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Can Discounted Cosmetics Drive Department Store Traffic? Featured

  • Written by  Adam Blair
Can Discounted Cosmetics Drive Department Store Traffic?

The cosmetics counter has been a rare bright spot in these dark days for department stores — for example, the JCPenney-Sephora partnership has been a win-win for both parties. So it makes sense that other department stores would seek ways to leverage the category’s drawing power as a way to bring foot traffic into brick-and-mortar stores. But the tactic chosen by Macy’s and Bloomingdales — offering discounts on products that are rarely involved in promotional sales — is raising eyebrows. Many industry experts note that once a retailer lowers prices, even for a limited time or to a select audience, it’s difficult to push them back up to a “normal” level.

Meanwhile, Sephora is not putting all its eggs in one basket. The brand is testing Sephora Studio, a small (2,000 square feet) store concept that will be located outside of mall locations. The first Studio debuted on Boston’s Newbury Street on July 21. The Studios will offer skin consultations and the Sephora Digital Makeover Guide, which captures clients’ product, application and look preferences. Product selection will be limited due to the stores’ small size, but associates will be able to use an “order in store” feature via Sephora.com.

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Members of the RetailWire Brain Trust shared their insights into the wisdom of discounting cosmetics as a traffic-builder, and also gave their assessments of Sephora’s latest retail innovation. A selection of their comments follows:

Discounting Cosmetics: A Dangerous Drug

Mark Ryski, Founder, CEO & Author, HeadCount Corporation
Discounting to drive traffic is a slippery slope. While price discounting may produce a short-term sales lift (though likely at lower margins), it creates expectations with consumers that may be difficult or impossible to sustain.

While driving store traffic is critical, retailers need to focus more attention on converting the traffic that they do receive. Since many retailers still don’t track traffic or measure conversion rates in their stores, one has to wonder how many sales opportunities are missed because retailers don’t fully understand where and how many sales opportunities they are failing to convert. Before retailers start slashing prices, they should focus more attention on optimizing conversion rates in their stores.

Bob Phibbs, President/CEO, The Retail Doctor
Desperation is never a good strategy to compete — this is desperation. I can imagine last-call, slightly off-color or bargain cosmetics at Macy’s in the future.

Dick Seesel, Principal, Retailing In Focus
Speaking as a former buyer of cosmetics (going back to 1980) and then as a merchandise manager with oversight of the category, the beauty business has been the last refuge of full-price selling in department stores. But the temptation to put these goods on sale has migrated from discount stores and mass merchants to those department stores — with the added impact of Sephora, Ulta and online sales. And like anything else related to price promotion, retailers will find it hard to stop taking this particular drug once they start.

A long time ago, cosmetics fed off the traffic that the traditional department stores enjoyed. Then they became ‘headquarters’ businesses in their own right given the strength of brands like Lauder, Clinique and Lancôme. Eventually customers were trained to ‘wait for the gift-with-purchase,’ just as they were trained to ‘wait for the sale’ elsewhere in the store.

Those legacy brands are aging, just like the legacy department stores that carry them. This pattern is being repeated throughout the retail industry and the entire CPG world. So the conventional wisdom — that discounting cosmetics will only commoditize the business — may be true but may not be relevant anymore.

Gene Detroyer, Professor, European School of Economics
I guess the question that one should ask is, is the price of cosmetics the reason we are losing traffic? If not, why is dropping the price of cosmetics the solution?

Adrian Weidmann, Principal, StoreStream Metrics
While easy to implement, discounting very quickly becomes a race to the bottom. Retailers and cosmetic brands should first focus on ensuring availability. Make absolutely certain that the entire product family is available to every shopper that walks across your threshold. Every shopper that doesn’t find their specific brand and shade in your store due to out-of-stock is another shopper lost — you don’t get another chance as she has already found another source.

The best way to keep customers is to ensure you have what they want; a simple rule yet apparently very difficult in practice. Cosmetic brands need to take control of their in-store merchandising experience and integrate technologies to ensure they have 100% accurate daily visibility of their entire at-shelf inventory and product set to minimize out-of-stocks! Save the discounts for rewarding existing, repeat customers.

Chris Petersen, PhD, President, Integrated Marketing Solutions
Matching price on cosmetics to get customers back to the department stores might be a temporary fix, but it is only treating a symptom of a larger disease. Why aren’t customers shopping as much in department stores? Price is always a consideration, but also a slippery slope. Online retailing sets today’s prices. Omnichannel customers today are looking for seamless shopping across channels. The reason they go to stores is not for price — they value experiences in-store that they can’t get online.

The real question if you are a department store is not the pricing of cosmetics but the question of what makes Sephora successful.

Applause For Sephora Studio Concept

Lyle Bunn, Strategy Architect — Digital Place-based Media
Sephora, like most retailers, is all about products to improve life experiences after the store visit. Makeup studios make sense in the same way that treadmill analysis makes sense for athletic footwear and appliance or deck building demonstrations make sense for Pirch or Home Depot. When retailers make themselves part of the solution, their reward is loyalty.

Cristian Grossmann, CEO, Beekeeper
This initiative is a great idea because most customers don’t know they ‘need’ something until you show them how it will benefit their lives. By offering this personalized service, Sephora has more of a chance at selling its products because customers will directly see the value in the results. If they like what they see and how the products feel, they are more likely to seek out the store and purchase the products on-site. I see this working for other retailers, like electronics retailers who could showcase their latest technologies to engage customers.

Joan Treistman, President, The Treistman Group
Sephora is tapping into women’s desire for looking good…now. There are hair salons that simply offer wash and blow out, because women want to look their best and don’t rely on themselves and/or don’t have the time. Experienced hairdressers can help with know-how and convenience. Sephora’s studios can offer the same concept of helping women look their best now. The products used to make that happen become a natural shopping list.

To maximize the return on investment for the studios, Sephora studio staff needs to encourage an immediate purchase as brand name cosmetics are available in stores and online. I do have one worry. The number of studios over the long term may hire employees that disappoint rather than exceed expectations. That could jeopardize Sephora’s standing overall.

Lesley Everett, CEO/President, Walking TALL Training & Consulting
What a great move for Sephora! They have the advantage of their products being of such appeal personally to their customers that creating an even easier way to get up close and provide individual advice is a sure way to drive more product sales and loyalty. We know that the best sale is an emotional one from which we feel a connection to the product, company and the people, so this is set to be a huge success.

Will Kesling, Senior User Experience Architect Consultant
If Sephora wants to find this out they will have to have in place the ability to identify and measure some things. For example, when a customer is in Sephora, how do they know what drove them go to the store? All of these ideas are hypothetical and need to be validated, carefully measured and tweaked.

‘Can smaller service-oriented stores outside the mall work for other mall-based chains?’ This depends on what the definition of ‘work’ is. I believe the UX side — is it useable, useful, and desirable — also has to be balanced with its being technically feasible and economically viable for the business.

Again, all of these ideas need methods of both quantitative and qualitative measurement. One thing is for certain — they are offering something you can’t get online, and that could be a good thing.

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