This week, my colleague Lexy Lebsack and I dive deep into the off-price retail world, which has recently attracted more beauty brands, as well as premium assortments and displays. Additionally, an update on the body-care brand Kate McLeod, which is expanding to Sephora stores as the prestige retailer dives deeper into body care.
Stocked with deeply-discounted Byredo, Laneige, Kevyn Aucoin, Clinique, Benefit and Mario Badescu, among dozens of other brands, discount department stores’ beauty sections look more like Ulta Beauty or Sephora than ever before.
A presence in off-price retail channels, which include Marshalls, TJ Maxx, Nordstrom Rack and Saks Off 5th, has long been a sensitive subject among beauty brands based on the fear that selling marked-down products will equate to brand equity dilution. But a peek inside some of these off-price retailers now reveals a wide and elevated assortment of products by brands including Too Faced, Patchology, The Ordinary and Elemis. And these brands are being displayed on premium gondolas, rather than the basic display shelves of yesteryear.
Data from market research firm Circana shows that the interest in off-price retail beauty is modestly growing. The firm reported that the off-price dollar share of prestige beauty products in 2023 was 8%, an increase of 60 basis points, or 0.6 share points, year-over-year. Circana’s data set includes TJX stores plus others including Nordstrom Rack and Saks Off 5th. But the way these retailers are expanding their beauty sections varies greatly.
“People may not realize that the vast majority of Nordstrom Rack’s beauty strategy is [based on] pricing parity with the Nordstrom store,” said Chris Hobson, president and CEO of Rare Beauty Brands, which owns Patchology and Dr. Dana Nails. Patchology products sell for between $4-$50. “We preserve Patchology’s pricing integrity, so that was a critical consideration for us [selling at Nordstrom Rack]. Nordstrom has been strategic about the interplay between Nordstrom and Nordstrom Rack; it feels like Rack is where you can bring new consumers into the Nordstrom franchise, and then they’re more likely to shop at a Nordstrom proper.”
Hobson added that, while Patchology may sometimes liquidate excess holiday kits through off-price retailers like TJ Maxx and Marshalls, it’s not in the brand’s interest to have off-price retailer partnerships as a core strategy. Patchology has been available in Nordstrom Rack for approximately 18 months. Hobson declined to share the brand’s sales figures but noted that sales at Nordstrom “immediately” increased after distribution in Nordstrom Rack began. Driving product trial is Patchology’s primary focus at Nordstrom Rack, where the brand sells its less expensive products, including single-pair and five-pair eye patch sets or single sheet masks ranging from $4-$15.
According to Nordstrom, Inc.’s third-quarter 2023 earnings published Nov. 2023, the company’s total net sales decreased 1.8% year-over-year to $2.3 billion, owed in part to eliminating store fulfillment for Nordstrom Rack digital orders. Comparatively, TJX which houses Marshalls, TJ Maxx and HomeGoods, reported in Nov. 2023 a 9% increase year-over-year in quarterly net sales to $13.3 billion. Executives at Saks Off 5th, owned by the privately held Hudson Bay Company, declined to share financial figures. In 2021 SaksOff5th.com became a separate company through a partnership between Hudson Bay Company and private equity firm Insight Partners after a $200 million investment from multiple partners in the business. That valued the e-commerce website at $1 billion. Nordstrom Rack declined to comment for this story.
“Rack stores continue to be a great investment for us, delivering returns well in excess of their cost of capital and with a short payback period. They also continue to be our largest source of new customer acquisition … and we get good migration between the [Rack and Nordstrom] brands,” said Erik Nordstrom, CEO of Nordstrom, Inc., on the Nov. 2023 earnings call.
Executives from other brands, including men’s skin-care brand Jack Black, said they have a similar strategy to Patchology’s with Nordstrom, Inc., when it comes to off-price retail. Through Nordstrom Rack and Saks Off 5th, Jack Black sells its lower-priced products like travel sizes of popular items, gift sets with bundled discounts and lip balms. Lauren de Wet, senior digital and media marketing manager for grooming at parent company Edgewell Personal Care, said the Jack Black team views discount department stores as valuable channels for customer acquisition, ”particularly for younger demographics who are still forming brand loyalties.” She said these stores also provide exposure to a broader audience, including women who might be shopping for gifts or family members, further increasing brand awareness.
Using off-price department stores as a strategy to funnel new customers into full-priced stores is universal among brands and retailers playing in the off-price market. In the case of Saks Off 5th, its fragrances have long been a common entry point for shoppers of the off-price store, and the company saw that as an opportunity to strengthen its overall beauty assortment, said Mara Sirhal, chief merchant and brand officer for Saks Off 5th. For Saks Off 5th, beauty is a means of connecting with younger shoppers, though its core customer base still skews toward millennials, she added. Unlike Nordstrom Rack, Saks Off 5th beauty items are typically discounted, at 30-70% off the MSRP price.
“Our beauty strategy originated as a seasonal play,” said Sirhal. “Our assortment was focused on gift sets and tied to major seasonal events like Mother’s Day and Christmas. While we continue to offer gifting options, we’ve significantly expanded our assortment and refined our strategy to provide a more robust, evergreen selection, touching everything from skin care and body care to hair care and color. As we look to the future, we’re focused on building replenishment strategies so our shoppers can rely on us to offer their everyday favorites and keep coming back for more.”
According to a National Retail Federation study from 2018, discount retail models appeal to consumers across age and income groups, with 89% of those making under $50,000 a year saying they shop at various discount retailers. Eighty-eight percent of those making between $50,000-100,000 said the same, as did 90% of those making over $100,000. People shopping at bargain stores include 93% of millennials and Gen Zers who are over 18 years old, according to the study.
Brands’ off-price retail distribution and pricing can lead to customer confusion and, therefore, brand hesitancy to participate. For example, Glossy spotted Too Faced Better Than Sex Mascara in Chocolate for $14.99 at Marshalls and the same formula at nearby Nordstrom Rack in Los Angeles for full price, at $29. On the same visit, a full-size Clinique Dramatically Different Moisturizing Gel was selling for $19.99 at TJ Maxx and for $34.50 at the nearby Nordstrom Rack. TJX is also undercutting mass and specialty stores. Glossy found Maybelline Great Lash Mascara offered at $4.49 at TJ Maxx, when it goes for $8.49 at Ulta Beauty and $5.99 at Target.
Not all these brands and products are being sold in discount channels with the brands’ permission or knowledge — they’re products of the gray market of the off-price retail world. Traditionally, product distribution into discount department stores takes place through a third-party distributor, which can make it hard for brands to track just how their products end up there, according to Judah Abraham, founder and CEO of Slate Brands. A distributor, also called a ‘trader,’ has the legal right to sell the goods but lacks the brand’s permission to do so or is not an ‘authorized seller.'” he said.
But this can also mean counterfeit products could find their way into discount department stores’ stock. What’s more, expired products are more commonly found in discount channels than in stores that work directly with all brands.
“Our merchandise vendors guarantee that the goods they supply to us are authentic and in compliance with all applicable laws, regulations and industry standards,” said Andrew Mastrangelo, assistant vp of global communications for TJX. “Our buyers do not knowingly buy expired or damaged merchandise and are trained to look for products with expiration dates.”
As more brands directly embrace the off-price retail sales model, they could be better positioned to determine how their products appear on the shelf. Hobson compared the trajectory to the growth of Amazon’s beauty ambitions, which began in earnest around 2018. As more established and premium brands officially began to sell on Amazon, it assured other brands that an Amazon presence would not tarnish their brands. It also allowed brands to block unofficial sellers by establishing a formal presence.
“Over the last 10 years, [selling] branded goods has gotten more complex; the consumer has access to all the information about all the products and brands at any time. And they expect brands to be where he or she wants them to be when he or she wants them,” said Hobson. “It’s a tradeoff between exclusivity and accessibility, and every brand needs to find where it needs to live on that spectrum.”
Body-care brand Kate McCleod enters Sephora stores
On February 16, Kate McLeod entered 60 Sephora stores, starting with its Daily Stone, Dry Brush and Mini Sampler Set. The bootstrapped and profitable brand known for its zero-waste and waterless products originally launched online at Sephora in April 2022. Sephora has been eager to dive deeper into the body-care space, and has recently brought on Rare Beauty’s and Youth To The People’s first body-care forays. According to a 2022 report from Grand View Research, the body-care market generated $26.9 billion in 2021, and it’s expected to expand at a compound annual growth rate of 5.9% from 2022 to 2028.
“The whole reason why this brand started is that [the Body Stone] was a self-care practice that became quite meaningful to me, and I wanted to share it with others,” said McLeod, co-founder of her namesake brand. “This shows Sephora’s increasing dedication to wellness and a clean mentality.”
Inside our coverage:
Benefit hosts an influencer trip only for TikTok Shop creators.
Prada Beauty targets U.S. consumers with Sephora B&M launch.
Urban Skin Rx looks to capture more younger consumers.
What we’re reading:
Net-a-Porter shrinks beauty assortment.
LeBron James to launch men’s grooming brand.
The Body Shop collapses into U.K. administration.
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