Offsetting a weak fourth quarter report, department store firm Kohl’s is significantly expanding its store-within-a-store partnership with leading beauty brand Sephora, adding 250 such locations and bringing the total to 850 in 48 states as it pursues a target of $2 billion in sales by the end of 2025.
The expansion has been stepped up rapidly, with 200 Sephora at Kohl’s locations opening in 2021 and 400 more in 2022. In addition to the 2,500-square-foot configuration, 50 smaller format Sephora boutiques will open in 2023 as well, expanding in two years to the rest of the 1,170-store chain.
The Sephora partnership has been a particular bright spot for the troubled retailer, which has refused takeover offers and dealt with heat from an activist investor. Kohl’s new CEO Tom Kingsbury said nearly 8 million customers purchased Sephora products last year, and beauty sales were up 90% in Q4.
Kingsbury was named to the top post last month, after serving as interim CEO since the December departure of Michelle Gass for Levi Strauss. He previously served as CEO and later executive chairman at Burlington Stores. Kingsbury was also the choice of activist investor Macellum Advisors, which has reached a standstill agreement with Kohl’s management, according to CNBC.
“We are making great strides in beauty through our Sephora partnership,” Kingsbury said on an analyst call earlier this month. “However, we have lost some ground in other key categories.”
For the quarter, Kohl’s reported net sales of $5.8 billion, down from $6.2 billion in 2021, and a net loss of $273 million, compared to net income of $299 million in the prior year. Gross margin was 23%, down from 33.2% in 2021.
Digital sales, representing 37% of the total in 2022, slipped 12% in Q4. Kohl’s has brought in Nick Jones, former CEO of Joules and an SVP at Asda in the UK as chief merchandising and digital officer to shore up that part of the business, with a focus on marketplace and retail media sales.
The Sephora at Kohl’s locations include a curated assortment of makeup, skincare, hair and fragrance brands, with Sephora-trained beauty advisors offering personalized consultations and product assistance. There are also testing and discovery zones offering a rotating assortment of new and trending products.
Kohl’s has seen the Sephora stores draw in sought-after younger shoppers and made it a player in the beauty sector. There was a bit of a tradeoff, as fine jewelry counters had to be removed to make room for Sephora, hitting those results. “We have an opportunity to do a better job solving for the lost sales in this category,” Kingsbury said.