Beauty poised for growth at Target and Kohl's as shoppers prep for parties, shop in person again

Beauty is always a big holiday category, but this year it’s poised to be even bigger.

Shoppers aren’t just looking for perfumes or candles to give to family and friends. They are eager to replenish makeup bags, refresh routines and buy new lipsticks to don at parties.

Consumers are also heading back to stores in larger numbers — a shift that could lift sales in a category that’s driven by in-person experiences. A trip to a beauty store offers the chance to try out an item before purchasing, talk to an expert or grab stocking stuffers and impulse buys after seeing colorful displays.

That is playing out at Target and Kohl’s stores, which will mark the first holiday season with a stepped-up focus and more square footage dedicated to lipstick, perfume, gift sets and more. Target has opened about 100 mini Ulta Beauty shops inside of its stores. Kohl’s has debuted about 200 Sephora locations. And more are coming soon.

At stake is a bigger slice of the beauty industry, as consumers turn to websites, big-box stores and specialty beauty shops for cosmetics instead of relying just on drugstores or department store beauty counters. Both off-mall retailers see the premium beauty shops as a way to drive more foot traffic, inspire impulse purchases and ultimately, boost sales across other departments. It’s also a chance for Target and Kohl’s to welcome back shoppers who might not have stepped foot in one since March 2020.

Ulta Chief Operating Officer Kecia Steelman said she expects sales this holiday season will reflect people’s desire to splurge on themselves and others and to get “glammed up more,” too. She said the beauty retailer made heavier buys of holiday-themed gift sets compared with last year.

“As we’re coming through this pandemic, people that are holed up are ready to get out and celebrate —celebrate for themselves and each other,” she said in an interview.

Beauty tends to see an uptick in sales around the holidays because it offers such giftable options with easy-to-buy sets, said Olivia Tong, a managing director of equity research at Raymond James focused on the beauty and personal care sectors.

Plus, as more families and friends gather over the holidays this year, she said, some people may invest a little more in getting ready — perhaps by springing for new eyeshadow, blush or a fragrance to spritz.

“In some cases, you might not have seen these people for a while,” Tong said. “And maybe you put in that extra little effort with respect to appearances.” 

Beauty is poised for a bright holiday season, according to estimates by The NPD Group. More than a quarter of U.S. consumers plan to buy a beauty product, according to the market research firm’s survey of more than 3,600 consumers in September about their holiday shopping plans.

The overall U.S. prestige beauty industry is expected to surpass pre-pandemic levels this year, too, according to NPD. Sales in the category are expected increase by 25% to 35% versus last year and top 2019 levels by low to mid single-digits. That category includes brands largely sold by department stores, beauty specialty stores or on their websites.

For beauty retailers, the fourth quarter is crucial. About a third of prestige beauty sales come from the holiday period, according to NPD.

Steelman described it as Ulta’s “Super Bowl” and “the most important quarter of the year.” Last year, for instance, the fourth quarter drove about 36% — or more than a third — of Ulta’s total sales for the year. In 2019, about 31% of its annual sales came from the three-month period.

Hair and fragrance have been standouts in the beauty sector. Fragrance sales from January to September surged 63% from the same period last year and are up 25% from the same period in 2019. Sales of hair products from January to September rose 49% versus 2020 and 57% compared with the period in 2019.

Fragrance, in particular, is expected to be a stellar category this holiday because of its popularity as an indulgent gift. More than 40% of all fragrance sales typically happen in the fourth quarter — and get a lift because the category is easy to shop, and makes for an expensive, last-minute gift, said Larissa Jensen, beauty industry advisor for NPD.

Throughout the pandemic, consumers turned to fragrances including candles, perfumes and home scents as an escape or an indulgence during a challenging time, Jensen said. As people have gotten Covid-19 vaccinations, they have continued to propel the category by buying bottles of perfumes and colognes as a way to treat themselves or kick off a “new, fresh start,” she said.

Hair is expected to get attention from holiday shoppers, too, thanks to hair masks and luxury shampoos becoming a way to bring the spa experience home, Jensen said.

Makeup, on the other hand, has yet to make a comeback. Sales are down 20% from January to September of this year versus the same period two years ago. Sales have been hurt as many Americans skip the office and attend fewer social events. Mask wearing, as a Covid-19 prevention, has hurt lipstick sales, which are down 40% versus 2019, according to NPD. But the category has shown improvement, with sales up 19% versus a year ago.

So far, Ulta’s holiday shoppers have gravitated toward big-ticket items, such as fragrances, gift sets and hair styling products from Dyson, Steelman said. She said foot traffic is rebounding week after week, but is still lower than pre-pandemic levels in 2019.

And Steelman said welcoming back beauty shoppers to stores boosts their spending and loyalty, too.

“The more that that the customer coming in can engage with our associates, the bigger the ticket becomes, too,” she said. “It’s a great way for us to build the [shopping] basket and also build that relationship with the guests coming into the store.”

Already, Ulta and Sephora were two of the biggest Black Friday winners this year, boding well for their performance throughout the holiday season. Visits to Ulta were up 42.2% compared with last year and up 10.3% versus 2019 levels, according to Placer.ai, which measures foot traffic at U.S. malls and shopping centers. Visits to Sephora stores climbed a whopping 97.5% compared with 2020 levels and rose 20.5% versus 2019, Placer.ai said. (These figures represent visits to standalone stores and do not track shop-in-shop concepts.)

Target and Kohl’s will be hoping to take advantage of the momentum and draw some of the two brands’ fans into their own shops. This holiday season offers the biggest test yet of Target’s and Kohl’s strategies to lure in customers with beauty offerings.

Kohl’s CEO Michelle Gass said the Sephora shops have already attracted younger, more diverse customers and led to higher sales. The shops include a curated selection of items from roughly 125 brands that Sephora carries.

At the Kohl’s stores where Sephora shops have opened, the company has seen a mid single-digit lift to same-store sales compared with ones that do not yet have it, Gass said on an earnings conference call earlier this month. More than 25% of Sephora shoppers are new to Kohl’s, she said.

“When we’re up over 600 [Sephora shops] next year, you can only imagine the millions and millions of customers that we’re going to be introducing, so it’s already meaningful and that will only grow,” she told analysts.

Sephora Americas President and CEO Jean-Andre Rougeot said the tie-up with Kohl’s has allowed the specialty beauty retailer to reach new shoppers. People who might not live close to a Sephora store may now have one nearby inside of a Kohl’s location, he said.

For some budget-conscious consumers, Sephora might have been seen as too expensive in the past. But Kohl’s customers are buying items across beauty categories and price points, which shows the shops have caught on and the products are resonating, Rougeot said.

Makeup is the top-selling category for Sephora stores within Kohl’s, he said, followed by skincare and fragrance.

“With the shift to more activity outside the home, comes more holiday parties and seasonal gatherings, which has resulted in an increase in demand for products shoppers will wear out,” Rougeot said. “Purchases of colorful items like bold eyeshadow palettes and bold lips are performing well as we inch closer to the holidays. 

Target Chief Growth Officer Christina Hennington said the Ulta Beauty shops have drawn new customers to its stores, too, though she declined to provide sales numbers. Target plans to open a total of 800 shops over the next few years.

Beauty was one of the retailer’s top sales drivers in the third quarter. Sales in the category grew in the mid-teens compared with the year-ago period, along with similar growth in Target’s food and beverage and essentials categories. The beauty category isn’t limited to the partnership. It spans price points and various brands from mass market to prestige.

Each Ulta shop within Target is about 1,000 square feet — roughly one-tenth the size of a typical Ulta store. It carries a curated selection about 50 premium brands, such as Smashbox, MAC and Tarte. The shop is staffed by Target employees trained by Ulta. For the holidays, the stores and website are carrying special gift sets like items for a spa day at home or a set of mini hair products.

Hennington said the beauty shops add vibrancy to the big-box stores, as well, by making them places where shoppers can smell a fragrance, feel a lotion on their hands or get help from a beauty advisor who suggests a foundation or offers other expertise.

In an interview, Hennington said the retailer stands out with its beauty and personal care assortment, which ranges from everyday items to high-end ones.

“If you think about everything, from body wash to deodorant, to a fragrance you might want for a special date night to everything in between, we have an opportunity to engage with so many guests because of the relevance and breadth of a category like beauty,” she said.

Plus, she said, shoppers can now buy even more items with a single stop at Target — like a lip gloss along with a new outfit, party appetizer or gallon of milk.

Target is investing in the category because “beauty sits at the center of style and frequency,” Hennington said.

For Ulta, Steelman said the shops at Target are a way get in front of new customers, give them a chance to sample Ulta’s merchandise and encourage them to sign up for its loyalty program. Target shoppers who buy from the shop can earn loyalty points to use at Ulta’s stores.

“It’s a win for the consumer, because we’re meeting them where they are,” she said. “It’s a win for Target, because they have access to the prestige beauty brands that they did not have before. It’s a win to the brand partners because they’re getting a greater reach with a consumer in a branded way. And it’s a win for Ulta Beauty because it’s about building our member loyalty based program and getting them into our complete ecosystem.”

As department stores have lost relevance with some beauty shoppers and got battered by temporary closures during the pandemic, it has created an opening for Target and Kohl’s and specialty beauty brands to gain market share, Tong said.

“People have clearly not gone back to the department stores to the same extent that they had in the past,” she said. “There’s a lot more availability of different formats to purchase [makeup]. And that continues to dig into department stores. … It’s not just Macy’s and Bloomingdale’s or Nordstrom anymore.”