Kohl’s CEO insists its supersize beauty shops can compete with the new Ulta/Target partnership

Last month, Kohl’s CEO Michelle Gass unveiled a new multiyear turnaround plan for the struggling department store that bet heavily on a big push to become a shopping destination for makeup and other beauty products.

But that was before Kohl’s strip-mall competitors, Ulta Beauty and Target, announced a major new initiative that will have Ulta open shops inside hundreds of Target stores.

Despite going up against two very strong retailers in a category that currently generates a very small percentage of Kohl’s sales, Gass is undaunted. The CEO claims that the beauty segment is big enough and in enough turmoil to leave Kohl’s an opening. That turmoil has included the J.C. Penney bankruptcy that led to hundreds of stores closing, including many with Sephora shops. And Macy’s, a stronger rival than Penney, has also closed stores.

“Given the disruption in the marketplace, we have a real opportunity to introduce new, elevated brands to our customers,” Gass told Fortune on a media call on Tuesday. “There’s room for Kohl’s.” And she needs that to be true given how crucial beauty is to getting Kohl’s female clientele to come to stores and spend more time and money there.

But Kohl’s is taking on two fast-growing rivals with a track record in beauty. Pre-pandemic, Ulta Beauty had doubled in revenue in only four years and was beloved by customers for its mix of high-end and affordable beauty products, as well as its salon services. Meanwhile, Target has built its own booming beauty business that will now share space with Ulta shop-in-shops at 100 stores—with more to come. The Ulta shops will offer higher-end products than Target currently does to avoid overlap.

Kohl’s has tried for years to become a real player in beauty. That was a key part of its Kohl’s “Greatness Agenda” business road map in 2014, with the retailer hoping beauty would grow from 2% to 5% of sales in short order. That did not play out as Kohl’s had hoped, though Gass notes the category grew 40% in the past five years from a small base. The CEO thinks Kohl’s can triple the size of its current beauty business, something crucial at a time its fashion offering is faltering.

So Kohl’s is giving it another serious go. “Our customers want beauty from Kohl’s. They’re telling us that,” she says.

While she was tight-lipped about what brands would appear at Kohl’s, or what gap in the market Ulta or Target don’t fill, she pointed to the recent launch of a beauty line by Lauren Conrad, the name behind one of Kohl’s major apparel store brands. In addition, Kohl’s is planning to expand the number of its largest beauty shops, which are staffed with beauty advisers; the retailer currently has 62 such locations, and Gass says she’s seeing promising results.

Gass thinks Kohl’s strong e-commerce and the fact that 95% of its stores are not located in malls, unlike competitors Penney and Macy’s, will “allow us to be a formidable player in the beauty industry.”

The renewed focus on beauty comes as the apparel-centric retailer has been hit hard by the pandemic that has seen many shoppers switch to Target as they consolidate shopping trips, and as many of Kohl’s store brands fall out of favor. The company said on Tuesday that revenue in its third quarter fell 14% year over year to $3.98 billion. Although Kohl’s adjusted profit was higher than expected thanks to cost cuts and better inventory management—a fact that lifted its shares—in the long term, Gass needs to improve sales. Whether beauty will help her accomplish that remains to be seen.

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