Kohl’s Department Store is taking aim at Ulta Beauty.
The retailer, which is often located in shopping centers in close proximity to Ulta doors, wants to do more than simply sell beauty. It wants to be a destination for the category, with an expanded department that features prestige brands.
The category has taken on a new importance at the midtier department store as Kohl’s aims to reinvigorate its store base and grow sales by $2 billion over the next several years. The goal is to reach $21 billion in 2017.
“Beauty is an element of a broader strategic framework that we refer to as our ‘greatness agenda,’” said Kevin Mansell, chairman, chief executive officer and president of Kohl’s. “Beauty is considered a bold move within that strategy. It’s one of the few [categories] that cross over all the pillars,” which he listed as amazing product, personalized connections, easy experience and winning teams.
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The strategy comes at a pivotal time for Kohl’s, as sales have fallen off in recent years. Sales were flat in 2014 at $19.02 billion, compared with $19.03 billion the prior year, and declined 1.3 percent in 2013. The company spent 2014 putting its business under a microscope.
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As a result, Kohl’s has scrapped its previous iteration of beauty, which it had installed a decade ago. With the exception of fragrance, it consisted almost entirely of a trio of exclusive brands created by the BeautyBank division of Estée Lauder Cos. Inc. called Flirt Cosmetics, American Beauty cosmetics and Grassroots skin care. Lauder later created for Kohl’s a color collection from designer Vera Wang called Simply Vera, which was launched in 2012.
But the department lacked pizzazz and staffing. Testers, in some cases, were missing or in need of cleaning and shelves were often in disarray.
Kohl’s and Lauder ended their partnership last year. Lauder declined to comment.
“The customers didn’t respond [to the assortment],” Mansell said. “It didn’t engage them. We are going after credible, highly recognized brands. That’s what motivates the Kohl’s customer,” he said.
In its place, Kohl’s has built an expanded department, ranging from 500 to 800 square feet in size, filled with better-known brands — mirroring the strategy it has used across the store.
Kohl’s new vision for beauty includes a larger footprint, enhanced lighting and backlit graphics and fixtures, tablet-wielding beauty advisers, makeover stations and a broader assortment, which includes Bliss, Lorac Cosmetics, Cargo Cosmetics, Pür Minerals makeup and Fekkai hair care, among others. Categories within the department include fragrance, color cosmetics, skin care, beauty tools, nail color, and bath and body. Kohl’s has spent the past two years expanding the department to make room for more than 30 new brands.
“We have always had a strong fragrance business,” Mansell said. “Skin care, color cosmetics and devices are where we are trying to make a difference.” He acknowledged a number of the beauty brands in the mix may be smaller in size, but said “they are all growing in importance.”
At the Kohl’s store located in Caesar’s Bay shopping center in Brooklyn, N.Y., brands such as Lorac and Bliss were front and center. A beauty adviser, dressed in black and toting an iPad, ticked off the top sellers: Lorac Pro Palettes, Cargo HD Picture Perfect Liquid Foundation, Bliss Fabulous Foaming Face Wash and fragrances from Rihanna, Nicki Minaj and Jennifer Lopez.
Lorac founder Carol Shaw said brisk sales of its $42 Pro Palette proves that the usually deal-driven Kohl’s customers have a sharp appetite for higher-priced, prestige beauty products.
“Kohl’s has very big ambitions for beauty,” Shaw said. “It loves beauty and the fact that it is committed to roll it out to all doors demonstrates that.”
Kohl’s has outfitted approximately 500 of its 1,164 stores with the expanded beauty department. Mansell said it will accelerate the pace of the rollout to all its doors by yearend — a year earlier than previously planned.
It’s a move designed to polish the retailer’s image, but also to grow sales.
Mansell said the revamped beauty departments are already pulling their weight. In stores outfitted with the new concept, he said, “In general, we’ve seen lifts of 150 to 200 basis points, or 1.5 to 2 percent in overall store sales.”
Beauty may also help lift Kohl’s image as well, and strengthen its ability to attract well-known brands across its various departments.
“As Kohl’s elevates beauty, it does provide a halo effect for the brands outside the category. It serves as a portal to Kohl’s national branding strategy,” said Piper Jaffray analyst Neely Tamminga. “We think the prospects for Kohl’s to acquire more brands for their footprint is very good,” she said.
She estimated that beauty accounts for less than 1 to 2 percent of Kohl’s total sales, which translates to a range of $190.2 million to $380.5 million. She forecasted that the new format could help beauty grow to 3 to 5 percent of sales over the next several years.
For beauty brands, particularly those without the scale or financial might to do business in department stores, Kohl’s offers an avenue to expand distribution by nearly 1,200 doors.
“They want to be the place where American women go to shop for beauty,” said Drew Surwilo, ceo and cofounder of Atlantic Coast Media Group, which launched Christie Brinkley Authentic Skincare at Kohl’s in March for a six-month exclusive. It also sells its Miracle Skin Transformer and Hydroxatone brands at Kohl’s. Surwilo said he was sold on the concept when he saw the renderings of Kohl’s plans. “It’s coherent, it’s beautiful and they are training employees. Kohl’s is definitely on the right track,” he said.
Kohl’s beauty play also puts the retailer in the middle of a heated battle between Ulta and Sephora, which has intensified as the former has attracted venerable prestige brands to the mix.
“Beauty helps drive traffic and is a category where brands are important,” said Cowen & Co. analyst Oliver Chen. “The challenge that Kohl’s may face is that there’s tension around which retailers get the best brands.”
Sephora has not been timid about dropping brands that expand to chain stores. When Fekkai entered Walgreens in 2009, Sephora immediately cut off ties with the brand.
Bliss, which also was previously sold in Sephora, has found a home in Ulta and more recently Kohl’s.
It began entering Kohl’s doors in March, and plans to dramatically expand the partnership later this year as it begins to introduce its new lifestyle collection of color cosmetics, candles, home fragrance and apparel. And those categories, said Bliss World president Mike Indursky, are just the starting point.
“Kohl’s was the one retailer that could really show everything together,” Indursky said. “We have the ability to have our vision go across multiple categories.” He noted that Kohl’s is the licensee for Bliss apparel, which will be exclusive to the retailer.
“The retailers that allow brands to tell their stories will be the winners,” Indursky said.