Sephora has been a trailblazer in the U.S. beauty retail industry. From its early days, Sephora leveraged digital technologies toward a singular focus: to create an outstanding shopping experience for its customers, whether in-store or online. Sephora was among the first beauty retailers to organize stores by product instead of brand, to launch an e-commerce platform, to launch native mobile apps, to integrate with Pinterest, to use beacons in store, to introduce mobile POS systems…the list is endless. It is therefore no surprise that between 2010-2017, Sephora’s U.S. revenue is expected to grow at 10% per year, far outpacing industry average.
Let’s take a look at how Sephora creates value in this highly competitive and saturated space, and how its operating model supports this ongoing focus on innovation through digital technology.
Value creation: Leverage technology to create an in-store playground
Unlike other retailers, Sephora is not another shop where customers go to make purchases. Instead it is a playground where anyone can learn, play, try, and engage with products at their own pace. Customers have access to just the right amount of information, as they need it, tailored to their needs, knowledge and interests. Here are some examples of the latest digital innovations to support Sephora’s retail philosophy.
Beauty TIP Workshop:
New stores come equipped with a workstation of large digital screens where customers can take group beauty classes from in-store facilitators, access self-guided online tutorials, or browse Sephora’s Beauty Board: a user-generated photo gallery from which customers can directly make purchases.
Beauty TIP stands for Teach, Inspire, Play – and this workstation lets customers do just that.
Find it with Color IQ:
Sephora has partnered with companies like Pantone to provide personalized product recommendations based on the exact tone of your skin or lip color. A device scans your skin and provides you a personal “Color IQ” number. It then searches the database on Sephora.com to recommend the perfect product for your personal shade. When I first tried this feature, within 2 minutes I was recommended the shade “Punjab” by Nars…Punjab just happens to be the state in India where my ancestors are from! I would have never known such a product existed, let alone that it was practically made for me. Talk about a personalized experience.
Forays in Augmented Reality:
In April 2015, Sephora started experimenting with AR experiences in store through the Sephora iPhone app. Customers simply use their phones to hover over images in store to pull up a variety of exclusive content for exploration: from interviews with cult beauty brand founders like Josie Maran to relevant YouTube playlists or reviews on Sephora.com. In 2016, Sephora launched Sephora Virtual Artist, enabling customers to try on different shades of lipstick using facial recognition features similar to Snapchat’s filters.
This space for exploration attracts both beauty experts and novices to Sephora whether in store or online, and creates ample opportunities for demand generation. If you discover something you love and want to purchase it – great! The value capture model is pretty standard but Sephora customers tend to be sticky due to a compelling loyalty program and generous return policies (you can return anything you buy – even after using the product!)
Operating model: Innovate at all costs and always think digital
Sephora’s operating model is what enables them to create these unique retail tech-forward shopping experiences.
Firstly, their U.S. headquarters are deliberately located in San Francisco (an atypical choice for most retailers), but perfect for proximity to the latest digital innovations and experiments in the Bay Area. This also gives them access to strong tech talent – Sephora has a CTO with deep e-commerce experience and invests heavily in its in-house development teams.
Moreover, Sephora went through a reorg in 2013 where they merged the traditional marketing and digital marketing organizations, aligning their incentives and rolling them up to a single CMO who also served as the CDO (Chief Digital Officer). This removed any conflicts between the “Traditional” and “digital” arms of the organization. The act of putting a digital officer in the C-Suite further signaled to the organization that digital was critical to the success of the company.
Most recently, Sephora U.S. launched Sephora Innovation Lab – a think tank to uncover the most innovative ideas for Sephora’s retail experience, that brings together cross-functional teams from across the company to brainstorm, prototype and launch ideas for the future of shopping. Calvin McDonald, president and CEO for Sephora Americas said “The Innovation Lab will cull the collective creativity of Sephora’s employees in a bid to enhance Sephora’s digital future.” The lab is also aimed to groom the company’s future digital leaders.
Working on new ideas inside the Sephora Lab
Sephora continues to invest and organize around digital innovation in beauty retail to stay ahead of the technology curve and maintain relevance with its in store and online offerings. While Amazon has tried to make strides in premium online beauty retail, investing more than Sephora in recent years, it remains to be seen if it can offer a truly differentiated, superior customer experience like Sephora does in this space.
A number of articles were referenced in writing this blog post: