Source: Kohl’s
How big a win is Sephora for Kohl’s?
Just two weeks into the rollout of the initial 200 Sephora in-store shops, Michelle Gass, Kohl’s CEO, said the partnership is showing the potential to offer benefits in a myriad of ways.
According to Ms. Gass, the Sephora in Kohl’s shops 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.”
Asked by an analyst if Kohl’s expected a similar sales uplift as when Amazon Returns were introduced to stores, Ms. Gass said both moves support traffic but described the comparison as “a little apples and oranges” because the Sephora partnership is “fundamentally transforming our brand and our business.”
“We’re finally in the beauty business,” she 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.
- Kohl’s Reports Third Quarter Fiscal 2021 Financial Results – Kohl’s
- Kohl’s (KSS) Q3 2021 Earnings Call Transcript – The Motley Fool
- Kohl’s and Sephora Announce Major Long-Term Strategic Partnership Bringing Transformative Prestige Beauty Experience to Millions of Consumers – Kohl’s
- Sephora to set up shops in 850 Kohl’s stores – RetailWire
- Will Kohl’s be known for something other than its retail partners? – Kohl’s
Discussion Questions
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?
Poll
Loading …BrainTrust
Kathleen Fischer
Director of Marketing, Körber
Bill Hanifin
CEO, Hanifin Loyalty LLC
The most encouraging sign is that Kohl’s is expanding to an additional 400 locations. Unfortunately, the use of hyperbole is still part of the CEO’s playbook, so I’m not sure this is “transformational,” but the fact is the Sephora partnership appears to be successful on all accounts, and the fact that Kohl’s is expanding is proof positive of that.
Hyperbole for sure. “extraordinary growth” in Kohl’s beauty business — I wonder what the base was.
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.
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 returns 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!
That’s really the key – that Kohl’s elevates their own product offerings. Looking around their stores recently I was disappointed at the quality and selection in every category outside of their Sephora section.
Beauty is a great point of entry into representing the customer and attracting Sephora lovers into Kohl’s. Now Kohl’s is in the spotlight – can they capitalize on the footfall and revamp their merchandising strategy? Will they truly partner with Sephora to capture customer feedback and insights to drive product decisions and get customers to shop the rest of the store? All this remains to be seen and retailers need to push the envelope and get to know what is going to drive their customers to shop the entire store.
Sephora’s iconic brand status offers Kohl’s tremendous image uplift and it is encouraging to see the initial bump. If the remainder of the store can clean up its look, then Kohl’s has a real chance to outperform its guidance.
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.
I don’t remember any gushing about comps when the Amazon returns counter was added to Kohl’s stores, and I would have thought that would be the bigger draw. So let’s see what the 4th quarter comps are in the Sephora and non-Sephora stores. The mere fact that Sephora landed in Kohl’s after leaving J.C. Penney is a huge competitive win in and of itself. How many customers will J.C. Penney never see again that will convert into Kohl’s shoppers?
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.
Is Sephora a big win for Kohl’s? Yep, and I think in a big way. With this in-store addition to the Kohl’s selections, the Sephora brand of products will be much closer to many customers in their own markets. Smart move Kohl’s and Sephora!
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.
The Sephora venture will add a rounding error to Kohl’s P&L. Eventually adding Kohl’s locations to Sephora’s 500 will be a nice bump for Kohl’s.
But here is my big question. Will the associates working in Kohl’s know the cosmetics business like those in the Sephora stores themselves do?
This — if the store-within-a-store does not offer the same type of knowledge as the regular stores do, then it’s not the same experience, and the customer feels slighted.
I love the move and it shows the power of co-branding. Sephora in Kohl’s is a big brand image boost for Kohl’s and brings Sephora to new customers from their perspective.
Partnership between complementary brands is a smart strategy and one that we’ll see many brands pursue in the next year. We’ve seen Dick’s and Nike connect their loyalty programs and the Kohl’s/Sephora alliance is another strong example of this trend.
There are any number of upsides — from obvious ones like attracting Sephora customers to just generally upgrading the brand — but perhaps the biggest one is that I don’t see a downside … at least for Kohl’s.
The strategy makes sense, just as it did at JCP. But did it work for JCP? If it’s in Kohl’s, the answer seems to be “not so much.”
This strategy was also tried at Sears. “Circle of Beauty” was a silo within a silo within a silo. It didn’t work.
Kohl’s is neither JCP nor Sears. In fact, it’s very different from both. That said, has Kohl’s learned from those experiences and is it doing everything it can to, at a minimum, not make the same mistakes?
Business done for fun is better left undone.