Analysts say that JCPenney's Sephora partnership is weighing on the beauty retailer's sales and sending shoppers into the arms of its main rival, Ulta

Business Insider/Mary Hanbury

A Sephora store at JCPenney in New York.

• Sephora has more than 660 locations inside JCPenney stores. JCPenney leans on this partnership to drive foot traffic to its stores and boost sales.
• UBS analysts say that this partnership is less beneficial for Sephora, however, which is likely suffering from dwindling foot traffic to malls.
• This is playing into the hands of its competitors, such as Ulta, they said. Ulta has a store within 10 minutes of 78% of these JCPenney Sephora locations.

JCPenney leans on its partnership with Sephora to drive foot traffic to its stores and boost sales, but analysts say the favor is not being reciprocated as these mall-based locations weigh on Sephora's sales.

JCPenney first partnered with Sephora in 2006 to woo young female shoppers and differentiate its offering. It now has more than 660 Sephora store-in-stores, which translates to Sephora having a store in around 75% of JCPenney's store fleet.

In recent earnings calls, senior management at JCPenney called out this partnership as being a positive growth driver for the business. Because of this, it has continued to add these locations to its stores.

"Our relationship is very strong and very exciting," JCPenney's CEO, Jill Soltau, said in an earnings call in February, adding that both companies are on the "same page."

"We had a very exciting conversation," she said after meeting with Sephora Americas CEO Jean-André Rougeot. "We see great things for Sephora inside J.C. Penney as we move forward and we look forward to getting that going."

JCPenney has struggled in recent years. It is one of several mall-based department stores that have been forced to close stores as traffic to malls slows and shoppers shift online.

Same-store sales at the department store were down 4% for 2018 and 6% for the fourth quarter of the year, the company reported in February.

Read more: JCPenney is closing 27 stores - see if your local store is on the list

According to a recent report from a group of UBS analysts, dwindling foot traffic to malls is likely having a negative impact on Sephora, given its large presence at JCPenney.

These analysts said that this is playing into the hands of its competitors, such as Ulta, whose stores are located in "power centers" rather than in malls. JCPenney and Sephora did not return Business Insider's request for comment on the UBS report.

Moreover, according to UBS research, Ulta has a store within a 10-minute drive of 78% of these Sephora JCPenney stores.

"We believe that Ulta is picking up much of the share that Sephora is leaking through these stores," the analysts wrote.