Prestige and mass beauty both grew 7% in the first half of the year, but Sephora at Kohl's fell 4% for the second straight quarter, even though the format represents roughly a tenth of Kohl's total revenue. Kohl's leadership pointed to expanded distribution from several of the bigger brands that originally made the format work, meaning those brands are now sold in more places, including their own DTC sites, which erodes the exclusivity that justified the partnership. This is a channel conflict problem, and it isn't unique to Kohl's. Any DTC brand expanding into wholesale, marketplaces, or new retail accounts faces the identical tension, and most don't have anyone whose job is managing it on purpose.
Kohl's reported its 18th consecutive quarter of declining comps this week and, to its credit, the numbers mostly supported the company's framing of the results as progress. Net sales and comps both fell less than 1%, full-year guidance moved up, and margin guidance improved meaningfully. But Sephora at Kohl's, the format the company had leaned on for growth, fell 4% for the second quarter running, in a category that is not struggling at all. Prestige beauty grew 7% industry-wide, crossing $17B in the first half of the year, and mass beauty grew 7% as well, above $39B.
An eleven-point gap between category growth and a specific retailer's performance in that category isn't a demand problem. It's a distribution problem, and the mechanism behind it is worth every DTC brand's attention, because it's not exclusive to department stores.
The Real Story Isn't Kohl's, It's Channel Conflict
Kohl's CEO attributed part of the softness to thin newness and a soft skin care quarter, both fair and probably true. But he also pointed to an ongoing headwind from "expanded distribution from a few of the bigger brands," and that's the more interesting sentence in the entire earnings call. The brands that gave Sephora at Kohl's its original reason to exist are increasingly available everywhere else too, including directly from the brands themselves.
The original trade was access: a shopper near a suburban strip mall could buy prestige beauty without driving to a proper mall. That scarcity was the entire moat. Once a brand sells through Ulta, Amazon, its own DTC site, and Kohl's all at once, Kohl's has no structural advantage left. It's competing purely on assortment and price, a fight the format was never built to win.
That eleven-point swing happened while consumer appetite for the category was clearly healthy. The entire difference comes down to where that appetite gets captured, a distribution and channel decision, not a demand one.
Every Growing DTC Brand Faces the Same Tension
Swap Kohl's for a DTC brand's own site and the mechanism is identical. Every new wholesale account, marketplace listing, or retail partnership a growing brand adds is a legitimate reach opportunity, and it's also a potential threat to whichever channel the brand cares about protecting most, often its own DTC site, where margins and customer data are highest. Add enough distribution without managing pricing, promotion, and exclusivity across all of it, and the brand's own site starts competing against itself sold somewhere else, frequently at a discount.
Kohl's own private label sales actually grew 3% in the same quarter, the one line in the report the company fully controls, since no outside distribution decision can undercut a product nobody else sells. That's structurally the same argument for keeping a real set of SKUs, bundles, or early releases DTC-exclusive: it's the one channel advantage that expanded wholesale distribution can't quietly erode.
What Managing This on Purpose Actually Looks Like
MAP and Promotional Governance
Setting and actually enforcing minimum advertised pricing and promotional cadence rules across wholesale, marketplace, and DTC, so a retail partner's sale cycle doesn't routinely undercut the brand's own site on the exact same product.
Exclusivity and Assortment Tiering
Deciding deliberately which SKUs, bundles, or new launches stay DTC-exclusive versus which go wide to retail and marketplace partners, so every channel, including the brand's own, keeps a real reason to exist.
Channel-Level Unit Economics
Tracking true margin by channel, wholesale terms against marketplace referral fees against DTC paid media cost, so distribution decisions get made against real numbers instead of top-line reach alone.
Active Retail Partner Management
Treating a wholesale or retail partnership as a relationship to actively manage, not a shipment to make and forget. A partner's format only keeps working if the brand keeps giving it a reason to.
Who Should Actually Own This
At most growing DTC brands, the honest answer is nobody, at least not yet. Wholesale and retail partnership decisions typically sit with a Sales or Partnerships lead focused on closing the next account, while DTC economics live with a separate Growth or eCommerce team, and neither has full visibility into what the other's decisions are doing to their own numbers. A new wholesale deal can look like a clean revenue win in isolation while quietly eating into DTC margin that never shows up in the same spreadsheet.
The brands getting ahead of this are creating a dedicated Head of Channel Strategy or VP of Omnichannel Revenue role, sitting explicitly above both Wholesale and DTC, with real authority to say no to a distribution deal that looks good on its own but damages the broader portfolio. If your team is already navigating Amazon Ads, Walmart Connect, or retail media roles, this is the natural next layer above that work, the person deciding where and how widely a brand should even be selling before the retail media question comes up.
Kohl's didn't lose Sephora's business. It lost the reason a shopper needed Kohl's specifically for that business. That's what happens to any retail partner, including a brand's own DTC site, when distribution decisions get made channel by channel instead of on purpose.
For brands weighing whether to open their own physical retail alongside all of this, our piece on DTC brands opening stores again covers a related version of the same question, deciding what a channel is actually for before adding it.
Kohl's will spend the holiday season concentrating Sephora square footage into the part of the beauty category still growing, gift sets and fragrance. That's a sound tactical move. It doesn't fix the structural issue, which is that the brands making the format work have no obligation to keep it exclusive, and the retailer has no lever to make them. DTC brands hold the opposite position: they control their own distribution decisions completely. Most just aren't managing them like it.
Frequently Asked Questions
What actually caused Sephora at Kohl's sales to decline while the beauty category grew?
Kohl's leadership pointed to thin newness and a soft skin care quarter, but also flagged expanded distribution from several of the bigger brands that originally made the format work. In plain terms, some of the brands that gave shoppers a reason to visit Sephora at Kohl's are now widely available elsewhere, including through their own direct-to-consumer sites, which erodes the access and convenience that justified the retail partnership in the first place. Prestige and mass beauty both grew 7% industry-wide over the same period, which confirms the problem is distribution and positioning, not consumer demand for the category.
What is channel conflict, and why does it matter for DTC brands specifically?
Channel conflict happens when a brand's own direct-to-consumer site ends up competing against the same product sold through a wholesale partner, marketplace, or retail account, often at a different price or with different promotions. For DTC brands, this matters because the DTC channel is usually the highest-margin, most defensible part of the business, and every new wholesale or marketplace deal that isn't managed deliberately has the potential to quietly undercut it. The Kohl's situation shows the other side of the same coin: it can just as easily undercut the retail partner's reason to carry the brand at all.
Should a growing DTC brand avoid wholesale and retail partnerships altogether?
No, wholesale and retail distribution remain legitimate and often necessary growth channels, particularly for physical product categories like beauty where in-store discovery still matters. The issue isn't distribution itself, it's expanding distribution without a deliberate strategy for pricing, exclusivity, and assortment across channels. Brands that treat every new retail or marketplace opportunity as a standalone revenue win, without weighing what it does to existing channels, are the ones most likely to end up in Kohl's position eventually.
What role typically ends up owning channel strategy at a DTC brand?
At most growing DTC brands, no single role owns this today. Wholesale and retail partnership decisions typically sit with a Sales or Partnerships lead focused on closing the next deal, while DTC economics live with a separate Growth or eCommerce team, and neither has full visibility into how their decisions affect the other. Brands that get ahead of this create a dedicated Head of Channel Strategy or VP of Omnichannel Revenue role with explicit authority over pricing parity, exclusivity decisions, and assortment tiering across every channel the brand sells through, DTC included.
How does this connect to a brand's own private label or DTC-exclusive products?
Kohl's private label sales grew 3% in the same quarter that its branded beauty format fell 4%, and the reason is structural: nobody else can sell Kohl's own private label products, so no outside distribution decision can undercut that channel. DTC-exclusive products and bundles work the same way for a DTC brand. Keeping a meaningful set of SKUs, sizes, or bundles exclusive to the brand's own site gives customers a real reason to buy direct even as wholesale distribution expands elsewhere.