Dive Brief:
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Beauty appears to be a category that a number of retailers are banking on, including department stores and drugstores.
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Department stores were once the go-to retailers for upscale beauty brands, but that changed dramatically with the success of beauty-focused specialty retailers like Sephora and Birchbox.
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Now department stores from J.C. Penney to Saks Fifth Avenue are freshening up their approaches to beauty sales to lure back customers and to drive other sales, by providing a range of experiences beyond product retail.
Dive Insight:
It was always possible to get a quick “makeover” at a department store like Macy’s, where a sales clerk would use a variety of beauty products to show off their effects. But department stores have seen their share of this market drain out to the likes of Sephora, which for years has lured customers with its accessible beauty displays and kept them with friendly customer service, and Birchbox, one of the creators of the beauty subscription model.
The competition is only getting more fierce, with Net-a-Porter sister brand Outnet's announcement that it would sell premium beauty brands at a discount in time for holiday shopping.
It would be unwise for department stores to cede this territory to their competition — it’s a $11.2 billion market in the upscale portion of the pie alone. U.S. cosmetic revenues could reach some $62.46 billion by 2016.
But they’re not. Macy’s acquisition of beauty and spa brand Bluemercury, J.C. Penney’s in-store partnership with Sephora, and other moves are bringing customers back to those department stores for their beauty products.
This puts onus back on the likes of Sephora and Birchbox. Sephora could suffer if department stores are able to offer unique products from brands not found elsewhere, but Birchbox is especially under pressure to increase its sales of full-size products. The company’s ingenious subscription model is not only being copied (by none other than Sephora) but is also sending customers to the competition for the full-size version of the products they like.
What anyone selling beauty products probably need to do is have the right mix on offer — not just of products (though that’s true) but also experiences. That “makeover” might have to be more fun, more extensive, or include more samples than before. (That Bluemercury is a spa is a plus for Macy’s, which hasn’t ruled out having such services in its stores.) Drugstore companies, especially those expanding their health care offerings, could have dermatological services or health-related products on offer.
"Department stores face competition from everywhere within the retail spectrum," Nicholas Micallef, beauty and personal care analyst at Euromonitor research firm, told CNBC. "The winners will be those that actually provide a certain experience.”