Mass merchants and discount retailers are betting more heavily than ever on beauty.

Sears Holdings Corp. recently announced plans to expand beauty departments in 100 U.S. stores, including 12 in the Chicago area. Sears’ expanded beauty concept will join J.C. Penney Co.’s partnership with Sephora U.S.A. lnc. and Target Corp.’s remodeled beauty departments. In all three cases, the goal is to bring an upscale cosmetics environment to value-focused retailers.

“Beauty is one of the few areas left for incremental sales growth,” said Stephan Kanlian, chairperson of the Master’s in Professional Studies Cosmetics and Fragrance Marketing and Management at the Fashion Institute of Technology in New York.

The retailers hope to gain access to growing consumer spending on beauty. Sales of beauty at mass retailers rose 3 percent in 2010 to $12.40 billion, according to SymphonyIRI Group, a market research firm that tracks sales. The increase followed relatively flat sales in 2008 and 2009.

“If we look at the core beauty shopper, these are people who are buying six or more sub-categories per year. They are a very lucrative target for retailers. They tend to be very involved, spending a sincere amount on beauty,” said Victoria Gustafson, vice president of Beauty Vertical at SymphonyIRI Group.

Sears’ new cosmetics departments will feature skin care, nail polish and color cosmetics from well-known brands including Revlon, OPI and CoverGirl. Currently, Sears offers customers a limited selection of bath and body products and gifts. The expanded beauty department will be the return of color cosmetics to the retailer. The new departments will average 1,800 square feet and be staffed with beauty advisors available to offer tips and advice.

J.C. Penney’s successful partnership with Sephora offers an edited version of prestige products found at full Sephora stores. Operated as a shop within a shop, Sephora inside J.C. Penney is given prime real estate in the center core of the store near the women’s apparel and women’s accessories departments. The departments feature Sephora’s signature modern black and white look and are staffed by product advisors trained by the “Science of Sephora” program.

J.C. Penney is able to borrow the cachet of Sephora to support higher cost products. The company reports the sales productivity of the Sephora inside J.C. Penney is three times the average of the overall store.

“Bringing in Sephora was a turnkey way for J.C. Penney to add beauty in a meaningful way,” Kanlian said.

Minneapolis-based Target has invested in upgrading both the product assortment and aesthetic of its beauty departments. As part of a larger remodel program in 2010, the retailer introduced Destination Beauty. The remodeled departments provide dedicated space to feature Target’s private-label partnerships with makeup artists Jemma Kidd, Napoleon Perdis and Petra Strand. Target began private-label cosmetics with Sonia Kashuk, the partnership aimed to bring prestige quality cosmetics to the store.

Wider aisles, lighted fixtures and informational signage, were also added to improve the shopping experience. After the remodeling, sales of beauty at Target increased by 8 percent, more than doubling the increase of the industry overall, according to SymphonyIRI.

Research predicts that middle-class consumers will not return to pre-recession spending levels any time soon. According to a survey by WSL Strategic Retail, 81 percent of consumers who reduced their spending during the recession say they will not return to their “shop ‘til they drop behavior.” During the depths of the recession, middle-class consumers traded-down, finding lower-cost alternatives.

In 2010, beauty shoppers bounced back. Many shoppers tried private-label, but were not satisfied with the results. Now consumers are increasingly loyal to the product, not the retailer, retail experts say.

“People are seeking out the channel where they can buy the product they like,” Gustafson said. “Shoppers are still looking for a great deal, but on the branded product they prefer to purchase.”

 Mass and discount retailers stand to benefit from this shift. Higher fuel costs have removed the incentive to visit several different stores to save a few dollars. The added convenience of purchasing apparel and beauty in a single trip could be an added value for shoppers.

“Value is being reassessed by consumers,” said Robin Lewis, co-author of “The New Rules of Retail” and CEO of the Robin Report, an intelligence report on the retail industry. “That doesn’t necessarily mean cheap.”

The expansion of beauty in mass and discount retailers is not expected to slow. J.C. Penney has plans to add Sephora inside J.C. Penney into 300 stores by the end of fiscal 2011. Target expects to have completed remodels, including Destination Beauty, in 850 stores by the end of this year.

Bolingbrook, Ill.-based Ulta Salon, Cosmetics & Fragrance Inc. was a pioneer of combining mass, prestige and salon products into a one-stop destination. An 80.5 percent increase in profit for 2010, to $71.0 million up from $39.4 million shows that shoppers want beauty and convenience in one place. For fiscal 2011, Ulta plans to open 61 new stores.

Sears’ last attempt at beauty ended with a very public reversal. In 2001, Sears backed out of a deal with Avon Products Inc. for a store-in-store concept featuring Avon’s beComing line. Sears cited a shift in strategy that de-emphasized cosmetics, according to a statement at the time. Exiting cosmetics and ending the deal with Avon cost Sears $80 million.

“At the time, Sears experienced a lot of restructuring, getting rid of categories that did not fit the ‘core’ customer,” Kanlian said.

Sears has previously been successful in beauty, at least for a short time. Circle of Beauty, a private-label, developed by Sears with Pierre Rogers, a former executive from Lancôme was well-received by consumers. The line never met sales expectations. Three years after the launch, annual sales approached $70 million far below the original goal of $125 million. Sears shuttered the line in 2001.

“The strategy for Circle of Beauty was right, the timing and implementation was wrong,” Lewis said. “Consumers are ready to accept beauty in lower-priced areas, as long as it is aspirational.”

Creating an aspirational setting is the main challenge for Sears. It will be an uphill battle to be a destination for the female consumer. “A lot of other players including J.C. Penney, Target and Kohl’s have outpaced Sears in fashion and beauty. They have so much ground to cover,” Kanlian said.

Adapting the upscale department store experience for mass retail will take more than widening aisles and removing fluorescent lights. Department stores offer value added services such as the ability to test products and gift with purchase, which are difficult to replicate at the mass level. Innovation from cosmetics makers is helping to reduce customer risk. Gustafson points to the innovative merchandising of Maybelline Eye Studio Shadow: an in-aisle computer allows consumers to preview what the product will look like.

“Mass retailers are beginning to understand what really makes a difference and closes the sale versus trying to recreate the department store experience, which may or may not be relevant to the mass consumer,” Gustafson said.