NEW YORK — With a focus on smaller, more productive store formats, and a heightened emphasis on education and widening consumer demographics, Sephora USA claims it is continuing to evolve toward profitability.
David Suliteanu, president and chief executive officer of Sephora USA, indicated during a recent interview that through the first few months of the year, the chain was ahead of an oft-stated goal “to send a check to Paris” this year. That’s his metaphor for profits that would conceivably amount to a return on the investment parent LVMH Moët Hennessy Louis Vuitton has made in its five-year-old U.S. retail chain.
Suliteanu acknowledged that a certain amount of recent retrenching has been necessary within the 77-store chain. For instance, the company is closing a three-story, 11,000-square-foot location in San Francisco and will open a one-story, 8,500-square-foot store in a high foot-traffic area two blocks away on Powell Street. The new San Francisco store, which is set to open June 27, could achieve annual sales in the neighborhood of $14 million to $18 million, outperforming the bigger store, according to industry estimates.
A new feature of the Powell Street store is a studio where “any brand” can give makeovers, said Suliteanu. He added that while initially there was a reluctance to allow space for this sort of demonstration, “it’s the right strategy for us. The store is exciting and fun, so why not leverage that?”
In another example of retooling the retail format, the company shuttered its three-story, 21,000-square-foot Rockefeller Center flagship in New York last summer. The move came as Sephora renovated its Times Square location, which is about 10,000 square feet and registers sales upward of $20 million annually — 20 percent more than the Rockefeller Center behemoth — according to sources.
“This is not a concept you can put on multiple floors,” said Suliteanu. “You have to be able to see everything. Accessibility to the entire store is important.” Future plans in New York, where six stores range in size from 2,700 square feet to 10,000 square feet, call for the opening of a Sephora at AOL Time Warner Center on Columbus Circle in Manhattan. As many as 12 total stores could eventually operate in New York.
Suliteanu declared a number of progress areas within the company, citing among these a three-phase evolution of “petal-to-the-metal growth” in the company’s first two years, followed by “an intense focus on operations” in the last two years. “[Now], we feel good where we are. It is time to focus in on the next phase: education and communication.”
Indeed, some observers believe the chain got ahead of itself early on. “They started off running when they should have walked,” said Chanel Inc. president Arie Kopelman. “But they learned. And they have a team in place that’s smart and wants to win. Frankly, that gives me a lot of confidence.”
Kopelman was not the only encouraged vendor. Many cited the professionalism of the chain’s merchandising staff. “Four or five years ago we didn’t have confidence that we were going to move product,” said Jean Ann Ford, co-founder of BeneFit Cosmetics. “But they got in touch with the customer. They took a stripped-down, austere French concept and Americanized it.” BeneFit, which is majority owned by Sephora parent LVMH, is a top-selling brand within the chain, but, Ford asserted, “that’s not an LVMH-prescribed verdict.”
According to Suliteanu, education includes employee training and communication means new ways of merchandising. For example, Sephora implemented a wall called Skin Solutions last year, which merchandises skin care by category and is designed to address specific needs. “It’s A to Z: A meaning acne, C meaning cleanser [and] E meaning eye cream,” Suliteanu explained. “Skin care has been getting more space in new and remodeled stores,” he noted, adding, “it deserves it on a productivity basis.” The category is said to now account for 30 percent of the retailer’s business. And, while traditional store demographics have “centered on strength in women under 25,” said Suliteanu, “focusing on skin care is the right [message] to attract a more mature consumer.”
Another category featuring enhanced communications is foundation. “When you shop by brand it’s mind-boggling,” Suliteanu said of the hundreds of foundation options the chain merchandises. The retailer therefore implemented end caps called Foundation First last month, which display a color wheel of 20 skin tones. “It’s really for education and not for selling — a 1-2-3 communications vehicle.”
Suliteanu noted that comparative store growth was up 20 percent year over year. “The base of success has been very broad,” he said. “We’ve had a very consistent response across geography and category. It reinforces that the team is doing the right thing and consumers are responding.”