While the focus has been on clothing retailers like H&M, Zara, Top Shop and the soon-to-arrive, Forever 21, cosmetics will actually pack the biggest punch as far as David Jones and Myer are concerned.

Cosmetics is a multi-billion dollar sector already well embedded in the online shopping world. But it's also where conventional retailers can make significant margins.

Retailers say the introduction of Sephora, which sells cosmetics from the likes of La Mer, Clarins, Benefit and Estee Lauder, as well as its own house brand, at reduced prices, will hit the two department stores, Myer and David Jones very hard. Cosmetics make up about 10 per cent of department store income, according to industry estimates.

"There is a significant proportion of income from the cosmetics section of department stores that Sephora will definitely target," said Leif Olson, director of retail services at property group CBRE

Department store insiders said the news of the arrival of "category killer" Sephora had triggered many late night strategy meetings at all retailers that sell cosmetics.

Priceline, Big W, Target, Kmart and supermarkets will be less afftected as they don't sell luxury brands. But the bigger players will feel the pressure. "The entrant of this new category will cause major ructions in the bigger stores and some chemists that sell these brands," one industry source, who declined to be named, told Business Day.

"It's one of the most highly-competitive and lucrative areas for a general retailer and it cuts across all items, including cosmetic brushes and accessories, as well as moisturisers, make-up and perfume."

Sephora is owned by LVMH Moët Hennessy, the world's leading luxury goods group. It operates about 1900 stores in 29 countries worldwide and will open an 800-square-metre site in Sydney's Pitt Street Mall in the coming months, in the store vacated by Esprit.

With stormclouds again gathering in the global economy, the cosmetics category could become even more curcial for local retailers. In times of consumer belt-tightening, cosmetics tend to remain immune, as they fall into the "pampering" category, a little luxury that shoppers will allow themselves even as they forgoe bigger purchases.

But the industry is highly competitive. Sephora itself has struggled in Asia against the power of other Hong Kong stores such as SASA.

It's understood LVMH will use the Sydney store to guage local interest before opening more outlets. But there are suggestions that Melbourne would be the next market, depending on the availability of a flagship site.

Rents on the Pitt Street Mall strip where Sephora will make its Australian debut range from $8500 to $10,000 per square metre per annum, putting the location among the top 10 most expensive retail strips globally by rent per capita.