Beauty Brands Give Brick-And-Mortar a Makeover

Brick-and-Mortar is putting on a fresh face, literally. Yeah, we’ve been hearing about companies like Macy’s and Wal-Mart shutting down a handful of locations this past year  and Sears/Kmart suffering a net loss of $8 billion since 2010 due to none other than the rise of online shopping and global warming (making them perfect Schlemiels of the Week). However, there’s one industry which is helping brick-and-mortar thrive.

Like many department stores, JCPenney is struggling to stay afloat and the retailer is implementing new out-of-the-box strategies to keep foot traffic alive in stores by looking at what retail sub-sector was on top of sales. Although building & garden materials had the largest percent change in 2015 based on a five-month sales total (8%), it would be a bit hard (and messy) for the department store to integrate rakes, chainsaws and flower bedding into aisle 5. So, they settled for second best: beauty. After all, health & personal care retail sector had a 7.3% increase in sales in 2015. According to NREI Online, JCPenney plans to open 60 new Sephora stores inside JCPenney’s across the country, one of which being at a new 3,000 SF flagship store in Salinas, CA.

Beauty is dominating Bricks!

Sephora competitor Ulta is also seeing expansion in the near future with 100 planned store opens in the fiscal year of 2016. Ulta Beauty posted a same-store sales increase of 15.2% for stores and e-commerce this past year and only expects to grow further.

“Take companies like Ulta Beauty or Sephora. They are insulated from Amazon.com. Amazon can’t put makeup on you. They are doing something Amazon can’t do. That is a very big deal,” comments Howard Davidowitz, chairman of Davidowitz & Associates.

It’s the experience of mini-makeovers and testing a new lipstick color that really enables the Beauty sector to thrive. Even businesses built online are starting to take notice.

Evolution of the 3rd Generation Brands

Seattle-based online makeup company Julep built a large cult following via social media since it’s inception nine years ago. In August, nearly 250 Ulta Beauty stores will welcome Julep’s best-sellers – allowing the company to make it’s way into brick-and-mortar. This business strategy, which is big among retail brands right now, has been dubbed “omnichannel,” or what the Seattle Times defines as “serving customers across various channels, whether online via desktop or mobile device, in brick-and-mortar stores or by phone.” Traditional brick-and-mortar retailers are going digital and this new generation is branching into physical stores.

According to the Seattle Times, Jason Stoffer, a partner at Seattle VC firm Maveron (a big Julep investor), labels Julep as being part of the third generation of beauty brands, a generation which started out digitally native. Stoffer notes:

“Our belief is that the next generation of great consumer businesses are going to start online, really understand their core customer, and then move to omnichannel over time. The reality is customers want to touch and feel. This is a natural evolution for Julep – taking the brand they’ve built online and enabling it to reach more consumers by moving [to Ulta]”

These digitally native brands are surfacing in pop-up shops all over, as well! But that’s for a different post, which you can read here. The beauty sector may not be on your radar, but it should be. VC firms like Maveron and Madrona Venture Group and celebrities like Will Smith and Jay Z are investing in the third generation brands. Why aren’t you?