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How Sephora Built A Beauty

Empire To Survive The
Retail Apocalypse
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 Beauty
 CPG
 Retail
 Teardown

Sephora has captured the hearts of millions of

beauty shoppers and is aggressively expanding
across the globe. We dive into how Sephora
has succeeded in today's merciless retail
climate, highlighting key lessons for retailers.
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Imagine walking into a cosmetics store with racks of makeup, shelves

of perfumes, aisles of every beauty product imaginable — but you
can’t touch any of it.

Thanks to Sephora, beauty shoppers no longer have to face this

scenario. Founded in 1970 by Frenchman Dominique Mandonnaud,
Sephora pioneered the concept of try-before-you-buy for cosmetics,
which has been widely replicated across beauty retail.

And during a time where the retail sector is struggling — with almost

7,000 stores closing in the US in 2017 — Sephora is flourishing. In
terms of beauty sales, it is the No. 1 specialty beauty retailer in the
world.
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How is this happening?

Sephora’s story offers a number of key takeaways for retailers:

 Make digital an executive

priority. Below, we’ll
unpack Sephora’s digital
ambitions and how the
company has worked to
achieve them.
 Enhance the physical
store. Today, retail is all
about the “offline
experience.” Sephora
drives value from physical
retail beyond sales per
square foot. 
 Integrate in-store
technologies to engage
clients. Sephora helps
clients solve for specific
consumer pain points,
leveraging augmented
reality, facial scanning,
and more.
 Personalize product or
service
recommendations based
on customer
data. Localizing data is
key for reaching global
markets. Sephora uses
personalization to attract
 and maintain loyal
customers.
 Build
partnerships. Sephora
leverages partnerships to
support and cultivate
smaller
brands that could serve
as future distribution
partners or acquisition
targets.
 Cultivate robust loyalty &
rewards
programs. Sephora aligns
itself with customers’
values through benefits
and rewards programs.

Below, we dive into these factors and others driving Sephora’s growth,
the company’s new digital initiatives, the competition and challenges
it faces, and where Sephora could go in the future.

TABLE OF CONTENTS

 Sephora & LVMH: How

Sephora boosts its
parent company’s
selective retailing
strategy
 Sephora’s digital
transformation
 How Sephora’s
corporate structure
supports digital
 Sephora innovation lab
  Other digital
initiatives 
 The offline experience:
Sephora’s in-store retail
tech
 Current in-store
technologies
 Next iterations of
Sephora’s in-store tech
 Brand support &
incubation
 Sephora Accelerate 
 Kendo brand incubator
 Sephora’s private label
 Content, online
communities, &
influencer marketing
 Influencer marketing
 Exclusive product
launches
 Beauty insider program

 Risks & competitors
 Concluding thoughts

Sephora & LVMH: How Sephora boosts its

parent company’s selective retailing strategy
It’s impossible to predict where Sephora is headed next without
first looking at the relationship between Sephora and its parent
company LVMH, a Paris-based luxury conglomerate.

LVMH originally acquired Sephora in 1997 to enhance its

distributorship of perfumes and beauty products. Sephora had 54 retail
stores with nearly 1,500 employees at the time of its acquisition,
according to Business Wire.
Today, LVMH claims that the beauty giant has grown to approximately
2,300 retail stores with 30,000 employees, operating across 33
countries.

Sephora sits in LVMH’s Selective Retailing division, which aims to

“transform shopping into a unique experience” across beauty retail
(Sephora), travel retail (DFS and Starboard Cruise Services), and
department stores and food concepts (Le Bon Marché Rive Gauche
and La Grande Epicerie de Paris). These segments focus on luxury
products, in-store services, digitization, and personalization.

Sephora is a strong revenue driver and a standout within the division.

According to a Q2’16 earnings call, Sephora represented about 45% of
LVMH’s business in the United States. The conglomerate noted in its
2017 results that Sephora has continued to gain market share, with
particularly strong growth in North America and Asia (partially enabled
by LVMH’s acquisition of Singapore-based beauty e-commerce
platform Luxola in 2015).

Click to enlarge. 
Additionally, Sephora is pursuing expansion of its online presence in
Scandinavia, Mexico, and the Middle East.

In terms of physical stores, it launched its first Germany-based

store in 2017. The company also began expansion in India at the
beginning of 2018, with plans to open 8 — 10 more stores in the
country over the next 3 — 4 years. Sephora has also expressed
interest in building out a location in New Zealand.
 Source:  LVMH 2017 Annual Results

Today, Sephora offers a distribution funnel for LVMH perfumes and

cosmetics brands such as Givenchy, Yves Saint Laurent, Fresh, and
Benefit Cosmetics, as well as for brands incubated in its beauty brand
incubator Kendo (which we discuss further below).

In fact, Sephora has been critiqued for dedicating the majority of its
store spaces to LVMH-owned brands over those of other beauty
conglomerates like Estée Lauder and L’Oréal.

Source:  Wall Street Journal

Though Sephora serves as a distribution channel for brands in LVMH’s

Perfumes & Cosmetics division, it remains largely separate from its
other sectors, including Fashion & Leather Goods and Wines & Spirits.

This could begin to shift with the advent of luxury e-commerce as well
as the need to ward off Amazon.

Despite LVMH’s high profile misstep with its eLuxury platform back

in 2009, the conglomerate could explore new ways to build off
Sephora’s technological capabilities in other LVMH sectors —
especially as luxury companies look to upgrade the in-store
experience.

On the tech front, LVMH has been particularly active over the past
year, building a multi-brand online shop, launching a $50M+ venture
fund dedicated to emerging luxury brands, and starting a Luxury &
High-Tech program with Paris-based incubator Station F.

With increased technology investments and activity, LVMH could

leverage Sephora’s success to provide a model for how LVMH
could bridge offline and online retail for other LVMH-owned luxury
goods, such as watches, jewelry, wines & spirits, and more.

However, LVMH may not be quick to rush into such digitization, given

that Sephora’s brand is premium, but not explicitly luxury.

Sephora’s digital transformation 
Sephora was an early e-commerce player when it launched its first
website in 1998. 

According to a 2014 HBR interview with Sephora’s Former CMO &

Chief Digital Officer Julie Bornstein, the company’s original website
was mostly outsourced, and establishing in-house web
development was crucial to catapulting the company into a digital
future. The revamped website aimed to offer better visuals, product
information, and communication mechanisms for clients.
 Source:  Connoir  and Wayback Machine

With its in-house team, Sephora has become more agile, easily

adapting its web and mobile platforms to meet customer needs.

While Sephora was a relatively late

mobile adopter, only rolling out its platform in 2010, mobile is
crucial to helping Sephora clients get the most out of their beauty
shopping experience.

Sephora Virtual Artist (discussed further below) is one way the

company uses technology to solve the pain point of wanting to try on
makeup easily, without the mess.
Mobile ultimately serves as an aide for beauty inspiration and
personalized experiences, bridging the gap between online and in-
store shopping.

However, Sephora would never have successfully executed its early

digital initiatives had it not made digital an executive priority.

DIGITAL IS EMBEDDED IN SEPHORA’S COMPANY STRUCTURE

Sephora combined its traditional marketing and digital marketing

divisions in 2013. CMO and Chief Digital Officer Julie Bornstein led the
team, thus ensuring digital was concentrated in company leadership.

“I believe that if you’re going to be a

successful retailer — or business in general —
digital must be enmeshed at the highest level.”
— Julie Bornstein, Former Chief Marketing
Officer & Chief Digital Officer, Sephora
Last October, Sephora took an even bigger step towards digital retail
by merging its in-store and digital retail teams to create one omni-
retail department.

According to Sephora EVP of Omni Retail Mary Beth Laughton,

customers seek entertainment and aren’t consciously thinking about
channels. It’s up to retailers to make it as easy as possible for
customers to switch back and forth between mediums.

According to Glossy, this shift has allowed Sephora to rethink

its omni-channel strategy and execute a number of improvements,
including:

 Revamped customer
profiles with both in-store
and online data (e.g. online
and in-store purchases,
interactions with beauty
associates, etc.)
  Redefined metrics based
on consumer
behavior leading up to a
sale (e.g. number of
customers who browsed
online and purchased in-
store, etc.)
 Blended benefits that
integrate online and in-
store loyalty perks (e.g.
personalized product
recommendations based
on what a customer
browsed online and in-
store)

In addition, the newly formed team has a subgroup that focuses

on linking physical and digital retail experiences.

For example, after in-store makeovers, makeup artists now download

beauty products to a customer’s profile, which customers can use to
shop online or in-store. Additionally, Sephora Virtual Artist users who
try makeup on in the app can purchase products online or locate them
in stores.

SEPHORA INNOVATION LAB SCOUTS RETAIL TECH

OPPORTUNITIES
 The company’s US headquarters in
San Francisco — an unusual choice for a retailer — offers proximity
to Silicon Valley and a quick turnaround time for digital initiatives.

San Francisco also houses the Sephora Innovation Lab, launched in

2015 to help the company explore technologies that could be
leveraged across web, mobile, and in-store to create a more
integrated shopping experience. 

The lab is a testament to Sephora’s culture of experimentation.

Using a cross-functional team, the lab primarily scouts technologies

that help educate clients about products and application techniques.
According to Fast Company, the lab’s launch coincided with the launch
of several other digital initiatives, including beacon technologies
(enabling personalized alerts) across Sephora stores, mobile Pocket
Contour tutorials based on user selfies, and Sephora Flash for free
two-day shipping. More recently, the Sephora Virtual Artist mobile app
came out of the Innovation Lab.

The lab also showcases the importance of timing when it comes to

integrating technology in retail.

According to senior director of Sephora’s Innovation Lab Johnna

Marcus, when Sephora decides to pass on certain technology, it’s
usually because the timing isn’t right (reported by L2). For example,
the Sephora To Go app initially launched in 2010, but app features
such as video and product scanning didn’t gain traction until a few
years later due Wi-Fi limitations.

OTHER DIGITAL INITIATIVES

From its early adoption of Apple Pay to beacon testing, Sephora has
long partnered with big tech to serve its clientele. The company has
focused on a number of different digital initiatives to stay ahead of the
competition.

Targeted advertising for product discovery

Sephora Collection ad. Source: Facebook

Sephora has increased its big tech partnerships to boost targeted
advertising and personalized shopping experiences.

The company recently launched a campaign with Facebook’s

Collection ads in lieu of its normal holiday print catalog, in order to
enhance product discovery. Based on user preferences, Facebook’s
Collection ads serve variations of 70+ beauty products underneath a
sponsored video.

Digital investments are also helping Sephora expand to new markets

and localize consumers’ shopping experiences.

In March 2018, Sephora launched a Europe-focused partnership with

Salesforce to help personalize the shopping experience based on
consumer preferences, using data on geographic regions, customers’
previous purchases, cosmetic preferences, and more. The partnership
has also allowed Sephora to customize its site experience with
different languages and currencies to enable a deeper level of
personalization. 
Voice as the next frontier for beauty brands

With the increased traction of Alexa and Google Home, beauty

companies must master voice-based shopping to ensure their brands
remain top of mind for consumers.

In November 2017, Sephora launched its app on Google Assistant with

features to book beauty services, take quizzes, and listen to
influencer-curated beauty podcasts. 

Beyond client entertainment and engagement, this also helps Sephora

gather data on consumer preferences.

“The use of voice assistants … has turned out

to be more than just a fad. It’s paving the way
to a minor digital revolution, of which Sephora
wants to be a pioneer.”
— Anne-Véronique Baylac, Chief Digital
Officer, Sephora Europe and Middle East
Sephora will continue to expand Google Assistant functionalities in
2018, especially as voice becomes a key channel for consumers.

The offline experience: Sephora’s in-store

retail tech
Sephora’s management team has made it clear that while digital is a
crucial part of the company’s strategy, it must serve Sephora’s core
purpose of unlocking its clients’ beauty potential.

“Consumers are looking for retail stores to be

creative spaces. They are looking for
experiences. Digital is a critical element in
retail — however, it is not just for the sake of
adding new, cool technology. Our intention is
to help our clients.”
— Bridget Dolan, SVP Omni Experience &
Innovation, Sephora
CURRENT IN-STORE TECHNOLOGIES

With that in mind, Sephora has pioneered a variety of in-store

technologies for beauty enthusiasts.

Beacon technology offers location-based content

While not a new offering, beacon technology allows Sephora’s app to

recognize when a user is in a store and then serve up an in-store map,
daily promotions, and the customer’s online shopping cart and wish
list. This allows for a more personalized and engaging shopping
experience.
Source:  BuzzFeed News
For example, Sephora could send tailored offers to shoppers spending
time in a particular cosmetics section. This method, however, is only
possible if customers enable beacon notifications on their phones.

        Sephora’s Beauty Board

Social shopping platform facilitates collaborative beauty browsing

Launched in 2014, Sephora’s Beauty Board offers a Pinterest-like

social media platform where users can post, like, and tag different
looks and share them with Sephora’s beauty community.

Users can post photos and filter through trends and keywords to find
specific looks. The platform can also be seen in stores on digital
screens featuring shoppable content. 

Chatbot & in-app voice control enables conversational commerce 

Sephora was the first beauty brand — and one of the first retailers — to
adopt chatbots for conversational commerce to spark more natural-
feeling communication between the store and its clients.

“At Sephora, our goal with digital tools and

innovation is always to meet the client where
she already spends her time, which is why the
Messenger platform capabilities appealed to
us. We were excited about combining ease and
utility for Sephora reservations — enabling our
clients to book a makeover with us in seconds,
just by messaging Sephora.”
— Mary Beth Laughton, EVP Omni Retail,
Sephora
In partnership with Facebook, Sephora launched Sephora Assistant, a
bot for Messenger, in November 2016 to help clients easily book
makeovers. According to Facebook, Sephora Assistant achieved an
11% higher booking rate and cut 5 steps in the traditional makeover
booking process.

Sephora Assistant chatbot and targeted advertisement for makeover

booking.  Source: Facebook
Beyond Sephora Assistant, the company partnered with teen-focused
messaging app Kik in 2016 to build a branded chatbot to reach a
younger demographic.

Sephora even experimented with a digital rewards program using Kik

Points, where users earned points by performing tasks such as
watching video ads. Users could then bid points for deluxe samples of
Benefit Cosmetics, which helped the company glean
insights on consumer behavior.

Augmented reality allows virtual makeup try-on

Sephora leverages augmented reality for both in-store and in-app

makeup trials.

Sephora’s Innovation Lab tracked the augmented and virtual reality

space for a few years before launching its Virtual Artist app in 2016.

The mobile app allows users to virtually try on makeup. The app added
augmented reality features — such as the ability to try on lip colors
and lashes — in 2017.

Sephora Virtual Artist app

Notably, Sephora partnered with AI and AR app

provider ModiFace (recently acquired by L’Oréal) to launch both its
mobile app and in-store 3D augmented reality mirror.
In May 2018, Retail Dive reported that Sephora, along with Nike and
other retailers, would be beta testing virtual makeup try-on with AR
effects for Messenger.

Facial scanning helps beauty shoppers find the perfect color match

Finding the right foundation shade is a major pain point for beauty
shoppers.

Sephora knew this back in 2012, and aimed to improve customer

experience through the launch of Color IQ in partnership

with  the Pantone Color Institute.

Color IQ helps shoppers identify foundation and concealers that match

precisely match their skin tones. The beauty service scans a
customer’s skin and assigns it a Color IQ number. The number can
then be used in stores or applied to customers’ Beauty Insider
accounts in-app and online to personalize product assortment.

Color IQ is also being leveraged as a loyalty tool. Customers who have

had an in-store skin scan receive a follow-up email that lists matching
products based on the user’s foundation match and color key.

By locking a customer’s perfect color match to Sephora’s in-store and

online platforms, customers are more incentivized to exclusively
purchase foundation at Sephora.
 Skincare IQ personalizes skincare
recommendations  

Skincare has been a major revenue driver for Sephora, thanks to high-
momentum brands such as Drunk Elephant (Sephora’s top-growing
skincare brand in 2016).

This trend shows no sign of letting down, with skincare sales surging
higher than makeup sales, according to The NPD Group.

Sephora was ahead of the curve on skincare when it launched its

Skincare IQ platform in 2012.

Skincare IQ features a quiz that searches Sephora’s vast array of

ingredients and formulations to recommend matches for clients’
specific skincare concerns.
Down the road, Sephora could apply scanning technology similar to
ColorIQ to enhance its skincare analysis and further personalize the
service for clients.

A patent filed by LVMH titled “Method to measure skin elasticity and

firmness,” granted in 2017, details a device that measures skin
elasticity and firmness before, during, and after a cosmetic treatment.

Fragrance IQ & InstaScent create in-store sensory experiences 

In 2014, Sephora launched its Fragrance IQ system, where shoppers
answer a questionnaire on an in-store digital screen to find a fragrance
match based on perfume preferences and lifestyle.

Sephora’s Fragrance IQ

In 2015, Sephora furthered its fragrance technology by partnering with

cloud-based scent system Inhalió to develop InstaScent. The sensory
technology uses a dry air delivery system that lets users explore
fragrances emitted from a nozzle.

Users can now smell up to 18 scent families without needing to try

them on.

NEXT ITERATIONS OF SEPHORA’S IN-STORE TECH

If there’s one thing to know about Sephora, it’s that the company
doesn’t get complacent.

“It hasn’t been easy, but Sephora has moved to

make digital as important as the physical
product in our stores. We also try to think like
customers — how would I want to shop, what
would make my experience better, how do my
kids’ interactions with technology predict the
future?”
— Julie Bornstein, former CMO & Chief Digital
Officer, Sephora
Sephora will likely continue expanding its in-store technologies for
experiential retail through its Innovation Lab. Based on current beauty
trends, we could see Sephora explore some of the following
opportunities.

Beauty devices

Advances in IoT, artificial intelligence, and other technologies are

enabling the rise of a diverse array of beauty devices.

This market is expanding, with companies like Foreo, HiMirror, and

others offering an assortment of high tech beauty devices from smart
beauty mirrors to skin diagnostics platforms.

Sephora has been capitalizing on the trend through its various beauty
device offerings, targeting hair removal, facial cleansing and steaming,
light therapy for anti-aging, and more.
As at-home beauty devices become more popular, we can expect
Sephora to continue expanding its selection of beauty devices to
enable consumers’ connected beauty routines.

New use cases for AR and AI

“[Digital] is woven into the service model and

all of our beauty advisors are trained to feel
equally comfortable working with our digital
tools as they are with brushes and cotton
swabs.”
 — Deborah Yeh, SVP Marketing & Brand,
Sephora
As companies increasingly leverage AR/VR for employee training (as
seen with Estée Lauder’s partnership with Perfect Corp to launch
an AR training program), Sephora could consider expanding its AR
technology to help train beauty associates on new products,
technologies, and makeup application tips.

While there was some question of whether Sephora would cease

working with ModiFace after its recent acquisition by L’Oréal,
according to WWD, Sephora still plans to use ModiFace’s technology to
power the Sephora Virtual Artist program in its app. The company has
even claimed that due to increased awareness of AI and AR
technologies from the ModiFace acquisition, Sephora’s app has seen
greater engagement.

With potential concerns over a competitor having access to customer

data, Sephora could eventually find a different partner or even acquire
a bigger AR/VR company to enhance its virtual try-on capabilities.

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Further in-store personalization 

As beauty devices and personalized cosmetics have gained

traction, as seen with L’Oréal’s foray into made-to-measure cosmetics
with LTP and Custom D.O.S.E., Sephora could also take advantage of
the trend.

Rather than suggest existing products, the company could look to

build cosmetics tailored to shoppers and their unique concerns, from
skincare to lip care and more.

Though Sephora hasn’t announced plans to pursue such an initiative,

this could be an area for the company to capitalize on, thanks to
increased consumer desire for personalized cosmetics.
Bringing the Sephora experience to the department store

Sephora has expanded its in-store beauty retail experience beyond its
proprietary stores.

JCPenney’s partnership with Sephora has been an anchor for

JCPenney’s physical retail experience. Though the department store
plans to downsize its retail footprint, it still plans to open
approximately 30 more Sephora shops inside JCPenney stores this
year.

Frequently cited in JCPenney earnings transcripts, the Sephora

partnership has been a huge driver of in-store visits and sales for the
department store. According to Fortune, 2016 annual sales per square
foot in Sephora shops in JCPenney were between $500 and $600 —
more than 3x the JCPenney average.

According to CB Insights’ Earnings Transcripts tool, JCPenney has

mentioned Sephora on its earnings calls 234 times since 2008.
Notably, this is significantly more mentions than the 139 times LVMH
mentioned Sephora over the same period.
With plans to open 30 more Sephora shops in 2018, JCPenney is
leveraging Sephora’s beauty retail model for in-store customer
engagement during a time when department stores are struggling to
remain relevant.
 Sephora in JCPenney. Source: JCPenney Newsroom

Brand support & incubation

Nabbing shelf space in Sephora, amidst its vast product assortment of
300+ brands, equates to hitting the jackpot for up-and-coming beauty
brands. A quick Google search shows hundreds of articles and
forums full of beauty brand executives and cosmetic formulators
seeking tips for selling into Sephora.

Sephora’s beauty retail model relies on both partnering with and

incubating beauty brands. The company has a few engines to support
its ever-expanding product assortment, including:

 Sephora Accelerate, which

supports smaller beauty
brands that could
potentially be sold in
Sephora stores
 Kendo, which
incubates proprietary
brands to distribute in
Sephora
 Sephora Collection,
Sephora’s private label line
We dive into all three initiatives below.

SEPHORA ACCELERATE SUPPORTS FEMALE

ENTREPRENEURS, SCOUTS UP-AND-COMING BRANDS

Sephora Accelerate — which is part of the company’s larger social

impact initiative, Sephora Stands — launched its first cohort in 2016 to
help empower female beauty entrepreneurs, who are still largely
underrepresented in the industry.

The company offers nominal funding for 8 –10 selected

startups, which then participate in a week-long beauty boot camp
featuring workshops, events, and mentorship opportunities,
culminating in a final Demo Day.

Not only does this allow Sephora to support female entrepreneurs; it

also helps the company scout out high-momentum brands that
Sephora could distribute.

Though not all brands make it onto Sephora’s shelves (to date, only
organic skincare brand LXMI, essential oils company Vitruvi, and
ethical fragrance brand The 7 Virtues have done so), the company
offers participants ongoing mentorship and networking opportunities.

Participating companies can also receive funding from Sephora to

help their brands grow. For example, Sephora Accelerate loaned
castor oil-based beauty brand Kreyol Essence $50K in 2017 to help it
prepare for distribution at Whole Foods. 

Sephora recently announced its 2018 cohort, which taps into many
current beauty trends, including:

 Personalized skincare
(Proven)
 Inclusive beauty (Mented
Cosmetics)
 Cannabis-based beauty (Ho
Karan)
  Hardware devices for at-
home cosmetics
(BeautyMix)

KENDO INCUBATES GLOBAL BEAUTY BRANDS

Sephora doesn’t only support indie beauty brands: it also incubates a

number of well-known brands through its beauty brand incubator
Kendo.

Kendo was started by former Sephora Americas CEO David Suliteanu

in 2010 and is now part of LVMH’s Perfumes & Cosmetics groups.
Kendo incubates brands such as Fenty Beauty, Kat Von D, Marc
Jacobs, and Bite Beauty, which are sold in Sephora and other
outposts.

Kendo aims to turn these brands into global beauty powerhouses.

Notably, the launch of Fenty Beauty by Rihanna in September 2017
triggered an industry-wide shift towards inclusive beauty products for
a diverse array of skin tones.

Further areas of exploration for Kendo could include expanding its

assortment of inclusive beauty brands or even men’s grooming, given
the momentum in these areas.

SEPHORA’S PRIVATE LABEL AIMS TO SIMPLIFY BEAUTY

SHOPPERS’ EXPERIENCES
Sephora’s private label (launched circa 2002) plays a key role in
attracting shoppers and controlling pricing and inventory.

Sephora Collection is Sephora’s most affordable line, with a range of

nearly 500 products including makeup, skincare, fragrance, beauty
tools, and more.

The company rebranded Sephora Collection in 2016, reviving the

private label to become more millennial-friendly and have a better-
defined scope.

Now, Sephora positions the brand as a sort of a gateway drug to

introduce novice beauty shoppers to its collection, with the idea that
they could eventually graduate to premium brands.

With the slogan “Beauty Uncomplicated,” Sephora Collection aims to

simplify the potentially overwhelming beauty shopping experience,
making it more affordable and approachable.

“The lady at the counter has been replaced by

hundreds of people on YouTube. There are
more voices. And we are trying to cut through
the confusion.”
— Deborah Yeh, SVP Marketing & Brand,
Sephora
Sephora’s product discovery features invite clients to let Sephora
guide them through the shopping experience. Shoppers can easily
customize product recommendations by very specific criteria, such as
product type, finish, and longevity.
The feature’s use of natural, straightforward language
makes decision-making very easy for makeup novices. After all, it
seems more effective to ask shoppers what results they want, rather
than trying to gauge specific products or ingredients they’re looking
for.

Sephora Collection also caters to customers who want to curate

recommendations by more specific criteria. Upon searching “Sephora
Collection” within the mobile app, users can filter by criteria including
age range, beauty benefits, concerns, formulation, price, and more.
Sephora has also promoted Sephora Collection in millennial-friendly
environments like Coachella, where it was the music festival’s official
beauty sponsor this year. Sephora offered free hair and makeup touch-
ups and festival-inspired looks for Coachella-goers in a Wi-Fi-enabled,
air-conditioned tent.
 Sephora tent at Coachella 2018.  Source: Clevver

Content, online communities, & influencer

marketing
Beauty aficionados, especially those who download Sephora’s app, are
some of the most loyal customers.

In an industry where trends change faster than the blink of an

eye, fresh content is crucial to keeping customers engaged and
up to date on the latest beauty trends.

Daily content and location-based messages promote limited edition

products, deals, and educational materials for shoppers, with the aim
of enticing users into Sephora stores.

According to SVP of marketing & brand Deborah Yeh, it’s all about

fostering a two-way conversation between Sephora and clients. This
could take the form of promoting social media events with brand
founders online, or other live social media events.

In Los Angeles in December 2016, Sephora launched an in-house

content studio that offers services for photo shoots, video production,
and more. According to Glossy, this allowed Sephora to produce nearly
400 videos in 2017 — 90% more social media videos than the year
before.

“Increasingly consumers want pictures over

words … if you look at our site, we lean far
further toward visually-led merchandising than
the more editorial skew of our competitors.”
— Ian Rogers, Chief Digital Officer, LVMH
Yeh also notes that Sephora’s social strategy consists of three pillars:

 Teaching: Guiding clients
through their beauty
questions
 Humor: Employing a
humorous, relatable voice
on social channels
 Community: Fostering
community to help clients
 engage with Sephora and
each other

When it comes to beauty content, Sephora often lets products speak

for themselves. Beauty being a sensory-driven experience, mobile and
online content highlights visuals whenever possible.

SEPHORA’S INFLUENCER MARKETING STRATEGY FOCUSES

ON AUTHENTICITY 

Influencers have become essential to distributing beauty content to a

wide audience.

At the same time, influencer engagement has become an increasingly

tricky space for brands to navigate.

According to Nandini Joshi, VP of e-commerce, marketing, and

customer innovation at Sephora SEA/AU, Sephora must balance
nurturing influencers’ creative talent to cultivate authentic
voices while also recognizing that influencers aren’t employees and
can’t be treated as such.

Sephora’s influencer marketing strategy goes beyond just

tracking influencer-generated traffic, considering factors
like influencer brand equity and social sentiment for a more holistic
view.

Additionally, Sephora has revamped its influencer marketing strategy

to focus on long-term influencer relationships instead of working with
influencers on an ad-hoc basis.

According to Glossy, Sephora’s influencer marketing program consists

of brand ambassadors complemented by “micro-influencers.”
 For 2018, influencers are focusing on
promoting Sephora Collection’s latest lipstick launch #LIPSTORIES
with monthly themed digital content, including a six-part podcast co-
created with Girlboss Media to advertise the line.

Beyond paid influencers, Sephora has harnessed the power of using its
own employees as influencer marketers, similar to efforts
by companies like L’Oréal and Glossier, among others. For example,
Sephora’s Holiday 2017 campaign featured its own employees instead
of professional models.

EXCLUSIVE PRODUCT LAUNCHES CREATE HYPE

Building anticipation — whether through influencers, Beauty Insider

sales, or distributing new beauty brands — is something Sephora
does extremely well.

The limited-edition mentality allows Sephora to commission

exclusive product launches from popular beauty brands.

In March 2018, Sephora partnered with 6 of its best-selling brands,

including Urban Decay, Tarte, and Pat McGrath, for “First at Sephora,”
which exclusively launched these new products in Sephora’s stores.
For initiatives like these, digital content is crucial to creating buzz.

Custom educational content across multiple social media

channels accompanied the release of these products to make them
even more of a must-have for Sephora shoppers.

Sephora reported high engagement rates with videos around these

exclusive products, with a seven-day organic performance that was
224% above Sephora’s average views, according to Glossy.

Not only can exclusive product launches build hype; they can also
serve as a tool to ward off against competition like Amazon.

BEAUTY INSIDER PROGRAM CULTIVATES DEEP LOYALTY

Influencers and exclusive cosmetics contribute to a “beauty FOMO

culture” where consumers just have to get their hands on the
latest beauty products as soon as possible.

For these ultra-dedicated beauty shoppers, loyalty programs reward

such purchasing behavior.

Sephora’s Beauty Insider program is one of the most well-known

rewards marketing programs across retail and e-commerce. Unlike
Ulta Beauty’s rewards program, where points can immediately be
applied towards purchases to entice budget shoppers, Sephora’s
loyalty program isn’t as focused on helping clients save money.

Instead, being a Sephora Beauty Insider is more about being part of

an elite beauty community, with access to exclusive launches and
deals.

Feeding into this elite community mindset, multiple tiers have proven
to be a successful strategy for Sephora’s Beauty Insider Program.
Tiers include: 

 Insider (free)
 VIB (shoppers who spend
$350+ in a calendar year)
  Rouge (reserved for
shoppers who rack up
$1,000+ in purchases
within a year)

Other Beauty Insider features include personalized product

recommendations and beauty services.

Beauty services such as free skincare classes or makeover services

align with Sephora’s ethos of luxury and prestige beauty.

Additionally, the platform offers tons of community features to help

shoppers forge personal connections with like-minded beauty
enthusiasts and build loyalty to Sephora.
With Sephora’s newly combined in-store and digital teams, merged in-
store and online perks are all about inspiring greater customer loyalty
and keeping Sephora shoppers coming back for more.

“The power of using … data to better appeal to

her at every touchpoint and understand her in
a deeper way enables us to create these
experiences that she cares about across our
channels. Loyalty is a data-driven ecosystem,
so that’s hugely powerful.”
— Mary Beth Laughton, EVP Omni Retail,
Sephora

Risks & competitors

The beauty industry is having a big moment right now, thanks to the
better-for-you-movement and the rise of clean beauty, among other
factors.
This signals increased competition for Sephora.

Below we outline some of Sephora’s main competitors, from

established incumbents to smaller up-and-coming players.

Ulta & other beauty retailers bridge prestige beauty with mass appeal

Ulta Beauty is Sephora’s most obvious — and arguable, fiercest —

competitor.

Though often compared to Sephora, Ulta has historically offered a

different value proposition, focusing on a wider assortment of beauty
brands that combines both drugstore and prestige products. The
retailer relies on salon services to bring in customers and increase
loyalty.

And Ulta is growing. The company’s e-commerce grew more

than 60% in 2017, and it increased its share in the prestige beauty
category from less than 8% in 2013 to over 13% in 2016. According to
Euromonitor, Ulta is now the biggest specialty beauty retailer in the
United States.

And it’s starting to threaten Sephora’s dominance in prestige beauty.

Recently, Ulta brought in Chanel Beauty,

signaling the Chanel’s desire to connect with a younger
demographic. Additionally, Deciem’s cult skincare brand The Ordinary
is reportedly leaving Sephora for Ulta, due to payment issues.

Other competing beauty retailers include Macy’s-owned Bluemercury

and Manzanita Capital-owned Space NK, which focus more on the
neighborhood beauty store segment. While they also make luxury
beauty offerings, these players have a much smaller physical and
digital footprint than Sephora.

Clean beauty retailers target consumer demand for better-for-you

beauty products

                            Source:
Sephora
Clean and green is all the rage in beauty today.

Niche retailers focusing on the natural and organic beauty

segment have exploded in recent years. CAP Beauty, the Detox
Market, Credo Beauty, Cos Bar, and others are targeting consumers
that want more transparency on their products, ingredient sourcing
practices, and more.
These niche retailers are expanding their physical retail footprint and
could eventually gain market share over Sephora as consumer
preferences veer towards natural and organic beauty.

Sephora was an early recognizer of consumer demand for natural

brands and today has an expansive natural beauty assortment
featuring on-trend brands such as RMS, Tata Harper, Herbivore
Botanicals, and others.

While Sephora offers many natural products, its stores are by no

means devoted only to clean beauty brands. Going forward, Sephora
may continue placing a greater emphasis on its clean beauty
assortment as this trend continues to grow.

As digestion and gut health also rise as a beauty and wellness trend,
Sephora has launched an inner beauty category featuring probiotics,
collagen, and other supplements by brands such as HUM Nutrition,
The Beauty Chef, and others.
E-commerce players try to eat Sephora’s lunch

Sephora has been able to “Amazon-proof” its stores through a

combination of its prestige beauty emphasis, tech-enabled offline
experiences, beauty services, loyalty programs, and more.

But it’s no secret that Amazon’s been attempting to make strides into
luxury beauty.
LVMH hasn’t historically considered Amazon a competitor to Sephora
(at least according to a Q2’17 earnings call, when LVMH noted that
Sephora is ahead of peers such as Macy’s and Amazon in both online
and in-store perfumes and cosmetics distribution in the US).

But this will likely change as Amazon more aggressively pursues

luxury beauty shoppers.

Compared to Sephora’s fierce competition for shelf space, Amazon’s

low barrier to entry is incentivizing up-and-coming luxury beauty
brands to distribute on Amazon.

In fact, Amazon just announced that it will launch an Indie Beauty

Shop within its Marketplace this June.
And with free two-day shipping on Prime, Amazon encourages
replenishment shopping.

Sephora responded to this threat early on in 2015 with the launch of

its own Prime-like shipping service. A Sephora Flash membership
allows Sephora shoppers to pay $10 for free, unlimited two-day
shipping service for a year’s worth of beauty products.

In addition to offering competing products and distribution channels,

Amazon, with its recent foray in AR technology, could also offer a
service similar to Sephora Virtual Artist, where Amazon shoppers
could use an AR app to try on makeup.

Beyond Amazon, luxury retailers like Net-a-Porter could also threaten

Sephora’s dominance in the prestige beauty category.

Net-a-Porter’s beauty sales have grown 10x since its 2013 launch, with
beauty becoming an increasingly important category and revenue
driver for the company.

In fact, Net-a-Porter’s beauty section looks remarkably similar to

Sephora’s website.
Beyond its beauty traction, Yoox Net-a-Porter’s recent launch of an
online high-end jewelry platform could propel LVMH to use Sephora’s
model as inspiration for e-commerce initiatives across its other luxury
goods divisions.

Retailers experiment with beauty subscription models

Beauty subscription box competitors like Birchbox and Ipsy are also
worth noting.

However, hedge fund investor Viking Global Investors just bought

majority ownership of struggling Birchbox, sparking concerns over the
efficacy of the beauty subscription box model.

Ipsy has been more successful in monetizing certain aspects of its

business. According to Fast Company, Ipsy not only makes money
from its subscription boxes, but also from influencer-generated
advertising revenue and from brands whose products are featured in
Ipsy’s monthly boxes.

Retailers such as Walmart, Macy’s, and others have also launched

their own beauty boxes in efforts to engage customers.

Sephora released its own subscription box in 2015, but with a twist.

For $10 a month, Play! By Sephora (only available in the US) aims to
embed an experience within a monthly subscription box by combining
products, beauty guides, video content, and passes to visit Sephora
stores for tutorials and events.

The box aims to engage customers via online and offline content and
drive them to Sephora stores, which differentiates the product from
traditional e-commerce subscription boxes. Despite some mixed
reviews, feedback on Play! has been generally positive on Sephora’s
Beauty Insider forums.

Fashion retailers foray into beauty

Apparel retailers are capitalizing on beauty to complement their

existing offerings and directly compete with beauty retailers like
Sephora. Stores such as Anthropologie, Urban Outfitters, Madewell,
and others have forayed into beauty offerings to enhance their stores.

For example, Forever 21 launched dedicated beauty store Riley Rose,

which pairs beauty products and home goods in a Sephora-like
environment, while Free People offers a host of cosmetics and
wellness-focused products.

By catering to millennials and Gen Z beauty shoppers, these retailers

could begin chipping away at Sephora’s market share.

With beauty’s high margins and low barriers to entry, we will likely see
more retailers enter beauty and aim to compete with Sephora.

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Traditional brick-and-mortar retailers pursue beauty shoppers

Brick-and-mortar retailers are also beginning to compete with beauty

retailers by offering cosmetics at a more affordable price point than
most Sephora-distributed brands.

Target in particular has been making big strides in beauty. Since

2017, Target has boosted its selection of natural beauty products,
including a partnership with Glow Recipe to develop a private-label K-
Beauty line, in efforts to become a one-stop-shop for affordable
cosmetics.
The company also recently brought in eight new cosmetics brands
geared towards women of color, and just announced its second cohort
of 10 beauty startups in its mini beauty accelerator Target Takeoff.

Source: Target.com

                        Source:
Walmart.com
In addition to supporting startups, Target is also redesigning its
stores to make its beauty section look more like Sephora, with an
open floor plan to encourage beauty browsing with features like
brighter lighting and self-service counters.

Walmart is similarly upping its beauty presence to attract a more

affluent audience.

The retailer has revamped its beauty offerings with a $5 beauty box,
the upcoming launch of its online-only premium beauty brand Co
Squared, and increased partnerships with beauty and personal care
brands for distribution in Walmart stores.

New store formats to ward off the retail apocalypse

Offering customers engaging retail experiences is crucial if Sephora

wants to avoid missteps taken by other retailers.

To do so, Sephora has been experimenting with smaller store formats.

These stores, dubbed “Sephora Studios,” are designed to blend into

local neighborhoods to complement, not replace, the bigger store
formats.

First launched in Boston and with a most recent store opening in

Hoboken, New Jersey, these Sephora Studios aim to foster
personalized connections between customers and beauty associates.
These new formats exclude certain elements such as cash registers,
allowing associates to process payments on their phones for a more
seamless experience.
 Sephora Studio in Boston

This model could even target replenisher shoppers and combat

Amazon’s online luxury beauty business, while also catering to
consumers seeking a more intimate shopping experience.

Concluding thoughts
Sephora has proven the value of its model not just for beauty retail,
but for retail at large.

At the heart of Sephora’s strategy, every technology, experience, and

product goes beyond simply delighting customers to solve specific
consumer pain points, from finding the perfect foundation color match
to seamlessly booking beauty services.

While Sephora has pioneered a future of tech-enabled retail, it does

face sizable competition with personal care conglomerates, niche
clean beauty retailers, big box retailers, apparel retailers, and others
capitalizing on beauty’s high margins. And of course, retailers always
face the looming threat of Amazon.  

If Sephora can keep its laser customer focus, pace of innovation, and

guiding principles of testing, iterating, and learning, the beauty
trailblazer could stay ahead of the curve and continue to push
boundaries across cosmetics retail.

All image credit goes to CB Insights or Sephora.com unless otherwise

noted

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