Beauty remains a winning category for Kohl’s, mainly due to its shop-in-shop experience with Sephora.
While in its second quarter, Kohl’s saw a 4.8% decline in net sales and a 5% decrease in comparable sales, their store sales segment outperformed the company’s overall performance, remaining flat compared to the previous year.
The retailer reported an almost 90% surge in year-over-year (YoY) sales for total beauty products. The momentum came from Sephora and resulted in a growth of over 20% in comparable beauty sales. This growth was most pronounced in the support shops that were set up in 2021 and 2022.
“We feel good about our overall assortment,” said Kohl’s CEO Tom Kingsbury, during the company’s second-quarter earnings call on Wednesday (Aug 23). “It’s bringing in a younger, more diverse consumer.”
To keep the momentum going, Kohl’s noted that it would be looking to enhance the customer experience through improved products and merchandising initiatives, both in physical stores and online, to create long-term growth. With that, Kohl’s identified opportunities to enhance its core business offerings while emphasizing the importance of Sephora, gifting impulse items, home decor and the establishment of new stores in driving substantial growth in the upcoming years.
Regarding Sephora shops, Kohl’s opened nearly 200 during the second quarter, with an additional 50 shops scheduled for the current month. These openings would complete the rollout of 850 to 2,500 square foot Sephora shops.
Kohl’s also unveiled earlier this year a more compact version of Sephora shops, occupying a space of 750 square feet. Another 45 of these compact outlets are planned for introduction in the third quarter, bringing the total count to 50 by the year’s end. By the conclusion of 2023, Kohl’s has plans to integrate Sephora into over 900 of its stores, with the goal of adding these smaller format boutiques throughout the rest of the chain in the subsequent years.
The expansion efforts follow reports in May, which stated that while Kohl’s experienced a 20% drop in digital sales, Sephora helped the retailer improve its in-store results.
In May, Kingsbury, who assumed leadership in February following a disappointing Q4 2022, outlined a series of initiatives that the retailer focused on during Q1 and intends to develop further throughout the year. Kingsbury highlighted that the increase in in-store traffic and higher units per transaction “more than offset a lower average ticket driven by our clearance actions.” However, Chief Financial Officer Jill Timm pointed out, “Net sales were down 3.3%. Store sales were up low single-digit percent, driven by strong Sephora at Kohl’s growth, as well as our clearance actions. Digital sales were down 19.6% [compared] to last year.”
Big retailers and brands like Kohl’s and Macy’s have been retooling their business models to reach out better to consumers who are more particular with their spending in the face of an uncertain economy.
Macy’s recently announced its newest brand shop, On 34TH, and smaller stores not in shopping malls to tailor its consumer experience better.
Big box retailers like Walmart are also exploring different customer journeys with its newest partnership with The Honest Company, developing a store-within-a-store concept.
The Sephora at Kohl’s partnership stood out as a highlight during Kohl’s May earnings call. Kingsbury highlighted that its performance exceeded expectations, leading to a 90% YoY increase in total beauty sales.
For Q2 2023, Kohl’s saw a 4.8% drop in net sales to $3.7 billion from the previous year. The gross margin slightly decreased to 39.%, and selling, general & administrative expenses decreased by 1.6% to $3.1 billion. Operating income totaled $163 million, compared to $266 million in the prior year.
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