SULITEANU LAYS DOWN AN AMERICAN AGENDA FOR SEPHORA’S GROWTH
Byline: Pete Born
NEW YORK — David Suliteanu has begun his stint as the recently named president of Sephora USA by tackling head-on the chief criticism that has nagged the groundbreaking beauty retail chain — the difficulty of keeping shelves stocked.
A total of $11 million was recently invested in extra warehouse space, inventory systems and staff with the goal of making sure that all of Sephora’s 61 stores were fully stocked by Nov. 1, and after a walk-through of stores, Suliteanu liked what he saw.
“We have largely fixed the supply-chain problem,” he noted this week. Suliteanu added that sales have increased as a consequence, posting gains greater than the double-digit increases chalked up in the second quarter.
Suliteanu attributes the logistic problems to an infrastructure overwhelmed by the dizzying pace of rapid growth, in which Sephora opened 61 stores in just two years. By January, the chain expects to have 67 in operation in the U.S. Compounding the pressure is the basic layout of the stores, an open-sell concept offering hundreds of brands and a profusion of testers merchandised side-by-side.
Although Sephora’s innovative approach was initially hailed noisily by the industry as a welcome alternative to market-share-shrinking department stores, a number of complaints began cropping up, primarily about out-of-stock situations, but also about other issues. As the chain of stores grew at a rapid clip, with new locations popping open on a weekly basis, the ensuing praise was peppered with controversy.
In explaining the stocking problems, some vendors pointed that shipping distances are much greater in the U.S. than France, Sephora’s home turf. One manufacturer also said that the chain reorders merchandise in display allotments, rather than larger sell-through quantities.
Suliteanu took action shortly after joining the firm in September. One of his initiatives included expanding the Baltimore warehouse from 80,000 to 180,000 square feet; what Suliteanu described as “state-of-the-art systems” were added, and the operations staff, led by Laura Wilkens, senior vice president of operations, was beefed up.
In addition to improving inventory flow, Suliteanu also has been concentrating on working with vendors to improve in-store presentation. As an initial measure, Sephora has dramatically improved its offering of gift sets now in the stores, according to Steve Bock, executive vice president of marketing.
But Suliteanu does not see “a need for radically changing what has been done.” Customers are so enthusiastic about the store format and ambiance that executives say it has altered the public’s perception of where to buy beauty products. In addition, Suliteanu added, “We have a tremendously broad appeal, selling everything from Stila to Urban Decay to Chanel.
In response to vendors who complain that Sephora’s uniform merchandise presentation is too constrictive to allow manufacturers to fully articulate their brand positionings, Suliteanu noted that if a customer walks through five stores, Chanel will look quite different from Clinique, but it’s all Sephora. What matters to Suliteanu is how the contents of a gondola look, not the framework. Likening it to a picture and a frame, he said, “it’s still the picture, not the frame.”
In general, Sephora plans to employ more advertising, public relations and in-store special events to get what Suliteanu refers to as getting “credit from the consumer.”
His second focus is in continuing the aggressive store rollout while also studying questions of locations and design. Noting that Sephora could easily double the number of its U.S. stores, Suliteanu said the company expects to open 15 to 20 stores annually for the “next couple of years.”
As previously noted, the Times Square store in New York will be moved to a larger 21,000-square-foot location next spring and the company expects it to become the largest volume generator in the chain. While executives do not discuss dollar fires, industry sources indicate that the first-year target for the store has been set as an amount approaching $20 million.
In addition, Sephora is experimenting with its first airport locations, with two shops opening Dec. 10 on opposing ends of the San Francisco airport. And the division continues to expand in Japan. The first Sephora was opened in the Ginza section in Tokyo last November and there are six stores in operation. Suliteanu said plans call for opening five more next year.
He noted that market feasibility is an on-going question. As a store concept evolves, growth limits become a moving target. Taking a page from his past as president of diversified businesses at Home Depot, Suliteanu noted that Home Depot once determined that the Atlanta market could handle 14 of its stores. Seven years later, the number was 40. In the intervening years, the market for home improvement products had exploded.
For Sephora, the possibilities are limitless in the view of Suliteanu, who seems to chafe at complaints from his vendors that the chain should find locations away from their department store distribution where there are untapped pockets of consumers. “One of our objectives is to put stores wherever customers want them. We will open Sephoras in malls, open Sephoras on the street, open Sephoras on the land and open Sephoras on the sea.” He added, “when Mars is being populated, we also will open Sephoras on Mars.”
He declined to discuss sales numbers, but industry sources estimate that the U.S. chain’s volume for this year is running at an annual rate of $160 million to $200 million — for the 61 stores plus the Web site, Sephora.com.
Clinique, a division of Estee Lauder Cos., has its entire line in a half-dozen Sephora stores and its fragrances in the entire chain. William Lauder, Clinique president, is enthusiastic about his business in the Sephora stores that are in unique traffic areas — such as Times Square and SoHo in New York, South Beach in Miami and the three stores in Las Vegas. All of these locations offer fresh supplies of new customers, well away from Clinique’s department store outlets.
Asked whether the in-store merchandising could use some fine tuning, Lauder noted that the format, while democratic, leads to some brands being underspaced and others being overspaced.
Sephora has been a boon for some of the smaller indie brands, such as Stila, Peter Thomas Roth and Benefit.
“Sephora is a worldwide trend-setter for cosmetics and skin care,” said June Jacobs, president of Peter Thomas Roth, when asked if the French-based company can actually serve as a product launch vehicle, similar to department stores. “Their great concept serves as a crossroads for the introduction of new innovations in the marketplace.”
Jean Ford Danielson, co-founder of Benefit, had copious praise for the professionalism and level of cooperation from the Sephora management, and she said that the chain’s soft-sell retail approach is catching on quickly with the segment of the population that is turned off by the in-you-face hard sell of department stores. Urban areas easily embraced Sephora’s European concept, she said, and now Middle America is warming to the idea.
As for the knowledge level of the staff, which some vendors say is lacking, Danielson said she ranks training as second only to product in terms of vendor priorities, regardless of the retail venue. In addition to its top ranking at Sephora, Benefit also has a strong department store business.
For the first half of next year, Danielson will dedicate a trainer just to Sephora. She has noticed that the staff has been making subtle but steady changes to improve the merchandising and service. “When I walk into a Sephora, there is more of a joyful feeling,” Danielson said. “It’s not quite so Zen. The beauty consultant is a little more outgoing. That makes total sense. What is makeup if not fantasy?”
She concluded, “It’s the Americanization of Sephora.”