Saks Bumps Its Beauty Counter Off Coveted Ground Floor


The new beauty floor under construction at Saks Fifth Avenue in New York.


Photo:

STEPHANIE AARONSON/THE WALL STREET JOURNAL

Saks Fifth Avenue is moving the beauty department at its flagship store off the ground floor, scrapping a nearly century-old blueprint in a bid to compete with Sephora and other beauty chains, and win back shoppers who have migrated online.

Cosmetics, fragrances and face creams will relocate to a remodeled second floor that will include spa services and treatment rooms. Handbags and leather goods will take their place in the store’s most valuable real estate.

The new format, which will be unveiled to the public on Tuesday, has sparked a debate within the hidebound world of department stores, where change comes at a glacial pace. The Saks beauty department had resided on the ground floor of the landmark building on Manhattan’s Fifth Avenue since it opened in 1924.

Some industry executives consider the move a heretical decision that will result in lost sales. Others applaud it as a bold gamble to win back shoppers by offering new experiences and services.

“It’s a big risk,” said Barbara Zinn Moore, who until last year was a senior vice president of cosmetics and fragrances at Lord & Taylor, which is owned by Saks parent Hudson’s Bay Co., and is now a consultant. “It’s going to be harder to get someone to the second floor and there is a chance they will lose some impulse purchases.”

A rendering of the new Saks 5th Avenue beauty floor.

A rendering of the new Saks 5th Avenue beauty floor.


Photo:

Saks 5th Avenue

Department-store chains are under pressure to reinvent their beauty counters because of growing competition from

Sephora USA
Inc.,

which has a store across the street from the Saks flagship;

Ulta Beauty
Inc.

; and online startups such as Glossier.

“We had to do something outside the box to create a place not just to transact for beauty, but to experience it,” said Saks President

Marc Metrick

in an interview. Once new escalators that Saks is installing in the middle of the store are operational early next year, “it will only take an extra seven-to-nine seconds” to get to the beauty floor, Mr. Metrick said.

Barneys New York and Neiman Marcus Group years ago moved their beauty departments to the basement from the ground floor at select stores. Representatives from both companies said beauty sales increased after the moves because they were able to devote more space to the departments and add products and services.

But Neiman Marcus has no plans to extend the new floor plan beyond a store in Beverly Hills, Calif., and at its Bergdorf Goodman location in New York, where the ground floors are relatively small and beauty had to compete for space with high-grossing handbags, said Jim Gold, its president and chief merchandising officer.

“In a perfect world, I’d love to have beauty on the main floor,” Mr. Gold said.

The retail industry is undergoing another major shift — to e-commerce. How did we get here? Photo: Associated Press

At most mainstream department stores, cosmetics and fragrances still reside near the entrance, space they have occupied since the early 1900s. Back then, stores needed to “provide a sensory moat between the smell of the street and the Emporium,” said Paco Underhill, chief executive of Envirosell Inc., a research and consulting firm.

As the popularity of makeup and face creams blossomed, there emerged other reasons these items commanded the main floor, which is the most valuable space in any store, averaging two to three times the sales per square foot of upper floors, according to the consulting firm AlixPartners.

Retailers wanted to make it easy for shoppers looking for a new lipstick or face cream to get in and out. While not as profitable as handbags, beauty products also carried healthy margins because brands paid for the privilege of being located in the most trafficked part of the store by subsidizing the cost of the fixtures and staffing, industry executives said. Department stores hardly ever discounted beauty products, although that has changed in recent years as competition intensified.

“There has always been this notion that beauty requires high foot traffic, because there are a lot of impulse purchases,” Neiman’s Mr. Gold said. But at least at the high end, “it has shifted to be more about luxury treatments.”

The Gucci area on the beauty floor.

The Gucci area on the beauty floor.


Photo:

STEPHANIE AARONSON/THE WALL STREET JOURNAL

Saks is aiming to capitalize on that trend with its new second-floor beauty space that will be 40% larger than the area the category occupied on the ground floor, and include 15 spa treatment rooms and an 850-square-foot event space.

Shoppers can have their eyebrows shaped by Blink Brow Bar, exercise their face to tone sagging muscles at the FaceGym or visit the Skinney MedSpa for fat-freezing CoolSculpting treatments. Beauty concierges will serve as brand-agnostic consultants, guiding customers through the 122 brands, including 61 that are new to Saks.

Not all the brands were pleased with the move upstairs.

Estée Lauder

voiced concerns, according to a person familiar with the conversation.

“When you’re on the main floor of Fifth Avenue, you’re going to react when you’re moved off that floor,” Mr. Metrick said, adding that the conversations weren’t contentious and that Estée Lauder remains a good partner.

Chris Good,

Estée Lauder’s president of North America, declined to comment on interactions with Saks, but said the retailer is pushing the envelope with its beauty floor, which will allow it to bring in new customers.

Saks is also moving fine jewelry from the ground floor to the basement, space that had previously served as a stockroom.

Mr. Metrick said Saks plans to export some but not all of the changes to other Saks stores around the country. “We need to pivot and give people a different reason to come to the store,” he said.

Saks has increased sales for the past three quarters through February, providing a bright spot for parent Hudson’s Bay, whose stock has fallen about 19% this year. The company is fending off an activist investor, who wants it to sell divisions and make better use of its real estate, including its Saks Fifth Avenue location.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com

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