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The Street

Jena Warburton

Sephora makes major expansion move to take on Ulta, Target

Sephora (Organization) Ulta Target (Organization) Amazon LOreal Luxury

These days, it can be difficult to keep up with trends across the fashion and beauty industry.

Thanks to the popularity of beauty brands and influencers on social media, consumer likes and dislikes seem to go as quickly as they come.

And the impetus is largely on stores to keep up with these trends. That means they must have their fingers on the pulse of what's currently hot, what consumers might want next, and be agile enough to anticipate those changes.

This can also be a dicey game when it comes to pleasing customers. Underestimate the popularity of a brand and you risk running out of inventory prematurely. Overestimate it and you're stuck with excess inventory that you'll likely have to take a profit cut on.

But customers are increasingly demanding more selection; so everyone from boutique shops to large corporations are integrating more exclusive beauty brand partnerships to lure them in.

Walmart (WMT) , for example, recently launched an exclusive agreement with cosmetics giant L'Oreal, whereby it will now stock the L'Oreal Paris Elvive Hyaluron + Plump hair line, which focuses on the a new trend popular on TikTok: scalp skincare and balance.

Amazon (AMZN) continues to add to its premium beauty section, adding beauty giant Clinique and Kiehl's to its storefront this spring.

In 2022, Target (TGT) agreed to put in mini versions of Ulta (ULTA) stores within its own stores. And in 2021 Kohl's (KSS) agreed to do something similar with Sephora, something it regularly hails as one of its smartest business moves in recent company history.

High school students shop in the Sephora section at a J.C. Penney store.
Bloomberg/Getty Images

Beauty stores are disrupting the shopping experience

Few companies have gotten the brand anticipation game more right than LVMH (LVMHF) -owned Sephora. With over 2,700 stores in 35 countries globally, the beauty behemoth helped to reinvent the in-store beauty shopping experience.

It used to be that people seeking cosmetics had to go to the mall to procure supplies from a beauty counter inside a large corner store. Typically, this meant driving quite a distance to your local mall, locating the Macy's, Nordstrom, or other large shop once inside, and then darting from counter to counter to guess on your favorite lipstick, perfume or foundation.

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How times have changed. Rather than needing to wind through the brightly lit glass displays and ask associates for assistance any time you want to swatch something (or avoid being upsold on a product), customers can simply walk into their local Ulta (ULTA) or Sephora and help themselves. Products are set out for display where customers can swatch every color, fragrance, and product they wish without requiring help.

Sephora is still growing

Just because the beauty industry is growing more each year doesn't mean success is divided up equally. Retailers must expand intelligently to avoid market saturation and place themselves strategically where the most foot traffic (and sales) can be captured.

Which is why Sephora's decision to expand into Tanger Outlets (SKT) is so enticing. According to the two corporations, Sephora will expand into Tanger Outlets by opening five new stores in the highly popular outdoor shopping areas. Each location will be approximately 5,000 square feet and begin in the following areas:

Charleston, S.C.
Deer Park, N.Y.
National Harbor, Md.
Palm Beach, Fla.
Phoenix/Glendale, Ariz.

The implementation is actually an expansion on a pre-existing presence; Sephora currently operates a store location at Tanger's Bridge Street Town Centre in Huntsville, Ala. and has seen considerable success.

Tanger, for its part, says bringing Sephora further into the fold is a part of a larger strategy to diversify its customer offerings and lean further into new areas like beauty. The Outlet estimates approximately 120 million customers shop at Tanger each year, and it is looking to bring in more young shoppers into its market by introducing new brands and shops that are popular online.

"As the category's leading prestige retail brand, Sephora will bring an elevated and aspirational beauty experience to our centers and enable us to offer our guests a comprehensive suite of price points and products in the beauty category," said Justin Stein, executive vice president of leasing for Tanger. "We believe this will be a very successful partnership for both our companies as Sephora continues to expand its presence with Tanger."

Tanger expects the five new Sephoras to begin opening later in 2024.

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