How specialty beauty retail came to dominate the mass channel

Take, for example, Lumene, a Nordic mass skin-care brand that sells through CVS and Target. Johanna Paavilainen, gm of North America for Lumene, said she is tasked with expanding the brand’s distribution beyond the aforementioned stores to new specialty retailers, to align the North American market with Lumene’s international masstige positioning and “be where the customer is.” She is targeting online specialty retailers, while also considering one or two brick-and-mortar retailers.

Being available where the customer is has become a key talking point within the beauty industry, on par with the phrase “surprise and delight” and building communities. These terms have a tendency to get tossed around to the point of cliché, and people cease to question what they actually mean, let alone how they work. In the case of being where the customer is, increased fragmentation of product assortments based on use cases, clean positioning and diversity, for example, has necessitated that retailers offer dedicated spaces on shelves devoted to these types of products. The result is that mass beauty retail as we know it is fading and being reborn.

Kohl’s, JCPenney, Walmart and Target have all opted for retail partnerships with specialty retailers like Sephora, Thirteen Lune, SpaceNK and Ulta Beauty, respectively, to build out their shop-in-shops, or expanded endcaps, in the case of Walmart. CVS opted to build out its own specialty counters dedicated to prestige beauty without a retail partner, with the most recent version launching in August called Skin Care Center. It is an elevated shop-in-shop concept with fewer brands and more shelf space. CVS previously launched an experiential concept called BeautyIRL, which partnered with Glamsquad in 2018 to offer express beauty services; that partnership is currently in 160 stores. Andrea Harrison, vp of beauty and personal care at CVS, said BeautyIRL led to attracting a younger demographic, bigger basket size and more frequent trips to stores.

Paavilainen said that Lumene customers are bucketed into three segments. There are people who are looking for accessibly-priced products, those who want clean products and those seeking products providing a glow. Clean beauty is especially responsible for the retail fragmentation and emphasis on specialized retail. Clean beauty retailers like The Detox Market, Follain and Credo Beauty have emerged to cater to the category, while Sephora, Ulta Beauty and Bluemercury have debuted clean beauty standards and special in-store merchandising programs for clean brands. Ulta Beauty even partnered with clean beauty retailer Follain in Feb. 2020, underscoring just how specialized clean beauty is.

“It’s all about the changes in consumer purchasing behaviors, and Lumene needs to go where these consumers prefer to shop,” said Paavilainen. “Big box [retailers] definitely play a role in visibility and credibility, whereas specialty stores and online markets meet the immediate and specific needs of consumers.”

But as the blurring between luxury, prestige and mass beauty brands has increased, it’s led to a question of why mass retailers need the aid of specialty retailers.

“These segmentation schemes between department stores and mass merchandisers have been so strong for so long that [a retailer like] Target could have [had] problems with credibility. People don’t necessarily trust them to be makeup experts,” said Barbara Kahn, professor of marketing at Wharton School of Business.

So far, these partnerships have proven successful. In its second-quarter earnings call in August, Brian Cornell, CEO of Target, said Ulta Beauty’s shop-in-shops drove “incremental traffic and sales,” and that Target was responding by trying to rapidly expand the program to additional doors. Target has a goal of operating 800 locations by end of 2022. Beauty sales overall at Target grew by high single digits year-over-year in the second quarter. Sephora, which has nearly 600 shop-in-shops in Kohl’s, will expand to another 850 locations in 2023. This partnership is delivering a “high single-digit sales lift,” compared to Kohl’s doors without Sephora, according to Michelle Gass, CEO of Kohl’s, during the company’s second-quarter earnings in August. Additionally, Kohl’s has acquired more than 1 million new customers since the partnership began in Aug. 2021. They’re younger and more diverse, and shop more frequently than Kohl’s average customer.

Another dimension to being where the customer is literally refers to where they live. This explains the appeal for specialty retailers and their prestige brand partners to delve into the mass space. Laurie Tessier, merchandising director of prestige beauty at Walmart, explained that it is not always convenient for many Walmart customers to access prestige brands in the brick-and-mortar space. Retailers like Bluemercury and Sephora have traditionally been centered in urban, high-foot-traffic areas, as opposed to rural places and small towns. Yet, most customers buy across prestige and mass. With over 10,000 stores, 90% of Americans live within 10 miles of a Walmart store, according to the company. The Walmart and SpaceNK partnership, called Beautyspace, began in March, initially in 250 doors.

“We were looking to provide our customers with access and convenience,” said Tessier. “What we’ve done now is create a one-stop shop for them within Walmart’s existing infrastructure.”

Beautyscape’s special endcaps feature a variety of prestige brands, like Mario Badescu and Lancer, spanning body care, hair care, skin care and makeup. This differs from the usual aisle demarcation based on categories. Endcap resets are likely to be more frequent than the traditional beauty aisles, said Tessier, adding that prestige brands have a great opportunity to showcase holiday gift sets in this environment.

“This became more about giving brands a special place within the Walmart aisle that felt different from the [rest of] the department,” said Tessier.

Convenience was also a factor for CVS with its Skin Care Centers, especially for more novice beauty enthusiasts. Skin Care Center is more about expertise and curation than BeautyIRL, which was based on creating a more enjoyable beauty shopping experience via services and indie brands. There are fewer brands and products on shelves, and each center is staffed with an aesthetician to help shoppers analyze their skin with a Skinscope diagnostic tool.

“Every customer experience influences their expectations,” said Harrison. “Customers are now looking for certain brands and experiences, and they’re looking for a [higher] level of service. As the retailers around us offer those things, we must be conscious of offering an environment in which someone wants to shop.”

Lumene is not part of CVS’s latest Skin Care Centers, which are only in three stores nationwide, but it is part of CVS’s Healthy Skin Care concept. Healthy Skin Care units spotlight better-for-you products in over 2,000 CVS stores nationwide, and Lumene is at a majority of those. She said Lumene has doubled its per-store sales over the past two years due to its better positioning on CVS shelves. Sitting next to similarly priced prestige household names like La Roche-Posay and Dermalogica helps draw more attention on the shelf. More spacing on better-looking shelves also helps Lumene stand out and communicate more.

“This has been helpful and matches what I [am trying to do] with repositioning the brand away from being a pure drugstore brand. What CVS started doing is wonderful [because] they recognize the same [specialty] need for brands,” said Paavilainen.

The success of CVS’s Skin Care Center endeavor is based on customer feedback and brand sales increases. Where and when it will expand is yet to be determined, but even a small trial can inform CVS’s overall beauty strategy moving forward, said Harrison. As fragmentation in beauty categories continues, mass brands will take a page out of specialty retail, further eliminating the mass retail’s one-size-fits-all approach as it has stood. For example, Harrison said there is also a greater opportunity for assortments for melanated skin. Diversity and inclusivity are primed to be another rich area for specialty retail, with several retailers exploring how to address the needs of these customers. JCPenney notably partnered with Thirteen Lune, an e-tailer focused on Black- and Brown-owned brands. Ulta Beauty, Sephora, Credo and Bluemercury have all signed the 15 Percent Pledge and featured BIPOC voices and beauty perspectives in various campaigns.

“People, especially the younger generation, are really demanding that brands speak to DE&I,” said Kahn. “That’s an important trend in beauty. And we will see more and more of that in retail.”