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Department Stores are Not a Thing of Beauty

Study says share of cosmetics sales is shrinking

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According to a recent study, three major department store mergers in the last six months have coincided with dwindling consumer interest in the department store experience, a trend reflected in a dip in sales at the beauty counter.

Beauty product sales through department stores mustered only about 1 percent growth on average over the last five years,” according to “Beauty Retailing USA 2004,” a new study soon to be published by Kline & Co. (Little Falls, N.J.), “while sales through all channels grew by nearly 3 percent a year during the same period. This has lowered department stores’ share of the market by about 2 percent, revealing that a lack of excitement in department store offerings and increasing competition from other channels are the prime factors in the current slump.”

“Most of the traditional department stores offer the same merchandise in an atmosphere that’s just not as fun or convenient as specialty stores or other outlets,” says Lenka Contreras, Kline & Co. vp of the consumer products practice for the firm’s research division. “Now, with the recent mergers and consolidations, there could be even less variety in the channel.”

But, says Kline, change in ownership may provide an opportunity for the retail giants to woo consumers back with a more contemporary approach to beauty retailing. Target Corp.’s sale of Marshall Fields to May Department Stores in July and K-Mart’s purchase of Sears in November of last year kicked off a shopping spree among the major department store chains. With the imminent approval of a merger between the nation’s top two department store retailers, Federated and May, long established locations across the country are bracing for consolidations and closures.

Federated’s own chains, including Bon-Macy’s, Burdines-Macy’s, Goldsmith’s-Macy’s, Lazarus-Macy’s and Rich’s-Macy’s, have dropped their original names and have been converted to the Macy’s or Bloomingdale’s name. Other familiar franchises under the May umbrella, including Filene’s, Hecht’s, Kaufmann’s and Lord & Taylor, will follow suit and will ultimately be converted or eliminated entirely, especially in areas where May and Federated stores currently co-exist. In addition, Neiman Marcus recently announced that it is looking for an acquiring partner, and Saks Fifth Avenue is exploring the sale of all or part of its business.

“Fewer choices within the department store realm, accompanied by consumers’ growing tendency to shop across channels and brands, are expected to keep beauty product sales in the department store channel relatively flat through 2009,” according to Kline’s study.

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The convenience factor is another reason for the stiff competition department stores are facing, according to Susan Babinsky, senior vp and head of Kline’s consumer products consulting practice. “Consumers want an easy in-and-out shopping experience, and they’re moving more toward strip malls and freestanding stores where they can pull up, run into the store, and pick up what they need quickly. Most malls and department stores make this impossible.”

When shoppers do decide to visit the malls, says Kline, they are increasingly bypassing the big department stores and are favoring specialty stores like Victoria’s Secret Beauty and Sephora to buy their lotions or color cosmetics. “(Specialty stores) offer a much more trendy and exciting shopping experience, which helps them to attract younger consumers,” Babinsky says. “The department stores need to take a more contemporary approach to compete for the teen and young adult demographic.”

There are signs that this message has been received. As part of their merger, Federated and May will likely incorporate some changes in customer service and merchandising to make their stores more attractive to a younger crowd. Meanwhile, J.C. Penney has recently hired a new bath and body buyer, which could indicate a move to expand beauty offerings in the future.

“With fewer choices in the department store channel, it’s now even more important that the major chains that are left get it right in order to reach consumers,” Contreras says. “People aren’t as brand-loyal as they used to be when it comes to their beauty products or where they go to get them, and the department stores need to find ways to make shopping fun again.”

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