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French multinational beauty retailer Sephora is laying down plans for continued growth in a crowded and competitive marketplace with multiple challenges. For starters, the LVMH-owned business, which has more than 2,600 stores across 35 countries, is relaunching in the UK this month.
A key focus is a twin expansion of Sephora’s physical stores combined with development of digital sales. Besides the UK, accelerated global development in regions such as Latin America and Asia is underway. Sephora positions itself as “beauty’s playground”, tapping into consumers’ predilection for small luxuries during a period of global economic uncertainty, and is betting that now is the right time to bring that to new markets.
Speaking in London on the eve of Sephora’s UK relaunch, Sylvie Moreau, Sephora president of Europe & the Middle East, who joined the company in the summer of 2021 from Coty, laid out future plans. Since pandemic restrictions lifted, she says “bricks-and-mortar stores are the biggest winners”. This effect has been especially pronounced in premium beauty. Data from retail monitoring company Placer.ai indicates that in August this year, foot traffic in the US was up in the beauty and spa sector by 33.3 per cent on the same period in 2019. Some Sephora stores have seen increases in foot traffic as high as 45.7 per cent, compared to the same month in 2020, data estimates suggest.
Foot traffic at competitor retailers such as Ulta Beauty and Space NK is also on the uptick. Space NK’s store revenues are up 15 per cent from before the pandemic. Financial services company Cowen estimates that Ulta has a bigger market share in the US than Sephora — 9 per cent, compared with Sephora’s 6 per cent.
Crowded marketplace
In physical retail, there’s more overlap than ever before between the brand selection found at premium retailers and drugstores — in the UK, Chanel, Dior and Givenchy’s beauty lines can be found at both high-end department stores and the pharmacy chain Boots, for example. In the US, Ulta has added more niche and premium brands such as Bread Beauty Supply and Drunk Elephant, while big box retailers such as Target and Walmart continue to attract indie additions, such as Starface and Lime Crime. In the UK, Boots remains a powerful player, commanding a 48 per cent share of the nation’s premium beauty market.
Sephora once stood alone with its appealing offer of indie and premium names and brand agnostic staff. Now, it’s a more crowded field with more players jostling for market share. According to Moreau, the exuberance of Sephora’s in-store experience, including the opportunities for brand discovery, can keep it in prime position.
“We see beauty as a celebration, and we show up the loudest for that,” she says. “In the store, you will always hear music, and we carry out our services in the middle of the shop floor, not away in a little cocoon. We have a very extroverted voice.”
Brand incubator role
On top of the lively in-store atmosphere, Moreau says Sephora wants to raise its profile as a significant brand incubator for indie hopefuls. She highlights the example of Huda Beauty, which launched with a simple selection of false lashes in Sephora’s Dubai store and has since grown to become a billion-dollar business. Recently appointed executive vice president, global chief merchandising officer Artemis Patrick is heading up much of this effort. Moreau says the company wants to find another “10 or so” very small brands and give them a launch platform with Sephora. “We are making big bets on these brands,” she says.
In return for a chance to play on Sephora’s global stage and enjoy the benefits of their infrastructure and logistics, new brands are often expected to offer exclusivity to the retailer. That’s allowed Sephora to assemble a selection of indie brands that shoppers can’t find elsewhere, making it a must-visit location for beauty obsessives. “We almost function more like a magazine in this sense,” says Moreau. “We offer consumers a curation of brands that’s very hand-picked.”
Bricks-and-mortar may be its bread and butter, but Sephora is bullish on social shopping, says Moreau. “We get a lot of our online sales via our app, and our vision is to have that as our biggest shopping device globally,” she explains. The app is Sephora’s “super weapon”, she says.
Social shopping, via hosted live streams, affiliate links or sponsored content, is an option the company is “contemplating more and more”, says Moreau. While live-stream shopping has yet to achieve the same popularity in the West as in Asia, she sees it as a marked opportunity. In China alone, social commerce makes up an estimated 11.6 per cent of e-commerce sales, totalling some $186 billion, powered by apps such as Taobao and Wechat. Brazil and India are tipped to grow fast in the social commerce space. Global social commerce will be worth $1.2 trillion by 2025, according to Accenture research.
The challenges ahead
All retail sectors are facing significant challenges with logistics hurdles caused by a squeezed supply chain, shortages linked to the war in Ukraine and staffing shortages exacerbated by the so-called “Great Resignation”. Moreau says that Sephora faces the same challenges as all retailers, but adds, “We are able to use our good relationships with suppliers to prevent problems.”
Sephora recently sold its Russian business to the local general manager. The 88 stores in Russia have reopened under the Ile de Beauté name. Moreau confirmed that some stores may temporarily still have Sephora signage as the new owners work to change them and described it as a “very sad event”. On other global initiatives, Moreau declined to comment on rumours that the company is in talks with Indian conglomerate Reliance Retail, which would grant the company the rights to Sephora in India.
Like many retailers, Sephora has been under heightened pressure to improve efforts around diversity, both in stocking Black- and BIPOC-owned brands, and also in how shoppers of colour are treated. Sephora signed the Fifteen Percent Pledge in 2020, an initiative launched by designer Aurora James to encourage retailers to pledge at least 15 per cent of their shelf space to Black-owned brands. A Sephora spokesperson described this initiative as an “ongoing process” and a “multi-year journey”. The company has increased the percentage of non-white leaders as managers, vice presidents and store managers by 6 per cent, 8 per cent and 6 per cent respectively since 2020. The company has also launched Sephora Accelerate, a six-month programme open to BIPOC founders with mentorship, grants and investor connections, as well as the opportunity to launch at Sephora when completed. The 2021 cohort included Topicals, 54 Thrones and Kulfi Beauty.
Inflationary and recessionary economic pressures add to an uncertain climate in the near future. Sector-specific challenges include the high saturation of emerging brands, increased competition from the multiple ways in which customers can now shop for beauty, and the ongoing struggle to capture a slice of consumers’ discretionary spending.
Moreau remains upbeat. Customer acquisition costs are “not crazy”. She sees plenty of opportunities to build new customer business in the UK and existing markets. She singles out fragrance and makeup as particularly successful categories, saying that they are largely “back to 2019 numbers” in terms of sales.
Haircare is another category worthy of a big push in Europe, although Moreau notes Sephora’s own-brand Sephora Collection line is already the number one brand in Europe. “We assume that we will face some difficult economic situations ahead. However, I feel very hopeful that beauty will stay as a small luxury for consumers.”
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Correction: This article was updated to correct to Sephora's foot traffic to 45.7 per cent. A previous version of this article stated it was 45.5 per cent. (21/11/22)
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