Sephora to set up shop inside Kohl’s

The beauty wars are heating up.

Sephora plans to install 850 shops inside Kohl's Corp. stores by 2023, upending the beauty retailer's longstanding partnership with J.C. Penney Co., according to company executives.

The first 200 Kohl's locations will open next fall and sell roughly 100 brands. Those items will also become the exclusive beauty offerings on Kohl's website.

ULTA TO OPEN BEAUTY SHOPS AT 100 TARGET STORES IN 2021

The partnership follows Ulta Beauty Inc.'s deal announced in November to open more than 100 shops inside Target Corp. stores by next year and sell its products on the discount chain's website.

Ticker	Security	Last	Change	Change %
KSS	KOHL'S CORP.	15.43	+0.44	+2.90%
TGT	TARGET CORP.	130.73	-1.66	-1.25%
ULTA	ULTA BEAUTY INC.	394.06	+7.42	+1.92%

Sephora has operated shops inside hundreds of Penney stores as part of a deal dating to 2006. The partnership is scheduled to wind down in early 2023 and allows for flexibility to pursue other opportunities, according to Sephora.

Penney filed for bankruptcy protection in May and set plans to close about a third of its 850 stores. It is in the process of being acquired by two mall owners.

Sephora tried this spring to terminate the arrangement early, according to court documents filed by Penney. Sephora, in a separate court filing, disputed that version of events. The companies later issued a joint news release reaffirming the arrangement. A Penney spokesman said the partnership will continue until the end of the agreement and that Penney is developing a new beauty concept that will offer a wide array of products.

Sephora, which is owned by LVMH Moët Hennessy Louis Vuitton SE, has about 2,600 stores globally, but only 500 free-standing locations in the Americas.

Jean-André Rougeot, chief executive of Sephora Americas, said in an interview on Monday that he was drawn to Kohl's wide network of more than 1,150 stores that have little overlap with stand-alone Sephora locations. "This is about reach," he said. "Kohl's will allow us to reach consumers in a much broader way across the U.S."

Department stores have struggled for years as shoppers turn to fast-fashion chains, discount retailers and e-commerce players. They have been hard hit during the coronavirus pandemic, which has sapped spending for nonessential goods. Kohl's revenue fell 14% in the fall quarter, and is down 25.3% for the nine months to Oct. 31.

SEPHORA WANTS TO BACK OUT OF JCPENNEY STORES

Mr. Rougeot said he distinguished between Kohl's and other department stores, because most of Kohl's stores aren't located in enclosed malls where declines in foot traffic have been more pronounced.

"To be able to park right in front, get in and out quickly, that convenience will be absolutely critical," Mr. Rougeot said. "It is the future of retailing in America."

For Kohl's, the 10-year-deal with renewal options offers the opportunity to attract a wider swath of younger shoppers to its stores. When Chief Executive Michelle Gass laid out her strategy for investors in October, growing the beauty category was a key component.

"Beauty is an underdeveloped category for Kohl's," Ms. Gass said in an interview on Monday. "It's a big market, there is a lot of disruption happening and Kohl's is positioned to capture significant market share over the next few years."

Beauty has been one of the brighter spots during the pandemic. While sales of color cosmetics have stalled, shoppers have been snapping up skin and hair products as well as fragrances, Mr. Rougeot said.

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Each Sephora shop will span 2,500 square feet and replace Kohl's current beauty offerings. They will be staffed by Kohl's employees, who will be trained by Sephora. Shoppers who purchase beauty items at Kohl's will have access to Sephora's loyalty program.

Ms. Gass has earned a reputation for forging partnerships. In 2017, she inked a deal with Amazon.com Inc. that allows shoppers who purchased items on the e-commerce site to return them to Kohl's stores. At a time when bricks-and-mortar chains have struggled to get customers to visit their stores, the deal helped Kohl's boost traffic, according to Ms. Gass and analysts.

Mr. Rougeot said Kohl's is an attractive partner, because it will allow the brands Sephora carries to grow, while preserving a more upscale image. "We've seen brands like Nike, Adidas and Levi's presented in the right way in Kohl's stores," he said.

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