Sephora’s Digital Makeover

Call it a makeover, just don’t expect it to come from Kylie Jenner’s lip kit

The internet has significantly redefined the shopping experience and consumer’s expectations for service, pricing, products, and fulfillment, while customers seek seamless experiences across online, mobile, and physical sales channels. To meet these evolving expectations, brands must complement the physical in-store experience with new digital shopping tools [1], especially since online transactions are projected to reach 30% of total apparel sales and 40% of electronics sales by 2020 [2]. By digitizing the store, there is opportunity for retailers to deliver shopping experiences aligned with the “digital reflexes of today’s connected consumers” [1].

The below chart shows how digital technologies have evolved within the retail and consumer industry [3]:

2012

One retailer taking advantage of these emerging digital trends is Sephora, a global beauty chain owned by LVMH which operates 1,900 locations worldwide [4]. In 2012, the retailer took its U.S. digital operations to the next level with a new personalized web experience, mobile site, and iPhone app. iPad traffic to Sephora doubled in the first year, and Sephora’s apps had more than 2 million downloads [4].  One specific tactic the retailer employed was its extensive search platform, including product tags from among 102 different dimensions – categories like age, ingredients, color, etc. – which allowed customers to narrow their search when shopping [4].

Sephora Innovation Lab

Inside Sephora’s San Francisco headquarters, the retailer’s 2015 Innovation Lab was built to test new technologies for implementation in stores, online and within the app, as an extension of its focus on teaching clients about products and techniques for use [5].

Certain initiatives that have come out of the innovation lab include:

Sephora Flash: This service is an Amazon Prime-like free, two-day shipping membership [5]. For $10, customers get unlimited, free 2-day shipping, and no minimum purchases are required [6]. This technological innovation is essentially Sephora’s answer to customers’ desire for customized fulfillment options.

Online: Online, shoppers can read product reviews, watch video tutorials and read articles about specific products [5]. Further, Sephora has capitalized on the YouTube beauty tutorial obsession with more than 300,000 channel subscribers, trumping competitors like Ulta Beauty which has 12,000 [7]. When watching Sephora’s YouTube channel, the inspired viewer then directs herself to the retailer’s site for purchasing, ultimately allowing Sephora to stay competitive in a sector that’s largely dominated by bloggers [7].

Augmented reality: Sephora’s latest application update included the new Sephora Virtual Artist feature, specifically designed using facial recognition software to allow customers to test lip products and make purchases directly in the application [8]. With mobile users becoming more comfortable with facial recognition features, Sephora is hoping to leverage this method to drive sales by letting users see what products of interests will look like on their face [8].

In-store

In 2015, Sephora opened its most digitally enabled store yet in San Francisco, equipped with all the perks of online and mobile shopping and hands-on experimentation [5]. The store features a Beauty Workshop station that can fit up to 12 customers at a time to give a makeup class taught by Sephora associates and supported by video tutorials [5]. Also featured is a Beauty Board, where shoppers can browse user-generated content and find the products used in the photos in store, as well as filter the images to show customized products for a customer’s skin tone, type and color in real time [5].

The SephoraBeauty T.I.P. Workshop in San Francisco. - UXUS

Another innovation is Sephora’s first Sephora Flash retail shop in Paris, which connects the in-store experience with the countless brands available online [9]. The store’s inventory is more limited; however, customers can use the massive touch-screens posted upon the walls and counters to browse and order any of the products from the Sephora website [9]. Customers also receive a card which serves as their “virtual shopping basket” so that in store purchases can be combined with online purchases for payment at checkout [9]. Sephora will look to expand this concept out to other cities where larger stores don’t have a presence [9].

Further in-store digital innovation is the debut of an augmented reality experience for smartphone-armed shoppers [7]. Customers with Sephora’s mobile app can discover exclusive video content from brands whenever they hover over a physical display with their phone, including interviews with the brand founder, product reviews, tutorials and more— content that can only be viewed in stores which drives in-store traffic and provides the product knowledge to influence purchasing decisions [7].

Going Forward

A big opportunity for Sephora could be a play into the subscription box business, with a customized, specially curated selection of products and beauty tips/tutorials sent to customer doors. Sephora will have the advantage over competitors like Birchbox because of its scale and robust loyalty rewards program which would make getting traction for the program achievable.

How else can Sephora keep up with the next generation of shoppers?

Word Count: 797

Sources:

  1. http://azurdigital.com/blog/fashion-and-beauty-brands-increasingly-digitze-their-stores/
  2. http://www.strategyand.pwc.com/reports/redefining-it-in-digital-era
  3. http://www.strategyand.pwc.com/reports/retail-industry4.0
  4. http://www.forbes.com/sites/lydiadishman/2012/04/09/sephoras-smart-social-and-digital-makeover/#28a2a05e25f9
  5. http://digiday.com/brands/digital-changing-way-shop-sephora/
  6. http://www.sephora.com/sephora-flash-subscription-P379518?skuId=1530070&icid2=HomePage_PersistentBanner_Flash
  7. http://digiday.com/brands/sephora-blended-stand-beauty-video-strategy/
  8. https://www.luxurydaily.com/sephoras-virtual-artist-brings-augmented-reality-to-large-beauty-audience/
  9. http://www.instyle.com/news/sephora-flash-connected-store

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6 thoughts on “Sephora’s Digital Makeover

  1. Interesting read! It is amazing how quickly Sephora has transformed the beauty industry.

    I like your idea that Sephora could launch a subscription box offering to compete with Birchbox. Given Sephora’s scale, it likely has a ton of purchase / browsing data that it can leverage when deciding what products to send its different types of consumers. On the technology front, I’d imagine its main challenge would be finding ways to synthesize all of this data into actionable insights. Specifically, it could seek to develop a predictive algorithm that scores a customer’s affinity for trying a new category, product, or brand based on past purchases and look-a-like customer profiles. Sephora could then include such complementary products in its subscription offering, with the end goal of increasing customers’ share of wallet by introducing them to products they’re most likely to enjoy.

  2. Having utilized a lot of the digital avenues that Sephora has deployed over the years, this article was particularly interesting to read and learn more about their digital adoption and integration strategy both in-stores and online. The Augmented Reality feature or the “Sephora Virtual Artistic” as they call it which it has adopted (and continues to improve) is an extremely effective way to push products to customers (by recommending products) and digitalize the interactions with the sales-persons without limiting the customization required in the make-up space. Although it doesn’t seem like Sephora is aggressively shifting away from physical stores in prime locations, it would be interesting to watch how they will grow and develop their online-retail strategy and more importantly how they will use all the customer data to optimize segmentation and improve their individualized customer experience. There is huge potential here and LVMH seems to be capturing it the right way at the right pace.

  3. I’ve always been fascinated by Sephora’s success, so I really enjoyed this article!

    Living in Boston, I didn’t realize Sephora was launching these cool projects in SF and Paris. The only cool tech project I’ve seen around is the usage of Color IQ, which scans your skin to find the right foundation, eye shadow, and lip color for you. Even that I thought was cool, even though I personally have not really liked the results of it 😛

    I agree with your point that beauty-subscription services could be a competition for Sephora, but I actually see Sephora’s potential to be a lot bigger than its current offering, which is selling beauty products. By collecting the user’s data online and in stores, I think it’s able to replace the role of a beautician that takes care of you hair, skincare, makeup, to even health. For example, maybe it can detect when you’re under stress by looking at your skin or even what products you’re looking to buy.

  4. Great post. The beauty retail sector is an interesting one as Sephora and competitors like Ulta Beauty have been relatively resilient to the threat of ecommerce, with increasing physical store counts and growing sales at offline, physical stores.

    I am skeptical that Sephora should implement a subscription box service. I think the customer value proposition for Sephora and Ulta Beauty is the convenience of where the many stores are located, that these are one-stop shops with a very wide variety of beauty products (in terms of both products and brands) that make comparison shopping easy, the ability to try the products on your own skin and see whether it suits you as these products have a significant emotional connection, the free make-up consultations and expert make-up applications in-store as well as salon services and competitive prices. I struggle to see what value a subscription box business could add to Sephora, as the critical threat posed to the operating and business model of beauty retailers is the prevalence of beauty products availability (department stores, drugstores, beauty stores, etc.) to try on and the ability to google and buy online the product you want at the lowest possible price irrespective of retailer. What is critical for Sephora to address is the growing threat posed by online digital technology to customer loyalty and attracting new customers. Why Sephora? Why Sephora.com? Even if a customer tried a sample that they loved in the box service, this doesn’t complement and reinforce sales through Sephora.com given the nature of the ecommerce competitive dynamics. Additionally, Sephora provides several free samples with each purchase which enables customers to try new products that way.

    I think there are a couple of other ideas the company could use to augment its operating model and enhance the success of its business model going forward:
    ♣ The explosive growth in social networks and social media, online user-generated content and time spent online provides multiple opportunities for Sephora to build brand equity and emotional connections/engagement with its target customers outside of the traditional beauty product retail store context, reinforcing the connection to Sephora and encouraging consumers to shop at Sephora or Sephora.com instead of a competitor.
    ♣ Enhance the customer loyalty and rewards program and ensure repeat purchases of beauty products are made at Sephora or Sephora.com and not at a competing retailer. Perhaps these programs could be enhanced by partnerships: for example, (i) with a credit card or other online payments system to increase the ability to earn rewards points, encouraging customers to shop at Sephora (similarly to how some credit cards partner with airlines to reward you with airline points for purchases using Visa); or (ii) with non-beauty products that target the same consumer as Sephora like a magazine, so that Sephora loyalty points could be used to purchase subscriptions to Vogue at a discounted price.

    ——
    Bibliography

    David Franklin, ‘Ulta, Overall Beauty Industry Will Grow in 2012’, Blueshift Research, February 28, 2012, http://blueshiftideas.com/reports/021213UltaOverallBeautyIndustryWillGrowin2012.pdf, accessed on November 20, 2016.

    Issie Lapowsky, ‘How Cosmetics Giant Sephora Plans to Survive Retail in a Digital Age’, wired.com, August 1, 2014, https://www.wired.com/2014/08/sephora/, accessed on November 20, 2016.

  5. I loved this post because I am also very interested in how digital technology is forcing retail stores such as Sephora to adapt their business models. As you note, consumers are increasingly demanding a more immersive and connected shopping experience. The trend of consumers shopping online versus in-store is well publicized, and I think that the investments Sephora has made in merging the online and in-store experience will help combat this shopping phenomena. Sephora recognizes that innovations in virtual reality and its smartphone apps will help drive consumers to the store versus shopping on sites such as Amazon. It seems that Sephora is also learning from its competitors by introducing Sephora Flash. However, I wonder what the economics look like for this service, and whether Sephora will need to invest in its distribution networks to make Sephora Flash viable in the future. The retailer Everlane is an interesting case study – Everlane employed the non-traditional delivery service, Postmates, to make same-day delivery possible (versus Fedex and UPS). (https://techcrunch.com/2014/09/09/postmates-everlane/)

    I wonder whether a similar partnership would make sense for Sephora.

  6. Like others, I think your Sephora example is a neat forecast into the increasingly digital world of shopping! Having used the Sephora Skin IQ before, I definitely can see the appeal to placing the new technologies you described in Sephora stores. It helps Sephora maintain a brick-and-mortar presence, while introducing customers to entirely new products or ones similar to their previous purchases. I am curious, though, about what the cosmetics (perfumes, eye makeup, and foundation/coverup-related product lines) sales figures are in the physical store versus the Sephora online channel. Without the data, I would imagine that the majority of customers would start the process of purchasing these beauty items after realizing they are close to or have already run out of a product — which makes Everlane’s partnership with Postmates make some sense to me. With that in mind, I would argue that the online purchases may not take over as much of the in-person sales as the 30%/40% data points you mention. As such, Sephora’s strategy to keep customers engaged and in-store with technology seems to more carefully curate the “salesperson experience” to a person’s particular skin or cosmetics type and to make sure it’s a leader in the brick-and-mortar storefront channel.

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