With brick-and-mortar retail suffering due to COVID-19, several specialty players have sought haven within higher-traffic big box retailers. This is a familiar model in the beauty industry, where specialty players have long operated their own counters in department stores. This makes it unsurprising that two of the most notable tie-ups in recent months have also been in the beauty space – Target’s announced partnership with Ulta (which was reviewed in a prior Insight Flash), and now Sephora’s entry into 200 Kohl’s locations. This week’s Insight Flash evaluates the partnership, digging into each brand’s positioning in its own space, how demographics may align, and whether cross-shopping patterns bode well for the tie-up.
Although the pandemic drove sales declines for the Beauty industry overall, Sephora hasn’t recovered as quickly as the rest of the space. With shoppers needing fewer products for Zoom socializing than for in-person events, and masks limiting the need for some cosmetics when people did venture out, Sephora saw sales declines of -13% in July even after the Beauty Products subindustry returned to positive growth. This declined even further to a sharp -39% drop in August. Meanwhile, Kohl’s has outperformed the suffering department store space, and especially Sephora’s old partner JCPenney, which was recently rescued from bankruptcy by its landlords. The company’s placement in strip mall locations has made it more attractive to those trying to avoid crowded indoor malls. Although sales dropped by almost two-thirds as stores were forced to close, throughout the fall sales declines were -1% to -3%, versus -22% to -25% for Full-Line Department Stores overall.
Kohl’s and Sephora Performance
The demographics for the two companies are highly complementary. Sephora attracts a younger, wealthier shopper than Kohl’s. Sephora outposts in Kohl’s stores could bring increased spending power to the chain, and younger shoppers who could be a new market for the department store as they age. For Sephora, the older shoppers seen at Kohl’s may be more willing to experiment with its products in a familiar location, but the real value of the relationship likely comes from the synergies of Kohl’s footprint. The heavy Midwest presence of Kohl’s will allow Sephora to grow into a new market with limited real estate investment, allowing easy access to a new swathe of untapped shoppers.
Demographics
Note: 01/01/2020-12/31/2020
The cross-shop analysis would also seem to favor Kohl’s, but it does indicate a two-way affinity between the two brands. 7.5% of Kohl’s shoppers visit Sephora, 1.6x the overall population visitation. 19.1% of Sephora shoppers visit Kohl’s, also 1.6x the overall population rate. This implies that a partnership could bring likely cross-shoppers of both brands into Kohl’s stores. However, Kohl’s shoppers actually spend 22% less when they do visit Sephora than the overall population, implying that Sephora may see less productivity in its space in Kohl’s stores. In contrast, Sephora shoppers spend 15% more when they visit Kohl’s than the overall population, implying even bigger benefits for other categories at Kohl’s.
Cross-Shop
CE Vision allows companies to evaluate potential partnerships and see whether there are equal benefits or if partnership arrangements need to account for the fact that might be more favorable to one party. By seeing how a potential partner is performing versus others in its category, looking at potential complementary demographics, and evaluating spend for cross-shoppers, companies can assess which partners might be best suited for future relationships.
