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How J.C. Penney is building a post-Sephora beauty business

July 20, 2021, 4:01 AM UTC

For 15 years, Sephora’s beauty shops inside J.C. Penney were the brightest light in the department store’s business; bringing in the younger, trend-savvy shoppers it coveted and generating proportionally more sales than any other area of the store.

But this fall, as Sephora moves its department store partnership to arch-rival Kohl’s, Penney will unveil its new horse in the retail beauty wars.

Called succinctly, if a tad unimaginatively, ‘JCPenney Beauty’, the new cosmetics areas will be crucial to the company’s viability as it rebuilds after last year’s Chapter 11 bankruptcy reorganization.

JCPenney Beauty will offer a broader array of beauty products than the former Sephora locations in terms of price and product categories. Drugstore-caliber and mass retailer level beauty products will sit alongside the higher end, hip beauty items that Sephora sells. And Penney will make its own push into diverse brands via a partnership with Thirteen Lune, an e-commerce site focused on emerging Black and brown owned beauty brands.

There is no doubt Sephora, which was the bulk of Penney’s beauty business, is leaving a big hole for Penney to fill. A few years ago, Sephora shops at Penney would generate about four times more in sales per square foot than the store as a whole. But in the midst of a busy beauty market, Penney chief merchant Michelle Wlazlo sees an opening for the department store.

“Our customers really told us that they wanted to shop beauty differently,” Wlazlo told Fortune. “They wanted a broader assortment of brands at different price points.” Penney said it would disclose which brands at a later date.

One thing Wall Street analysts often criticized Penney for—when it was a publicly listed company—was that many Sephora shoppers would simply ignore the rest of the J.C. Penney store, limiting the benefit of having a popular beauty shop within its walls. But by offering more lower priced items, called ‘masstige’ (a blend of mass and prestige), Penney’s new beauty play is gunning for its traditional shopper, who tends to be in her forties and perhaps less trend-focused.

Wlazlo will have her work cut out for her, particularly with off-mall competitors. Target, which has deep financial resources, said last year it would open Ulta Beauty shops at hundreds of its own stores. A few weeks later, Kohl’s announced its Sephora partnership. And Walmart and drugstore chains CVS pharmacy and Walgreens have invested in their beauty areas too.

But Wlazlo sees Penney as having a few secret weapons. For example, she says, Penney’s 630 hair salons make it one of largest hair salon chains in the country and are an untapped resource. So JCPenney Beauty will carry a wide array of hair products and styling tools and have both areas cross-sell to each other. (Here again, Penney will run into competition: Ulta Beauty, the largest retailer specialized in beauty products, has been using its salons to sell hair and styling products for years.)

And while the Penney effort to bring in more minority-owned brands is essential, here too Penney is not a first mover: In 2020, Sephora became the first major retailer to sign on to the 15% pledge, vowing to give Black-owned brand more shelf space. Ulta and Target are also making efforts to showcase more minority-owned beauty brands.

But given how essential beauty is to generating customer interest and store visits, Wlazlo has a lot banking on JCPenney Beauty. The retailer will start opening JCPenney Beauty shops in October, before a broad rollout starting next year and going into 2023. Wlazlo, who joined Penney in early 2019 after stints at Target and Gap Inc, says the company will invest in making the beauty areas, which will typically be in the same prime locations as the Sephora ones, inviting with more open, brighter space to showcase an assortment Penney has come up with, rather than Sephora.

It’s clear that Sephora’s departure was a big blow to Penney. Last year, soon before it filed for Chapter 11 bankruptcy protection, it sued to try to stop Sephora from leaving Penney stores. And soon, without Sephora, Penney will have no choice but to rebuild a viable beauty offering to customers, for the good of its overall business.

“Our strategy isn’t just slapping together a beauty business. We’ve been so thoughtful with our customers and what they want,” says Wlazlo.

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