SEPHORA TAKING AIM AT DEPARTMENT STORES

Byline: Sharon Edelson

NEW YORK — Sephora, the French perfumery chain, set the beauty industry on its ear by challenging the dominance of department store cosmetics counters. Not only did Sephora open a large store at Rockefeller Center last year, directly across from Saks Fifth Avenue, it’s said to be eyeing a site across from Bloomingdale’s.
And more immediately, Sephora is closing in on Macy’s Herald Square.
Howard Meitiner, president and chief executive officer of Sephora USA, on Wednesday said the company was signing a lease for a four-story, 16,000-square-foot building at 130-132 West 34th Street, opposite the Macy’s Herald Square flagship.
While the move appears to be in keeping with a strategy to open units near major department stores, Meitiner disagreed and said the location had nothing to do with department stores. “It’s going where the customer is, whether that’s a mall or a street,” he said.
“Thirty-fourth Street should be a very important location for Sephora,” Meitiner added. “If you look at all the excitement that surrounded our opening on Fifth Avenue opposite Saks Fifth Avenue, we have proven to be complementary, not competitive to Saks.”
Saks executives were traveling and could not be reached for comment. But Meitiner said vendors of both Saks and Sephora had told him their business at Saks hadn’t declined. “What we have in place here is the gas station syndrome,” he said. “If you have a gas station on one corner of a crossroads and put another gas station on the other corner, both will do better.”
Sephora’s 34th Street store will be directly opposite Macy’s — there’s even a traffic light and crosswalk leading from Macy’s to the entrance of the building where Sephora will open.
The building, which had been leased by Venator, consisted of several stores, including Today’s Woman and American Video and Camera, with the New Hankow Chinese Restaurant on the second floor.
Meitiner said Sephora would use 8,000 square feet for retail space. The company’s marketing offices may be moved to the upper floors.
Meitiner declined to provide a volume projection, saying only, “It’s fair to say that we have very aggressive plans for this location.”
Sephora, which is owned by LVMH Louis Vuitton Moet Hennessy, does not break out sales figures. However, sales for the selective retailing division grew 21 percent in 1999 to $2.2 billion. The growth was attributed to the turnaround in the DFS business and Sephora store openings in the U.S. and Europe.
Sephora has a history of sidling up to competitors. Whether or not Sephora had a direct effect, its move to Rockefeller Center unnerved Saks, which has been placing emphasis on its beauty business in recent years.
Adding to the competitive heat was the fact that Sephora’s parent, DFS, poached several key Saks executives, including Brian E. Kendrick, who had been the number-two executive at Saks Fifth Avenue. He became president and chief executive officer of DFS Group Ltd. in 1998, but has since left the company.
Steve Bock, another Saks recruit, is the executive vice president who is heading merchandising for Sephora in the Western Hemisphere. He had been an executive vice president at Saks with responsibility for beauty and other businesses.
But Sephora has its own issues with Federated Department Stores, the parent of Macy’s. In February, a U.S. District Court judge granted Sephora’s request for a preliminary injunction against Federated, temporarily barring the department store powerhouse from opening more cosmetics departments or stores that allegedly copy the Sephora concept.
Barring a settlement, a trial will decide the case. For the last six months, the two retail giants have locked horns over Federated’s rollout of open-sell cosmetics departments and stores. Sephora claims they’re a knockoff of its own store design and shopping experience, while Federated claims it’s done nothing wrong.
With five stores in Manhattan — the locations are SoHo, the World Trade Center, Rockefeller Center and Times Square — Sephora is by no means finished growing in the city.
Sephora leased an 8,400-square-foot store at 119 Fifth Avenue on the corner of East 19th Street in the Flatiron district. Meitiner said the company was planning a July opening.
“We’re hoping to open a store either on the Upper West Side or Upper East Side this year. We plan to continue to open stores in Manhattan until we reach a point where we feel we are covering the island in an effective way.”
Sephora is said to be considering the Alexander’s site across from Bloomingdale’s on Lexington Avenue between 58th and 59th Streets.
“We’re interested in all good sites,” Meitiner said, when asked about the Alexander’s property. “We have to be careful not to plagiarize our existing businesses. Any new stores we open have to drive incremental business. That’s a delicate balancing act. If you look at Gap, they have taken the position that they can afford to be in a lot of places. We do not see anything near that degree of density.”
While Sephora sells some major brands, big guns like Estee Lauder and Lancome have been reluctant to supply the chain in certain locations. Meitiner said Sephora offers different assortments in different locations, adding that the fact that certain brands might be absent from Rockefeller Center or 34th Street was not a drawback.
“What we find is that it’s not so much the brands themselves that are the key,” he said. “What’s important is that the shopping experience is clearly different from what customers can experience elsewhere. In SoHo, we have more of the leading prestige brands. It’s a different mix than Rockefeller Center, where we have more of a differentiated assortment.”
Still, Meitiner said the amount of overlap with Saks at the Sephora Rockefeller Center store is “a reasonable percentage.” Estee Lauder and Lancome are not sold at that location, but the store carries Prescriptives and Stila.
“What we’re offering is quite different from what Saks is offering,” Meitiner said. “We’re offering a style of shopping and an experience, so even if we’re selling the same brand, we’re selling it in quite a different manner.”
Color cosmetics account for the majority of sales, but Meitiner said fragrance had been gaining ground.
“We have very strong growth in the well-being and fragrance areas. We recently introduced Cosmair fragrances into all of our stores. Everything’s developing. We have 10 new brands coming to see us each week. We’re very pleased with the progress.”
Sephora plans to showcase some new concepts at the 34th Street store, Meitiner said.
“We are looking to further enhance the range of services in the well being area,” he explained. While he declined to be specific, Meitiner hinted that there might be expanded testing of treatment products such as mini facials or hand massages.
“We can’t be a spa and don’t want to be a spa, but we think there are ways to build on freedom and discovery in an area such as well being to make shopping a more interesting and entertaining experience,” Meitiner said.
“The great thing of having well over 50 stores is that we can test different things in different parts of the country. When we have a good idea, we say, ‘Let’s try it in this store.”‘
Sephora is continuing its expansion march across the U.S., in malls and downtowns. The company will open stores in Dadeland and Boca Raton, Fla. this year, and a megastore is slated for the new Aladdin Hotel and Desert Passage shopping complex in Las Vegas.
Having established its name in the U.S., Sephora sees an opportunity to enter smaller markets.
“We’re seeing a 20 percent comp-store sales growth, which is an indication that brand awareness is building, and building strongly,” Meitiner said. “As brand awareness builds, we can look at other parts of the country.”
While the impact remains to be seen, the Sephora store on 34th Street will be yet another in a series of competitive challenges to Macy’s.
In August, Old Navy Clothing Co. opened an imposing four-level, 80,000-square-foot store on 34th Street, between Sixth and Seventh Avenues, directly across from Macy’s. Still, Old Navy is just a fraction of the size of Macy’s Herald Square flagship, which has more than one million square feet of space.
Macy’s is in the midst of a $150 million renovation and the company clearly has noticed the competition. A Macy’s Sport department was introduced on the lower level with many similarities to Old Navy. The area features a new fleece collection from Nike. Fleece happens to be one of Old Navy’s key categories.
The quality of retailers along the 34th Street corridor has been upgraded in recent years by national chains such as Banana Republic, which opened in 1998 and has since expanded its West 34th Street unit to 21,000 square feet.
Gap has found much success on 34th Street. Its 50,000-square-foot combination Gap, GapKids and BabyGap on the corner of 34th Street and Sixth Avenue is widely considered to be the most successful store in the entire chain.
But retail analysts credit Old Navy with playing a major role in the continued vitalization of 34th Street.
In the last three years, the street, which was once populated by discount stores announcing going-out-of-business sales, has attracted some upscale tenants to the neighborhood. The Disney Store, The Children’s Place, Le Chateau and Aldo have opened stores on 34th Street in recent years. Zara opened a store on the north side of 34th Street between Fifth and Sixth Avenues in December.
“With Zara and Old Navy coming to 34th Street and an H&M scheduled to open, the whole dynamic of the trade area is changing,” said Richard B. Hodos, president of HGCD Retail Services LLC.
Hodos also cited redevelopment projects on the horizon, such as the southeast and southwest corners of Seventh Avenue and 34th Street, properties such as Reese Restaurants and the GreenPoint Savings Bank, currently owned by Vornado. Those projects will ultimately tie into Manhattan Mall.
There is also a proposal to develop the U.S. Post Office, one block west on Eighth Avenue, with a retail component. “The quality of tenants is going to continue to improve.”
Along with a higher grade of tenants come higher rents. Hodos said prices were up 30 percent from five years ago, to between $150 and $200 per square foot.

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