Cosmetics brands that stock sales counters at department stores face a fresh wrinkle: fewer shops to sell their products as retailers shrink their physical footprint.
Estée Lauder Cos ., Amorepacific Group Inc. and Kao Corp. are looking to manage risk and diversify how their products are sold as department stores, which represent a sizable share of their revenue, have been forced to close many locations during the coronavirus pandemic.
Several large U.S. retailers were struggling even before the health crisis forced them into lockdowns, which have been followed by limited store reopenings in recent months. J.C. Penney Co., Neiman Marcus Group Inc. and several retail brands have filed for bankruptcy during this time.
“If all of a sudden you look at your roster of partners and three out of six are getting scratched off the list, you have got to rethink this moment,” said Stephanie Wissink, an analyst at Jefferies Financial Group Inc. “That channel of retail is being questioned in many ways.”
Estée Lauder, which saw 46% of its North American net sales come through department stores for the quarter ended March 31, has made a bigger push for online sales during the pandemic. The company tapped employees or beauty advisers that work at store counters to host online tutorials and consultations, directing customers to products they can buy on the brand website, said Estée Lauder Chief Financial Officer Tracey Travis.
Ms. Travis said she expects online sales to become a larger source of revenue for the New York-based cosmetics company.
“There will continue to be this shift over the next few years in the U.S. in terms of the mix of brick and mortar vs. online,” Ms. Travis said, “and we will manage through that.”
Estée Lauder also has measures in place to assess inventory sold at struggling department stores. If a retailer plans to liquidate, Estée Lauder would either reclaim its inventory or negotiate a new price, preventing a fire sale of its products at a steep discount, Ms. Travis said.
The cosmetics company has negotiated new payment terms with some retailers. The CFO says the company doesn’t face much exposure to receivables from bankrupt J.C. Penney or Neiman Marcus. Estée Lauder posted a loss of $6 million for the most recently reported quarter ended March 31, compared with earnings of $555 million for the same quarter last year.
South Korean cosmetics company Amorepacific also has made changes in recent months to reduce its reliance on department stores. The company allocated most of its marketing budget to digital sales efforts and plans to expand its partnerships with e-commerce retailers in Asia and North America, said Changkyoo Lee, senior vice president of the company’s strategy division.
The maker of Sulwhasoo and Mamonde brands said North America represented 3.5% of its revenue in the quarter ended March 31. Overall revenue fell 28.3% for that quarter year-over-year. It declined 23.4% for the first six months of the year compared with the year-ago period.
Kao Corp., the Japanese cosmetics company that makes the Bioré, Jergens and Curél brands, is boosting its e-commerce sales by building customer engagement and improving its online beauty consultations with customers, said Shinji Kasuga, managing executive officer at Kao subsidiary Kanebo Cosmetics Inc. Kao generated net sales of $6.3 billion for the six months ended June 30, down 7.5% from the prior-year period.
Department stores still have their advantages, Mr. Kasuga said. Customers who want to purchase high-end products still like to have face-to-face consultations before purchases, he said.
Write to Mark Maurer at [email protected]
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