Dive Brief:

• J.C. Penney is developing a beauty concept, a company spokesperson said in an email to Retail Dive. The announcement follows news earlier this week that its current beauty partner, Sephora, is launching a collaboration with Kohl's. The J.C. Penney tie-up with Sephora ends in 2023. The retailer stressed that the partnership with Sephora "remains strong" in the meantime. 

• The effort, described as a "new, inclusive beauty concept that offers our customers a wide array of product," is part of the department store's Plan for Renewal, which hinges on improving merchandise offerings, driving traffic and providing an engaging experience. 

• "We look forward to unveiling this new concept — which will be enhanced by our Salon offerings to provide an improved Beauty experience," a spokesperson said. "Until then, we will continue to faithfully serve our customers through [Sephora inside J.C. Penney]."

Dive Insight:

J.C. Penney's relationship with Sephora has been in focus more than usual this year, as the two tussled in court in May over the terms of their partnership, which J.C. Penney alleged the beauty retailer tried to back out of. Shortly thereafter, J.C. Penney filed for bankruptcy.

The settlement of their dispute involved adding flexibility for both parties to pursue other options, according to a Sephora spokesperson. For Sephora, that meant forming a partnership with Kohl's, which will ramp up to "at least" 850 shop-in-shops in Kohl's stores by 2023, when the partnership with J.C. Penney is set to end.

For J.C. Penney, it's less clear what that means. The retailer is developing its own beauty concept, but details are scarce, and the retailer has relied on its partnership with Sephora to help drive traffic to stores for the past 15 years. According to emailed comments from Credit Suisse analyst Michael Binetti back in the spring, Sephora's shop-in-shops inside J.C. Penney have the highest productivity in the store.

While J.C. Penney now has a clear path out of bankruptcy, thanks to Simon Property Group and Brookfield Asset Management, the retailer will emerge with over 600 stores and many of the same struggles it was facing before the pandemic pushed it into Chapter 11. Finding a compelling replacement for Sephora in the coming years could be key to its success down the road.

With Kohl's, Sephora will have more shop-in-shops by current store counts than it had with J.C. Penney, by at least 250, and Kohl's frequent off-mall positioning could help it better compete with Ulta, which can frequently be found in power centers. Sephora itself has also begun pursuing standalone stores in more local and neighborhood geographies, including strip malls and lifestyle centers.

Ulta isn't standing still, though. The beauty retailer's recent partnership with Target will bring it to 100 stores at the mass merchant in 2021, with "hundreds more" planned, and expose it to new customers and geographies. Target has had a powerhouse year, and a strong beauty experience could be a threat to any retailer — Sephora, J.C. Penney and Kohl's included — looking to play in the space.