In 2020’s first quarter, Sephora threatened to close the 600 shops it operates inside J.C. Penney stores before coming to an agreement to keep them open. Then it announced it would open 100 small-format stores in American urban districts, the most it’s ever opened on any continent in a single year.
The man who introduced the category-redefining beauty retailer to the United States in the late Nineties thinks more retailers need to adopt Sephora’s open-minded real estate strategy.
“People have to stop thinking everything is going to fit it the same box, the way it used to do. The three main costs of running a store is rent, people, and inventory, and all three of those issues should be on the table for re-examination,” said Howard Meitiner, who was president and CEO of Sephora in 1998 when it entered the U.S. market.
Meitiner, who subsequently served as COO of Fortunoff Group and CEO of The Museum Shop, is now managing director of Carl Marks Advisors. Since COVID-19 hit, he’s been busy helping brands wend their ways in through a pandemic-plagued omnichannel world.
“One important question to ask is, ‘Why do we need so much merchandise in a store?’” Meitiner said. “People can buy online and pick it up in a store. Or they can go into a store and make a purchase and have it delivered at home. The blurring and integration of these lines shouldn’t matter to a company. You now need to serve every individual customer with an invisible linkage, not force them to buy the way they used to.”
Meitiner believes that a few years from now, COVID-19’s dissection of the retail industry might be seen as having elicited more good than ill.
“Digital disruption, changing behaviors of consumers, questionable viability of historically robust business models, the emergence of new players—those were all in place before the coronavirus happened. Good things come out of crises like these. It’s moved companies to achieve in a few months something that might have otherwise taken them five years,” Meitiner said.
One of the things sure to take place, he figures, is a new working relationship between landlords and tenants in retail real estate. National retail chains will be calling upon data to determine exactly what revenue they need to make at a store for it to be worthwhile in a certain mall or retail center. Five- and 10-year leases may cease to be standards.
“There is going to have to be a little more flexibility on the part of landlords. They like to have their rents set for long periods so that they can set out their balance sheets, but there’s going to be a shift in the way leases are created,” Meitiner said. “What needs to happen is more collaboration between tenants and landlords.”