The JCPenney at Queens Center mall in Elmhurst, N.Y., is decked out for the holidays. Nothing surprising there. But visit the second floor, and you'll find something quite unexpected sandwiched between women's coats and fine jewelry: a 3,100-sq.-ft. Sephora, the European retailer known for its hip beauty products. The boutique is a miniversion of a typical Sephora store, replete with fanciful makeup and pricey skin-care lines presented on accessible, self-service shelves.
The lighting and signage are exactly the same as in a Sephora store, as is the black-and-white color scheme. Step out of the space, though, and the techno-pop sound track gives way to the drone of holiday background music, and you're back where you started--the second floor of a department store.
The new store within a store--one of five Sephoras opened in a Penney in October--is part of the new face of a century-old retailer and the $18.8 billion company's strategy to attract younger, more affluent female customers. Come March, 10 more Sephoras will open, followed by nine more in June. "It's a brilliant move," says Citigroup analyst Deborah Weinswig. "It has a halo effect on the whole store."
Across the Hudson River at the Newport Centre mall in Jersey City, N.J., Kohl's, the $13.4 billion chain based in Menomonee Falls, Wis., is in the middle of its own makeover. The store, opened just in time for the prime shopping season, is the antithesis of the formula that has worked for Kohl's since it was founded in 1962. Unlike its hallmark one-floor, off-mall format, loved by suburban working moms, this two-story unit lies smack-dab in the center of--drumroll, please--a mall, directly across from none other than Macy's. Even Kohl's off-mall stores are changing, taking on a more department-store-like look. At a new Kohl's in Brandon, Fla., for example, big glass windows, slick white benches and piped-in music welcome shoppers. "We're all about responding to our customers, focusing on what we sell and putting it in an exciting environment for them," says Kevin Mansell, president of Kohl's. "We want to broaden our reach."
Penney and Kohl's aren't just hanging holiday tinsel to get customers to fill up their Christmas stockings. By adding exclusive-to-them designer labels and partnering with upscale sellers, they are redeveloping the middle market, a segment once thought lost forever in the crush between the high and low end. "Both JCPenney and Kohl's have come to understand what their shoppers expect: great prices every day, ease of shopping and an exciting store," says Wendy Liebmann, founder of WSL Strategic Retail, a consultancy that publishes quarterly surveys on how Americans shop. "They're working hard to address the needs of the core, Middle America shopper."
Retailers are heading for a decent if not solid Christmas, but the industry is still sorting itself out after a series of big deals and big changes. Last year Federated, which owns Macy's, swallowed up the more moderate May Department Stores. Macy's, having replaced with its own marquee some famous regional department-store names--Marshall Field's, Famous-Barr, Kaufmann's, Filene's--experienced a strong 8.5% increase in same-store sales for November. Sears, which combined with Kmart in 2004, is still struggling. And Wal-Mart, in the throes of a mammoth, disruptive restructuring, reported a dismal 0.1% drop in sales.