Walgreens will sell designated Birchbox products online and test beauty spaces featuring Birchbox products and consultants in 11 Walgreens across six U.S. markets.

(Bloomberg)—When shoppers think of high-end cosmetics, the local drugstore probably doesn’t come to mind. Walgreens Boots Alliance Inc. aims to change that as it teams up with beauty subscription service Birchbox Inc.

Walgreens will sell designated Birchbox products online and also take a minority stake in the beauty retailer, executives from both companies said. The companies will test beauty spaces featuring Birchbox products and consultants in 11 Walgreens across six U.S. markets, according to a joint statement.

Pharmacy chains, which have long carried mass-market makeup brands, are rethinking those beauty aisles to bolster sales, lost to online merchants including Amazon.com Inc., No. 1 in the Internet Retailer 2018 Top 1000. With consumers increasingly shopping online for drugstore purchases, Birchbox could be a way to lure people into physical stores.

Competition is also stiff in the prestige beauty industry, with sales of almost $18 billion last year, according to researcher NPD Group. And Birchbox (No. 204) sees more loyalty from customers who visit its pop-ups and try the company’s best-selling brow shapers and lip balms in person.

In December, Walgreens (No. 37) will open Birchbox spaces in New York, Chicago, Los Angeles and Minneapolis, with five more coming early next year in Chicago, Dallas, Los Angeles and Miami. The spaces will range from 400 square feet to 1,000 square feet.

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Additionally, within the Walgreens pilot stores, Birchbox will offer subscriptions to its monthly delivery services of personalized samples and a “Build Your Own Birchbox” experience, which is a signature element of Birchbox’s flagship stores in New York City and Paris.

The alliance comes two days after Kroger Co. and Walgreens announced a venture to test one-stop shopping where customers can pick up online Kroger orders at select Walgreens.

A rendering of the design of the Birchbox beauty space within Walgreens.

Product sampling

Birchbox, founded in 2010 as a way for customers to try product samples before buying full-size items, raised more than $80 million in venture capital funding and entered the brick-and-mortar landscape in 2014 with its first permanent location in New York. CEO Katia Beauchamp said she will continue to explore standalone Birchbox stores.

Distinct from the sprawling specialty chains Ulta Beauty Inc. (No. 91) and Sephora USA Inc. (owned by LVMH, No. 131), products in the new store-within-a-store setup in Walgreens will be limited and organized by type, not brand. Each section of items will also be “charted,” based on a customer’s needs. Looking for a thermal spray for curly hair? A cleanser that’s hydrating? Just consult the chart.

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They were also designed to be fun, with vanity stations, makeup consultants and “feature tables” where people can experiment with Birchbox products.

“I don’t think walking into a store and having a thousand options of mascara—I don’t think that’s sensible to most of us,” Beauchamp said. “The casual consumer wants the editing done.”

Too much choice

The company’s target customers are unwilling to spend lots of discretionary time and money on navigating an endless array of makeup and moisturizers—which is why they benefit from the personalized subscription service, said Beauchamp, who nicknamed them “Caj,” short for “casual beauty” shoppers.

“Caj is definitely going into a Walgreens,” she said. “We love that.”

Walgreens wants those casual customers, too. In the past couple of years, it has acquired high-end products like No7 and placed beauty consultants in thousands of locations.

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Even while some parts of its business have experienced slowdowns, beauty and health have continued to grow, according to Richard Ashworth, president of operations at Walgreens. He said the pilot with Birchbox wasn’t driven by slumping sales but by customers who said they wanted more products.

Walgreens comparable retail sales have fallen every quarter for two years, and the stock is on track to underperform the S&P 500 Index for a third straight year.

Rival CVS Health Corp. (No. 114) has made beauty inroads as well. It partnered this year with Glamsquad to offer on-demand beauty services in addition to products in designated CVS spaces.

Pharmacies, like other retailers, are trying to capitalize on growing consumer demands for better experiences, as competition in their traditional businesses ramps up.

“They’re seeing that the front end of the store has been under pressure,” said Jefferies LLC analyst Brian Tanquilut. “Amazon is winning market share from the pharmacy chains, and so they’re finding ways to offset that market share loss by putting in more profitable, higher-dollar product lines such as beauty and wellness.”

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