Department stores duke it out over these shoppers

From the Internet superhighway to the luxury shopping streets, and from low-price drug stores to airport travel shops, it's never been easier for consumers to snatch up beauty products on the go.

But while such an array of choice is good news for shoppers, the outcome hasn't been as positive for department stores, which used their role as a one-stop shop to lure in customers.

Now, after losing market share to a swath of competition over the past 10 years, the department store set is clawing back for a bigger slice of the beauty business.

A Sephora store inside a J.C. Penney
Source: J.C. Penney

At Kohl's, for example, management is rolling out revamped beauty departments, as one piece of its turnaround plan.

J.C. Penney is upping its bet on the beauty segment through an expanded partnership with Sephora, and by repositioning its salon services.

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And at Macy's, management is banking on the recently completed acquisition of Bluemercury to attract a new type of beauty customer to its portfolio of stores.

Though all three companies recently cited strength in their respective beauty businesses, the charge for growth won't come easy.

Despite department stores' share of beauty sales rebounding from 11.7 percent in 2010 to 12.7 percent last year—representing $9.7 billion—that's still shy of the 13.6 percent capture it had on the market one decade ago.

"Department stores face competition from everywhere within the retail spectrum," said Nicholas Micallef, beauty and personal care analyst at Euromonitor research firm.

Although many shoppers are gravitating toward easier-to-navigate specialty shops, department stores have managed to recover some of their share by focusing on the high-end beauty market, he said. That portion of the industry outperformed the lower-price mass segment last year, thanks in part to the improving economy.

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Department stores have capitalized on this trend by stocking up on pricier products that are marketed as having a dual purpose such as a foundation with sunscreen or anti-aging properties, as well as niche fragrances that have become popular with shoppers.

As part of Kohl's remodeled beauty departments, for example, the low-price retailer rolled out a new lineup of national beauty and fragrance brands, including Bliss and Tweezerman.

On the company's most recent earnings call, CEO Kevin Mansell said that the 900 stores featuring its new beauty formats continue to post sales that are 2 percent higher than the remaining 300 in its portfolio.

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Competitor J.C. Penney is targeting the beauty segment in two ways. First, it's expanding on its partnership with specialty shop Sephora, a segment that experienced another quarter of double-digit same-store sales growth in the most recent period.

Penney's recently launched the Sephora brand on its website, and CEO Marvin Ellison said that it will continue to expand the company's presence in its stores, as well as modernize the area outside of these shops. That could encourage shoppers visiting Sephora shops to browse elsewhere in the department store.

"Sephora not only drives traffic and sales at J.C. Penney, it serves as a point of differentiation that cannot easily be replicated in our industry," Ellison told investors.

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The department store is also moving forward with the rebranding of its salon business, which is expected to roll out nationwide in 2016. Penney's has said that its salon customers typically visit the store eight times a year and spend twice as much as the average customer.

Macy's in March completed its $210 million acquisition of luxury beauty retailer Bluemercury, which currently has 66 stores and another 10 planned by the end of the year. This fall, the mid-level department store will open four Bluemercury shops within Macy's stores.

Though there are no plans yet to launch the nameplate's spa services in its Macy's locations, CFO Karen Hoguet said earlier this month that the company is "absolutely" considering the idea.

With so many retailers gunning for a piece of the $11.2 billion prestige beauty market, Micallef said the ones with the most upside are those that do more than just sell products, and offer something extra.

He pointed to Saks Fifth Avenue's fragrance library, which showcases curated scents in an innovative way, as an example.

"The winners will be those that actually provide a certain experience," he said.