Much of the rhetoric around established brands right now suggests that if you're being disrupted, you deserve to be. The mattress industry? Overpriced and predatory. Department stores? A parade of sameness lacking the services that differentiated them in the first place.

In beauty, though, even the old guard, so to speak, are innovating. Sephora and Ulta, once the disruptors themselves, are making moves to keep themselves top-of-mind as a cluster of direct-to-consumer (DTC) beauty brands crop up in the space. And both retailers have banked their strategies on partnerships with digitally native brands.

At Sephora, that means a series of in-store merchandising initiatives calling out digitally native or otherwise up-and-coming brands. There's a skin care trend wall that highlights new brands in that space, a planned rollout to 100 stores of a wall that focuses on hair products and Sephora's Next Big Thing, a dedicated space of the store to display new makeup brands.

The fixtures for Sephora's Next Big Thing launched in its Times Square store in June, but the retailer has plans to roll the section out nationwide in time for the holidays, Chief Merchandising Officer Artemis Patrick told Retail Dive.

"It's the first time we've had this sort of very dedicated, multi-branded space that is going into all stores," she said. "The biggest difference really is the scale, because it's not about just, like, 50 doors here or 100 doors here, it's really in every single store. It allows a destination and sort of a constant destination for our clients to know."

The battle for exclusive brands

It's a smart play to try and get much-hyped internet brands into stores — and one that Target has also picked up in the mass merchant space. The only problem? That's Ulta's strategy, too.

In the fourth quarter, Ulta reported that about 6% or 7% of merchandise is now exclusive, with plans for more on the horizon

"Our strategy to be the partner of choice for digitally-native brands like Morphe and Kylie cosmetics are paying off," CEO Mary Dillon said at the time, according to a Seeking Alpha transcript. "Both brands drove very strong traffic in stores, suggesting our guests are motivated to make more trips to the store to try these products in person."

Sephora, too, is trying to nab exclusives, and Patrick said that most of the brands in Sephora's Next Big Thing are either exclusives or limited distribution, though she noted that the company wouldn't refuse to sell a promising brand just because it was being sold elsewhere.

"Exclusive and limited distribution brands and products have always been part of our strategy. We do believe that the client does come to Sephora to find the latest, hottest, newest trends," she said, adding that the company is focused on innovative products above all else. "If there's an amazing, innovative product from a brand that's not exclusive and our client is asking for it, we believe we're here to serve the client, and of course, we would offer that as well."

According to Patricia Hong, partner and head of beauty and luxury in A.T. Kearney's Consumer and Retail practice, the initiative could help Sephora "maintain a sense of newness in the store" and test consumer trends, but may not have as big of an impact on foot traffic.

"I don't see this as an immediate traffics builder," she said in emailed comments to Retail Dive. "It could help increase AOV (Average Order Value) as consumers go for additional items, because of the newness this brings and the fact that most of these brands are still small, hidden gems."

Sephora's prestige cosmetics focus could serve to differentiate it from Ulta as a potential brand partner for up-and-coming businesses in the space. But it also means that Sephora is losing out on direct-to-consumer brands in different areas of beauty. 

Madison Reed, for example, a DTC hair color company, selected Ulta as its exclusive brand partner because of its focus on hair, and pulled the one product it sold at Sephora as a result.

"That's just not where someone would go to get their hair color," Madison Reed CEO and founder Amy Errett told Retail Dive in an interview earlier this year. "Ulta has a salon in every Ulta. So hair has been very much what the company has started with and has flourished."

With Sephora's Next Big Thing, at least, hair isn't the focus. Makeup is. And as the merchandise rotates, either as new product comes in or on a quarterly basis, Patrick and her team will have their eyes out looking for hits.

"There are going to be brands that fly off the shelves and grow their assortment, and I would say 'graduate' from that end cap and start selling in a bigger space or in some more linear space," she said. "So it's also a great way for us to test new brands."

The brands featured could be anything from an entirely new company to someone like Lululemon, which is well-known in the athletics space but has just started selling a self-care line through Sephora. 

While some DTC brands have started to expand on their own rather than relying on retail partners, including Glossier, Patrick believes DTC brands and specialty beauty retailers are complimentary, as the larger brick-and-mortar locations give new brands access to potential customers.

The Sephora advantage

When asked about securing brand partnerships, Patrick said the retailer's beauty advisers are what differentiate it from competition. Sephora has long prided itself on high touch-and-feel stores, and it's the job of associates to educate clients about what products might (or might not) work for them, as well as how to use them effectively.

That includes Sephora's Next Big Thing, with the company "putting a lot of effort" into educating store associates on the new products and how best to use them. "It's in our DNA to educate and personalize the experience for our clients," Patrick said, and she thinks that potential brand partners recognize that as well.

"We do think of our business relationships as more than just business relationships," she said. "Our brands are like family to us. We sit in the kitchen with them, we partner on product type, on marketing, on education and content. We're in it for the long game. So that and again, the incredible amount of education that our beauty advisers get on product. The passion that you feel when you walk into a Sephora store — I think that's a huge advantage."

As with any retailer pitching itself as the place to find up-and-coming brands, Sephora has to stay on top of the trends its consumers care about. While not all-encompassing, some of the trends Patrick and her team are watching in the space include men's beauty, as well as gender-neutral product lines, and clean beauty — areas that beauty advisers should be able to talk to customers about, recommending products based on their preferences.

To that end, the Clean at Sephora seal was launched last year and has since been expanded to include more brands and more banned ingredients. According to Patrick, it's been wildly successful, as more customers look to understand what ingredients they're putting on their skin.

"It's not to say that if something is not classified as clean that it's bad. It's just a personal choice," she said. "We believe very strongly that we need to make it easier for her to navigate, should she choose to try on and purchase products that are made out of certain ingredients. I don't think it's actually a trend. I think it's the reality, and where we live today and in the future."

Being a clean beauty brand alone won't get you on Sephora's Next Big Thing, though. The retailer is also laser-focused on bringing on beauty brands that have something to say.

"It's all about the story — the story behind the brand, the founder or the founders," Patrick said. "That's the number one thing we love: to understand where the brand came from, their unique point of difference and what their innovation is in the product type. All those things are really, really, really critical, regardless of whatever the trend is."