Sephora Markdowns: The Deepest Ever Fueling Sale Talk

<CS:BOLD>PARIS -- A Chanel powder at 29 percent off. An Estee Lauder lipstick at 32 percent off.<BR><BR>Such bargains and more can be found at many Sephoras across France, Spain, Italy and Luxembourg in a mega-apres holiday promotion, called Prix...

PARIS — A Chanel powder at 29 percent off. An Estee Lauder lipstick at 32 percent off.

Such bargains and more can be found at many Sephoras across France, Spain, Italy and Luxembourg in a mega-apres holiday promotion, called Prix Craquants (French for wild prices), which runs through Feb. 4. The widespread housekeeping intensifies speculation that LVMH Moet Hennessy Louis Vuitton is gearing up to sell the chain, which has been struggling. As reported, Sephora has pulled out of Germany and Japan and its European and U.S. businesses continue to operate at a loss.

Eyebrows are being raised at the heavy discounting of beauty items across all categories and which include such prestige brands as Christian Dior, Lancome and Yves Saint Laurent. Sephora has traditionally been staunchly anti-discount and anti-gift-with-purchase. The discounts do not apply in Sephora USA.

Numerous beauty manufacturers are furious, fearing their products aren’t being treated in a prestigious manner — that items on sale are not merchandised in clearly branded environments and are not close to testers.

The ruckus is not surprising, given France is the birthplace of the selective distribution contract, which legally upholds prestige brands’ rights over their image, though not their price points. Prestige beauty brands here have also been historically wary of Sephora, which merchandises mass and class together.

“The way brands are presented in the promotion is not good,” said one executive, who requested anonymity.

Sephora, meanwhile, maintains Prix Craquants is not a harbinger of a shifting position vis-a-vis prestige beauty nor a sign the company is prettying itself up for an impending sale. Patrice Brosson, director of category management for Sephora France, explained Prix Craquants is part of Sephora’s current strategy to reduce excess stock due, in part, to the continuous deluge of beauty references in the market yearly.

He also said that while this discounting promotion might be the store’s biggest ever size-wise, it isn’t its first. For the past 18 months, Sephora has been hosting sporadic, thematic promotions, with the last being Sephora Rouge for the Christmas period.

“It is not our policy to systematically carry out [this type of event],” confirmed Brosson.

Yet many beauty executives say they were surprised to hear of Prix Craquants.

Brosson explained, however, brands were aware of Sephora’s desire to reduce its stock. He said that Sephora contacted brands to buy back their unsold goods. Then, among those items that were not bought back, were more than one year old and had been stocked by Sephora for more than 12 months, some were included in the promotion.

“They were products with weak rotation,” he explained.

These are no longer gathering dust. Walk into any Sephora here and highly visible pink posters indicate the Prix Craquants promotion. Discounted items — which even include a good selection of Sephora’s own private label brand — are either merchandised together or sprinkled in among the full-priced goods. In the latter case, products are indicated by pink labels showing their markdown prices.

Most of the items are at a double-digit cost savings. Take La Prairie’s Cellular Eye Makeup Remover, for instance, which, at $20.80, is at a 37 percent markdown. Hard Candy’s Training Brow Gel, at $8.70, is 35 percent off the general retail price, and Nina Ricci’s Riccissime lipstick, at $11.40, is 29 percent off. All figures are converted from the euro at current exchange rates.

Shoppers may be gleeful, but numerous industry sources — all of whom requested anonymity — are not. Among their other concerns, they fear such a promotion could kick off a price war between Sephora and other beauty sellers, which have, until now, fastidiously guarded beauty brands’ prestige price positioning.

“Fragrances are luxury products and their prices must be coherent [with their image],” maintained one beauty executive. “Sales can be very damaging to prestige brands.” “We’d love to control promotions, but can’t,” bemoaned another.

One said the discounting now might seem odd, given Sephora’s good sell-through figures for the recent holiday season. But, he reasoned, Sephora seems to be under severe pressure to show quick results to LVMH shareholders after its recent, quick expansion. In a few short years, Sephora now has more than 390 stores Europe-wide.

That executive also said under such circumstances, the time is ripe for Sephora to undertake some short-term, albeit radical, projects to help the company in the long term. He said that other increasingly hard-pressed European perfumeries have also been eagerly reducing their stock since early this summer.

As reported, Sephora Europe’s president, Serge Brunschwig, has already instigated numerous new strategies for the firm, including tweaking its product mix on a region-by-region basis and bolstering in-store sales assistance to help drive sales, particularly in the skin care category.