SEPHORA EUROPE DOLLS ITSELF UP AND HOPES TO YIELD PROFITS

Byline: Jennifer Weil

PARIS — Sephora is brushing up its European business even as the rumors continue to swirl that it’s up for sale.
Serge Brunschwig, Daniel Richard’s successor as president and chief executive officer of the chain since March, is taking decisive steps to make its European division more profitable. His moves come as speculation mounts that LVMH Moet Hennessy Louis Vuitton is looking to sell the chain, with Germany’s Douglas touted as a possible buyer. But Douglas is believed to be interested solely in the European operations, while LVMH would likely want to sell off the firm in its entirety. As reported, Sephora will retreat from Japan, where it has seven doors, by yearend following losses estimated upward of $50 million this year.
LVMH has repeatedly denied any sale of Sephora and Douglas will not comment on the rumor.
Meanwhile, Brunschwig is living by the adage “retail is detail.” New category managers, back-office infrastructure and heightened in-store service comprise a portion of what he’s instigated so far. And there is lots more to come, including regional product offerings.
“The idea for 2001 was not to start a revolution, but to reveal and confirm what Sephora has been about since its creation,” explained Brunschwig from the third floor of his red-brick office in the outskirts of Paris, which once housed a chocolate factory. “It was to assert Sephora’s genetic code.”
Since the birth of the concept in 1973, retail and cosmetics executives from the world over have made the pilgrimage to the stores dreamed up by Sephora founder Dominique Mandonnaud and then acquired by LVMH in 1997. People come to observe the assisted self-service concept Mandonnaud developed for his first stores and to take in design details such as the “shadowbox” displays of giant perfume factices.
But, over the past few years, Sephora’s focus has moved away from concept and on to radical expansion. Sephora has grown exponentially to more than 400 stores globally, including 300-plus European doors, of which 27 were opened in 2001. But this push has seemingly taken its toll on LVMH’s selective distribution division’s numbers and Brunschwig now deems the time ripe for a good deal of fine-tuning.
“We are adding fashion and service,” he said of Sephora, which employs about 5,000 people in Europe and is expected to register sales for 2001 on a par with those of last year. While Brunschwig would not divulge numbers, industry sources estimate sales totaled $584 million in Europe in the year 2000.
He’s done it by reorganizing the company to include category managers who track the fragrance, makeup and skin care departments in each of its European markets. Brunschwig also has streamlined back-office functions and logistics.
Rather than offering help on command as in yesteryear, salespeople at the European stores are now advised to approach customers seemingly in need of assistance, especially in the makeup department. Also on the service front, Sephora has introduced a biannual Colorbook publication, which showcases a selection of color cosmetics.
And the store is perpetually staging events to generate buzz — most recently, at the Champs-Elysees flagship here, where there is an ephemeral “red store concept,” which includes pillars covered in red and Santa’s gloves sported by sales help.
In part, Sephora learned such tools are necessary from its Sephoracolor stores, test locations selling primarily makeup to the 15-to-25-year-old set in Lisbon, Portugal, and Creteil and Montpellier, France. The stores were shut down a few weeks ago.
The remaining store the company runs in test mode is Sephora Blanc, its “white store” concept with a focus on skin care — historically one of the retailer’s weakest departments volume-wise. Located in Paris’s Bercy Village, it carries a few thousand treatment references.
“Is there a chance there will be a chain of Sephora Blancs?” asked Brunschwig. “I don’t think so. But it is a test that will probably continue for a long while.”
And what is gleaned there will be carried over to Sephora’s skin care departments, which are slated to be reworked in 2002. “There is progress to be made there, in the presentation and service sides,” he said.
Skin care, along with makeup and Sephora’s private label line, ring up some 50 percent of Sephora’s sales, with fragrance accounting for the rest.
Redefining the product mix for the European stores country-by-country will be Sephora’s biggest challenge next year. It is something of an about-face, since until now most of its doors have carried similar product assortments. But the key will be retaining Sephora’s worldwide brand image as it offers a varying product range country by country.
Brunschwig added it is also strategically important to continue expanding Europe-wide by opening new stores. On the docket is the first door in Greece under the Sephora banner, which is slated for the middle of next year. A Sephora is also schedule for Prague in March 2002.
Sephora will continue to focus on Western and Southern Europe. In Spain and Portugal, for example, where it has 17 and eight doors, respectively, it is concentrating on big cities and will expand if alluring opportunities surface. In Italy, Sephora recently acquired three perfumery chains and has about a 10 percent market share, according to Brunschwig. There are two Sephoras in Romania and 27 Sephora-owned stores in Poland. “I think we have the opportunity for fantastic development there,” he said.
Brunschwig denies industry speculation that Sephora is gearing up to shutter its eight U.K. doors, but he confirmed it will close its five doors in Germany.
However, while Sephora is expected to open more than 20 doors in Europe next year, the company is earmarking an even larger budget for store renovations.
Brunschwig, who, while working at LVMH’s Louis Vuitton division for five years, saw traffic at Vuitton’s Hong Kong doors rocket after touch-ups, is a staunch advocate of renovations for exploiting existing assets. France will first bear the brunt of these changes. In Paris, numerous Sephora doors have already been renovated, and Brunschwig says the results are positive.
“Paris will become a city where we are extremely strong,” he continued, adding there will be a Sephora located on the Rue de Rivoli in 2003 where the Samaritaine Sport store currently stands. “It has very large potential.”
Analysts, for the most part, are bullish on the internal focus. One lauded Brunschwig’s move to create regional product selections, while another thought it best for Sephora to concentrate on skin care, particularly if it includes a more service-oriented approach. Another said Sephora should make its store formats homogeneous, enabling it to take advantage of economies of scale.
Brands are optimistic as well. Over the past year, “we feel we have more of a possibility to talk, do business and negotiate with Sephora,” said a spokesman from YSL Beaute. “There are now many more opportunities to do things with them than in the past.”

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