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Sephora Projects Positive Cash, Operating Profits in Current Year

PARIS — Sephora is confidently looking ahead.<br><br>This year, the perfumery chain "will be positive in cash and operating profit globally," said Pierre Letzelter, president of LVMH Moët Hennessy Louis Vuitton-owned Sephora and interim...

PARIS — Sephora is confidently looking ahead.

This year, the perfumery chain “will be positive in cash and operating profit globally,” said Pierre Letzelter, president of LVMH Moët Hennessy Louis Vuitton-owned Sephora and interim chief executive officer of Sephora Europe in the run-up to the nomination of a full-time replacement in coming months.

Letzelter’s declaration follows a significant housecleaning, including the renovation of Sephora’s brand image in Europe and the shuttering of money-losing doors.

Such changes seem to be paying off. As reported, for the nine months ended last September 30, for instance, LVMH said sales at Sephora in the U.S. continued to grow by more than 20 percent on a constant-store basis.

In 2001, when the market was rife with rumors that LVMH would divest Sephora, industry sources estimated that Sephora Europe generated a volume of $787.7 million; Sephora in the U.S. rang up $301.2 million, and Sephora.com, $23.2 million.

All dollar figures are converted from the euro at current exchange rates.

Sephora, with about 400 European doors and 75 in the U.S., has instigated a new policy for store openings.

“It is extremely important that all of the stores we open in Europe, as well as in the U.S., are auto-financed,” continued Letzelter.

“The rule is no cash is to come from LVMH,” said Francois Neukirch, general director of Sephora France. “If we have no money, we won’t open any stores.”

Letzelter said, however, that the thrust these days is less on openings, which will take place in key markets, such as Poland, the Czech Republic and Romania.

“There will be very few,” he said. “In France, [for example], two-thirds of the budget is for renovating stores and one-third for openings.”

Money and time have been of the essence. Letzelter said a key focus at Sephora Europe during 2002 was the reduction of staff turnover. “It’s now at 20 to 25 percent, whereas two years ago it was at 50 percent,” he said, adding: “We can do better.”

Another aim has been on reducing and reorganizing the chain’s stock. For instance, rather than being lined up on a first-come, first-serve basis, items in Sephora’s storerooms are now arranged alphabetically, as they are in-store. Such a strategy frees up employees’ time to spend with customers, said Letzelter.

This story first appeared in the January 17, 2003 issue of WWD.  Subscribe Today.

Such changes have also helped boost the sell-through of all brands in Sephora’s European doors, he claimed.

Sephora has concentrated on building a closer rapport between its European and U.S. divisions. Until recently, they acted as wholly separate entities. Now, they speak on a regular basis. “Such cross-fertilization is important,” said Letzelter.

So, too, is tweaking product mix carried in Sephora stores on a case-by-case basis. “We must adapt the mix to the market,” he continued.

Another integral part of the Sephora offering is its private label brand. Its lineup is constantly being expanded and now generates 7 percent of the store’s overall sales. Ultimately, it could grow to ring up 8 to 10 percent.

And, when it comes to cyberspace, Letzelter said Sephora.com is Sephora’s strongest store in the U.S., with an average basket that’s 40 percent bigger than any brick-and-mortar Sephora door there.

However, the retailer does continue to open U.S. doors. It announced this week that a new flagship is planned in San Francisco at 33 Powell Street, near the corner of Market Street, this summer. The flagship is slated to be a 8,500-square-foot, single level store and in terms of square footage will be the company’s fifth-largest door. Consistent with the retailer’s strategy of focusing on single-level stores, Sephora said it will close its three-level location at the corner of Stockton and Market Streets, which opened in November 1998.