In Unprecedented Move, Retailers Mark Down High-End Cosmetics to Lure Shoppers

In Unprecedented Move, Retailers Mark Down High-End Cosmetics to Lure Shoppers

We’ve been chronicling the retail crisis gripping the country as e-commerce continues its rise in popularity.

Stores have been closing. Malls are having trouble attracting stores to fill the growing number of empty spaces. Now department stores are taking and unprecedented move to bring in more shoppers: Discount high-end cosmetics.

Changes to Cosmetic Shopping

Cosmetics departments usually greet customers first when they enter a store. Other departments might discount merchandise, but up until now, high-end cosmetics were immune to discount pricing. Not anymore. The Wall Street Journal reported:

Last month, Lord & Taylor offered 15% off almost all cosmetics and fragrances. Bloomingdale’s gave members of its loyalty program a $25 reward card for every $100 beauty purchase. The moves followed a decision by Macy’s Inc. M -5.42% to offer 15% off cosmetics, which it touted in nationally televised advertisements this spring.

“We’ve seen our competitors start to discount items like cosmetics, and I’m sure they’re saying we’re doing it,” said Jerry Storch, the chief executive of Saks Fifth Avenue and Lord & Taylor parent Hudson’s Bay Co. HBC +0.18% , on a conference call last month. “Once you get into that kind of a situation, everyone is fighting for every inch.”

Department stores have even lost cosmetic shoppers to specialty stores like Sephora and Ulta Beauty. Department store cosmetic counters are struggling to compete as stand-alones when the same products are sold at specialty beauty stores.

Sephora and Ulta Beauty offer the same as department stores: Top of the line brands in one location. But there is one key difference. These specialty stores have an “open-sell formats that allow customers to try products without the help of sales associates and to mix and match different brands, analysts say.”

Consumers can mix and match brands when shopping at Sephora or Ulta Beauty. Neither store confines consumers to one counter.

Department stores do not offer trial makeup like Sephora and Ulta, who allow customers to try lipstick and mascara by offering individual wands and swabs to try out.

Specialty stores along with a rise in preference for e-commerce have caused a drop in cosmetic shopping at department stores, even though the market has seen a growth in high-end cosmetics:

Sales of prestige makeup in the U.S. are growing, totaling $8 billion in the 12 months to May, an 11% increase over the same period a year ago, according to market-research firm NPD Group Inc.

But department stores’ share of the market fell to 19% in North America last year from 23% a decade ago, according to Euromonitor International data analyzed by Bernstein Research. Over the same period, specialty beauty retailers increased their share to 20% from 14%.

Former Bloomingdale’s CEO Michael Gould warned department stores would “shoot themselves in the foot when they” offer cosmetics at a discount.” Other executives agreed offering high-end cosmetic discounts is just a short term fix because people become used to the prices, causing them to drop further.

But department stores plan to combat their losses without relying solely on discounts:

Estée Lauder Cos., L’Oréal SA and other major cosmetics makers declined to comment on the recent pricing moves. A Macy’s spokeswoman said the retailer is using discounts but also looking at other ways to bolster beauty sales, including a loyalty program it will introduce this fall and by reconfiguring its departments to make them easier to shop.

Sephora—a unit of LVMH Moët Hennessy Louis Vuitton SE —and Ulta have done a better job of appealing to younger shoppers with open-sell formats that allow customers to try products without the help of sales associates and to mix and match different brands, analysts say.

Follow the Market

In 2013, Forbes warned department stores that they could lose shoppers to e-commerce when Amazon launched its beauty business. This included the high-end brands like Chanel and Clinique.

Experts did not know if Amazon’s beauty market would take off. But no matter how protective a brand is, demand must be met:

In turn, “A lot of people are afraid of what this means: Will it completely change the whole nature of the beauty business?”

“What most prestige brands don’t want to see is an item that is $50 at Macy’s and $39.99 at Amazon,” Neil Stern, a senior partner at the retail-consulting firm McMillan Doolittle, told Women’s Wear Daily.

They might have little choice in the matter.

Just as Wal-Mart is able to command low prices from its vendor partners who figure they can’t afford not to do business with the world’s largest retailer, beauty suppliers could find themselves in a similar position.

Beauty suppliers are increasingly at the whim of online critiques and personalities and are following those market trends in order to give their consumers what they want, according to Bloomberg:

Beauty chatter has migrated away from antiquated store counters and magazine ads. Shoppers now turn to experts on YouTube, Facebook and other social media to keep up with the latest trends. As the discussion moves online, product sales follow. Smart department stores will join this conversation.

And stores need more-exciting shopper lures than free makeup bags or perfume samples. Hosting YouTube celebrities for makeup tutorials or using touchscreens to explain Kim Kardsashian’s latest contouring techniques could give shoppers some reason to come back to the makeup counter.

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