Self-Serve Cosmetics Stores Outshining Counters

From Reuters

The department store saleswoman with a trigger finger on the perfume bottle may be a dying breed.

Cosmetics sellers, like businesses including toys to sporting goods to casual clothes, have moved to homes of their own.

Specialty cosmetics stores--including Estee Lauder Cos.’ Origins, M.A.C. and Aveda--have boomed in recent years, threatening one of the bedrocks of department stores, analysts said.


Shoppers in a heightened pursuit for miracle anti-wrinkle creams and lipsticks are more than willing to trade big-store cosmetics counters for the self-service makeup meccas, which offer more choices without the insistent sales pitch.

“They are encroaching upon one of the more profitable segments of department stores,” said Jeff Stinson, an analyst for Midwest Research.

The free-standing format, seen as an alternative to department stores where cosmetics are kept under lock and key, has mushroomed to about a $4-billion business from $800 million in 1991 and is the fastest-growing area in cosmetics retailing, according to Market View, which tracks the U.S. cosmetics industry.

Retailers such as Federated Department Stores, May Department Stores Co. and Saks Inc. count on cosmetics for 10% to 15% of their annual sales, and a slightly higher percentage of profits, Stinson said.

Analysts resisted blaming lackluster department store results on cosmetics stores over the last year--soft apparel sales have dragged heaviest on results--but they didn’t discount the stores’ role either.

“It’s certainly not a benefit for department store foot traffic as specialty stores pop up throughout North America,” said Banc of America Securities analyst Bill Steele.

Cosmetics are displayed at the front of department store entrances for a reason, he said. Pricey skin creams--a 1 oz. bottle of Estee Lauder’s Resilience Lift sells for $45--carry high profit margins and consumers use them quickly and come back for more.

But as shoppers continue flocking to stores such as Sephora, a 400-store chain that is owned by French luxury giant LVMH, it forces department stores to come up with other ways to drive foot traffic.

“It’s a big issue for retailers to grapple with,” Steele said.

Christina Horvath-Simonits, a self-described cosmetics buff who lives in New York, said she often chooses Sephora over a nearby Saks Fifth Avenue if she is looking for funky colors and private-label products it sells for less than similar department store goods.

“The problem with department stores is the hard sell for [certain] products and the attitude from counter people,” she said. “I’ve had the experience that I was overlooked for 10 minutes so that older, more well-off clients perhaps, could be attended to first,” she said.

At stores like Sephora, she said, “No one tries to sell you anything. You can try on colors as long as you like with no hassle.”

More retailers are taking such sentiments seriously.

Last month, women’s clothing retailer Limited Inc. announced a joint venture with Japan’s leading cosmetics firm, Shiseido Co., to launch the beauty chain Aura Science.

The first Aura Science store will open next week in Columbus, Ohio, and it plans on adding nine more stores in major U.S. cities this year, the companies said.

“It all adds up,” said Kurt Barnard, president of Barnard’s Retail Trend Report, commenting on free-standing cosmetics retailers’ role in the strained results of department stores, particularly over the last year.

“Specialty cosmetics stores are thriving at their expense,” he said.

Analysts said the specialty stores tend to attract a younger clientele, who seek out a hipper, edgier array of goods.