chris Sanderson, ceo of Future Lab, out of the more than 2,000 people who participated in the program, only 30 bottles of fragrance were returned. “Fragrance selling is traditionally at the forefront of the store, because it’s one of the most profitable areas of commerce,” he says. “But the market is subsumed with newness and most of us enter the department store with dread, because we know we have to get through [fragrance], rather than seeing it as interesting and welcoming. You have to change the customer experience.” (He says if he were opening a department store today, fragrance would definitely not be near the front door.)

The advent of e-commerce has accelerated the importance of department stores providing a heightened experience, particularly for Millennials, who have rejected undifferentiated, commoditized environments. “For someone to go to a brick-and-mortar store today, there has to be a unique environment that has character, a narrative, something that is worth seeing,” says Jeremy Barbour, the founder of Tacklebox Architecture. Barbour’s clients include Owen, a hip unisex boutique in Manhattan’s Meatpacking District whose walls and ceilings are covered with 25,000 brown paper lunch bags, and Aesop, where Barbour used 2,800 copies of the New York Times cut into 400,000 strips that were then stacked and bound to create “walls.” The individuality of the surroundings are reflected in the evolution of how stores stock and merchandise products. “You have to define an event space,” says Barbour of department-store design. “There is less pressure for brick-and-mortar stores to carry every available item all of the time and instead transition to unique items that are store exclusives. The store becomes a launching pad and way to connect with the larger inventory that is online. More and more sales will happen online and the physical environment will be used as a way to connect with the consumer. The hope is the experience and the advocacy will extend beyond the walls of the store.”

That’s a strategy that has certainly paid off for Apple, where square footage devoted to learning and play is significantly larger than that devoted to the merch. Sanderson points out that Apple generates the highest sales per square foot of any store on Fifth Avenue in New York. “A computer brand! On one of the world’s most luxurious avenues,” he exclaims. “Surely this is telling you something!”

Pompei believes that department stores have an advantage in beauty over specialty retailers because their sheer size allows them to create experiences not possible in a smaller store. Some of his ideas focus around creating a more interactive experience for shoppers, such as recording and archiving at-the-counter makeovers (customers would have to opt in, of course) that other women could access and be inspired by, as well as department stores becoming more adept at facilitating social media conversations that allow shoppers to share what they’re doing with their network and receive responses in real time.

Sanderson believes that beacon technology, which can enable a smartphone to perform a specific action when it comes into proximity with a beacon, provided the user has opted in, will fundamentally transform how people shop in the relatively near future.  Such technology would enable a retailer to know who is coming into the store, what that person likes and doesn’t, where they last shopped. “One hundred years ago, you went to a store and they knew you by name. That’s potentially what we’re returning to,” he says. “It’s no different than the mom-and-pop mentality that many of us believe great retailing is all about.

“The technology is all about push and pull and creating relationships,” Sanderson continues. “If I don’t want that level of relationship, I simply don’t buy into it. But if I tell the store I like the brand, I am letting them know I am walking through the door. Any store that doesn’t jump on the opportunity to create that relationship is a store that doesn’t deserve my dollars.”

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