Twenty years ago, Sephora launched e-commerce, investing hundreds of millions of dollars in its supply chain, including warehouses and call centers to support online ordering.
It was an unusual move at the time for a beauty retailer. The industry, said chief executive officer Jean-André Rougeot, who in 2000 was working for Benefit Cosmetics, mocked the French beauty retailer, and scoffed at the idea of selling foundation and lipstick online.
But that early move toward digital seems to have paid off, accelerated by the global coronavirus pandemic that forced nationwide retail closures for several months this year. While the retailer’s competitors struggled to get supply chains in place to meet the overwhelming new demand for online purchasing, Sephora saw a 75 percent jump in digital sales and gained several points in market share. “We recovered a significant part — not every dollar — but a significant part of our lost retail sales,” said Rougeot in a conversation with WWD executive editor Jenny B. Fine. “We had several days in the last six months that were bigger than Black Friday or Cyber Monday. When you have that kind of volume — double, triple the normal volume — the ability for the chain of supply to handle it is extremely important.”
Sephora has also seen an influx of new customers — over one million in the last five to six months — during the COVID-19 pandemic. “We’ve seen a significant amount of new customers come to Sephora — people who never shopped in our stores or dot-com [before COVID-19], frankly because we were one of the few functioning dot-coms,” said Rougeot. “People were sitting at home playing around on the computer and I think it was a time of exploration.”
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Many of Sephora’s new customers are young. Rougeot attributes this at least in part to the retailer’s new partnership with Klarna, a service that allows people to pay for purchases in installments. He noted that over 70 percent of people under 21 in the U.S. only have a debit card, and the ability for Sephora customers to pay with Klarna has increased the retailer’s average basket size.
The Klarna partnership is just one of several initiatives Sephora has launched in the last six months that allows customers to purchase and receive orders in a variety of different ways. The company has recently launched partnerships with Instagram and Instacart, as well as an option to reserve product online and pick it up in-store.
COVID-19 has fundamentally changed consumer behavior, noted Rougeot. To that end, Sephora is working on a slew of ways for consumers to shop. “We call these ‘last-mile’ discussions,’ this in-between dot-com and stores where you’re trying to provide as much convenience to the consumers as possible that I think all retailers, not just Sephora or in beauty, are going to be critical down the road,” he said.
The future of retail isn’t just about convenience, he added. Sephora is “still bullish” on the in-store experience, said Rougeot, though their reason for being is shifting alongside consumer behavior. While the retailer has had to scale back some expansion plans, it still is planning to open 40 stores this year and 70 next year.
“Five years ago a store was somewhere consumers could play with product,” said Rougeot. “The number-one complaint we get now is that consumers can’t play with testers, but it’s probably not enough to justify stores. We need to find other reasons for stores to be around.”
One reason is services, he continued. As of now, the plan is for Sephora to continue its service program, including makeup, skin and brows, hopefully in the second quarter of 2021. “You can’t get your brows done on the Internet,” said Rougeot.
Going forward, Rougeot’s “controversial” opinion is that stores could end up becoming part of the supply chain. “We’ll be experimenting over the holidays using stores as delivery points,” he said. “That could allow us to do same-day delivery, using our stores as satellite warehouses, which is ultimately what our consumers want.”
Another key part of Sephora’s future will be diversity and inclusion initiatives. The retailer has taken the 15 Percent Pledge, promising to ensure 15 percent of its merchandise is from Black-owned brands. This could take two to three years, said Rougeot, but is what consumers want. It is just one of 11 diversity and inclusion initiatives the retailer is taking on at a corporate level. Another is the shifting of its accelerator program, which launched to help propel female business owners, to focus on BlPOC entrepreneurs. “We believe we can really change the way Sephora looks at racism,” said Rougeot. “[Consumers] don’t want promises — they want action.”