Big-box retailers and legacy department stores rethink the beauty customer experience

Big-box retailers are aggressively upgrading their beauty offerings to attract returning in-store shoppers and younger, digital-first consumers. The “shop-in-shop” partnerships that are bringing Ulta into Target and Sephora into Kohl’s locations can also have a positive impact on ecommerce sales, as consumers may go online to replenish items they bought in-store.

• Target’s website and app have dedicated sections for Ulta brands, as well as features like virtual makeup try-ons and live chat with beauty consultants. The partnership also comes with the promise of “double points” available through both Ulta’s Ultamate Rewards and the Target Circle loyalty program.
• Walmart’s US partnership with UK prestige beauty retailer Space NK launched with online-only sales in March but will be followed by store collaborations in 250 US Walmart locations over the summer.

Department stores, once a principal sales channel for high-end beauty products, have had their market share eroded by new players. It’s a trend that began well before the pandemic, and it’s shifted into higher gear since.

These retailers are repositioning themselves accordingly. Kohl’s has made the most radical change by replacing store beauty departments with Sephora shop-in-shops, and it’s on track to have at least 850 in place by 2023, covering roughly three-quarters of its store count.

Others are exploring new paths for growth on the ecommerce front. In 2021, both Macy’s and Saks (the newly spun-off ecommerce unit of Saks Fifth Avenue) announced plans to launch online marketplaces to generate revenues while expanding the depth of their product offerings.

Retail media networks are another route for department store operators to increase revenues via beauty brands. Though this is an increasingly crowded and competitive field, department stores can boast an audience of potential customers that is more appealing to beauty brands.

• Macy’s Media Network, launched in August 2020, is already generating more than $35 million annually with what CEO Jeff Gennette billed as “a new fashion and beauty publishing model” in a recent earnings call.
• Nordstrom began testing retail media in 2019 with off-site campaigns for brand advertisers. After launching on-site sponsored ads in Q4 2021 and reporting $40 million in ad revenues from hundreds of brand partners that year, Nordstrom now plans to further expand its retail media network.

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