Sephora – How to THRIVE as a retailer in the digital age

Sephora’s big bets on digital innovation are its keys to succeeding in the trouble-ridden brick-and-mortar retail space.

Often referred to as a best-in-class digital marketer within the prestige beauty sector, Sephora has now established itself as a pioneer in digital retail in an age where traditional brick-and-mortar stores are fighting to survive against the new Warby Parker model. On account of its customer-centric innovation process and a seamless omni-channel retail model, Sephora is thriving and poised for future success.

Customer-Centric Innovation

ColorIQ in use at Sephora with consumer
ColorIQ in use at Sephora with consumer

Sephora’s competitors have created copycat mobile apps and technology to their detriment; quickly learning that the company’s ‘secret sauce’ is not in its technology but rather its ability to ensure complete alignment between the customer experience and the brand. One of the main issues women have with makeup application is color-matching their foundation to their individual skintone. To mitigate this issue, Sephora partnered with Pantone, a world-renowned authority on color systems and leading technology for the selection and accurate communication of color across a variety of industries. This collaboration resulted in Color IQ – after identifying every possible skin tone color globally, Sephora introduced a hand-held tool that identifies an in-store shopper’s exact skintone, provides the shopper with a ColorIQ number, and subsequently finds a precise match with makeup from Sephora’s stock. This tool captures a multitude of value for both Sephora and its customers; by providing this free service, Sephora entices consumers to come into their physical stores, creates a shopping stickiness through a curated experience from a constantly-updated product assortment. Additionally, the ColorIQ captures data on each of its profiled consumers, which creates a feedback loop that can be used not only for inventory management, but also for proprietary product development. For its consumers, Sephora solves an extremely challenging issue, particularly for women of color who often spend more on beauty but have less product options.

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Demonstration of suggested contouring when I uploaded my own photo to the app.

Another example of Sephora’s customer-centric innovation is its PocketContour mobile application. PocketContour is a cross-platform makeup artist application that shows shoppers how – and where- to apply “contour”, a popular method of makeup application that highlights or minimizes features of ones face. In light of the growing popularity of DIY make-up application videos on YouTube, this application solves for a growing consumer issue while cross-selling a multitude of Sephora’s products.

 

Seamless Omni-channel retailing

Another source of Sephora’s success is its ability to present consumers with a seamless shopping experience both online and offline. With over 4MM mobile app users, Sephora uses beacons to create a customized in-store shopping experience that includes bar code scanning, reviews, and personal purchase histories, for example. In addition to creating value for repeat customers within its installed base, brick-and-mortar stores include digital accents that allow new customers to connect to online retail, such as touchscreen tablets that provide quizzes for finding the best perfume as well as product reviews. For Sephora, these big bets in digital have certainly paid off. “Our penetration of digital to physical retail sales is double that of the prestige [beauty] industry,” said Bridget Dolan, vice president of Sephora’s Innovation Lab. Statistics show that their 600,000 registered Apple Passbook users “spend two times more annually and purchase twice as frequently as the average Sephora customer.”

 

To prove that digital innovation is at the core of its business, the company recently opened its own innovation lab, charged with the responsibility of not only developing new proprietary products but also for sourcing and testing new shopping technology to enhance the omnichannel experience. Feeding into this innovation is the brand’s own customers, who are more engaged with Sephora.com than any of its competitors. For example: Benefit’s “They’re Real” mascara garnered 9,612 product reviews at Sephora as of November 2014, compared with 4,300 at ULTA, 476 at Benefit’s own website, 126 at Macy’s, and 124 at Amazon.com, according to research from L2 Digital.

 

What can other retailers learn from this winning strategy? In a world where the issues du’jour are depressed consumer foot traffic and “Webrooming”, Sephora presents a perfect case study of how brick-and-mortar stores can leverage core competencies such as excellent customer service, and new skillsets within digital innovation, to stay relevant and enhance their business model.

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4 thoughts on “Sephora – How to THRIVE as a retailer in the digital age

  1. I’m impressed by ColorIQ, the handheld tool that identifies an in-store shopper’s exact skintone, provides the shopper with a ColorIQ number, and subsequently finds a precise match with makeup from Sephora’s stock. Most of the time people have to try out multiple samples to find the right color, which can be a very frustrating experience. In addition, it also wastes product. This tool seems like a win-win, helpful for the consumer and company.

  2. Sephora’s work in this space is definitely impressive. They are finding ways to be innovative in a way most would definitely would not think of, and its possible to imagine them changing the way this industry runs. Perhaps they will create other technologies that can further engage consumers, thus strengthening their customer base even more. However, it is possible for other players to catch up, so I wonder for how long they will be able to maintain their competitive edge.

  3. Wow — loved seeing your demo of the pocket contour app. I’m also very impressed by the fact that Sephora have 4MM app users. My biggest question, though, is how much people are actually using all of the app’s functionality. Research suggests that it’s relatively easy to get someone to download an app, but hard to get them to open it again. And while Sephora does integrate cool technologies like the beacon hot spots in store, a user has to opt in, as well as have location services switched to on in order to receive beacon messaging. My guess is that retail is in the midst of experimenting with all these different functionalities, but that we will see some consolidation of features in the near future.

  4. Overall, I believe that this may be an interesting impuls for the makeup industry to start investing more in the digital space. However, I have some reservations similar to Atima.

    Sephora partnered with ModiFace to come up with this app. ModiFace’s story started in 1999 at Stanford where its founder initiated research on automatic face anlysis. The company itself was incorporated in 2007 and received ~$4 million dollars in 2012 in Angel/VC money. It has several of its own apps (ModiFace Beautiful Me, ModiFace MakeUp), plus it powers a number of partner virtual modifaction projects. I believe that the relatively limited success of ModiFace (and no more money being poured into the game) may be driven by “fad”-like nature of its product. It seems super cool when you use it for the first time, but you do not have an incentive to use the product on a regular basis.

    Similar to Sephora, L’Oreal has its own MakeUp Genius app as well. The product and the campaign earned several marketing awards in 2014. It claims to have more than 10 million app downloads. Any sales implications are questioned though.

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