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Saks Fifth Avenue’s Beauty Business Gets a Big Makeover

Saks Fifth Avenue is moving the street-level beauty section at its sprawling Manhattan flagship to the second floor to remake a key part of its business that is under growing pressure from not only other luxury department stores like Nordstrom, but also lower-price rivals such as Sephora and Ulta Beauty (ULTA).

The remodeled beauty area, which will be open to the public as of Tuesday, is 40% larger at 32,000 square feet (the size of a Barnes & Noble store) than the current one, and offers services such as spa treatments, exercises to combat sagging facial skin, and eyebrow shaping, as well as an event space for celebrity appearances and workshops. And the move will provide relief to shoppers heading to other parts of the store but hate to be set upon by sample-bearing salespeople when they enter the store.

Gone is the old fashioned way of selling beauty products, where the person behind the counter was largely in control of the interaction, a model that has failed to win retailers, including the luxury cohort and new, younger shoppers. Though it is risky to move a beauty department from where it’s been since 1924, the company sees it as essential to renewing itself. That meant giving the beauty more space to offer more so-called experiential retail at a time when shoppers, especially young ones, can and do go online.

“Beauty always has been and continues to be a break-in point for the brand,” Saks Fifth Avenue President Marc Metrick told Fortune.

For Saks, a unit of Hudson’s Bay (HBC), this is no garden variety store remodel: the flagship is believed to generate some $700 million in a sales, and beauty typically generates 12% of a high-end department store’s sales. This is big business, even if it is just one store. (Saks operates another 40 some stores, and those stores will get some of the changes of the Manhattan store.)

The change comes at a time the beauty retail landscape is changing radically. In New York, the well established Saks store will soon be competing with new Manhattan stores of rivals Nordstrom (JWN) and Neiman Marcus, which are each opening their first full-fledged New York City flagships in 2019 that are sure to have state-of-the-art beauty departments.

But Saks also has to compete with retailers it would scarcely have considered rivals a decade ago: Ulta Beauty (ULTA), now big enough to enter the Fortune 500, sells a mix of high-end items like Estée Lauder’s La Mer and less expensive items, along with spa services and now has a Manhattan store. Meanwhile, LVMH’s (LVMHF) Sephora has long offered the fun environment younger shoppers want.

Beauty is a big generator of shopper visits for chains from Saks and Nordstrom to Target (TGT) and CVS pharmacy (CVS), and Saks’ move is tacit recognition that beauty departments have to offer a lot more now to get people in. New touches at the Saks store will include personalized Givenchy leather lipstick cases and its Apothecary section that will showcase up-and-coming niche brands. All told, Saks says it has added 60 brands including 15 exclusive to Saks. The new beauty department is the latest update to the years-long overhaul to Saks’ iconic 650,000 square foot Manhattan Fifth Avenue store.

HBC
HBC

The success of Saks is all the more crucial at a time its parent HBC is facing pressure from an activist investor and weak results in important parts of its business, notably the discount Saks Off Fifth and the Lord & Taylor chains, as well as challenges in its European business. Saks Fifth Avenue itself is coming off of three years of comparable sales decline, though business has perked up in recent quarters.

Beyond that, the new beauty section is consistent with many of Saks’ efforts to rejuvenate shopping in recent years, including a temporary tattoo parlor at its Lower Manhattan store.

“Anytime we’re in a purely transactional business, we’re not going to win,” says Metrick. What’s more, he says, “What the team has done with this is created a space not where you’ll go to pick something up, but where you’ll go to spend time.” And the longer a shopper stays at a store, the more she or he spends.