Sephora Applies a Bold Stroke to Cosmetic Sales

Tara Mirchandani recently visited Sephora in New York’s Soho district to stock up on Estee Lauder face wash, mascara and lipstick. The 25-year-old favors the self-service cosmetics chain because she finds department store salesclerks too pushy.

“Once, I went to a department store in jeans and a ponytail, and a saleslady in the cosmetics department told me what I was trying on was too expensive for me,” Mirchandani said. “She said, ‘Why don’t you try something else that might be more in your price range.’ ”

Sephora, a fast-growing retailing chain that sells hundreds of beauty brands, is betting there are lots of customers such as Mirchandani, who are eager to purchase a variety of high-end cosmetics without dodging a phalanx of salespeople. By rapidly opening stores in key U.S. markets, the French specialty retailer hopes to challenge major department stores for a piece of the $6.3-billion prestige cosmetics, fragrance and skin-care business.

With more than 100 outlets in Europe, Sephora now is focused on three U.S. regions: New York City, South Florida and California. Already, there are 14 U.S. stores, including locations at Costa Mesa’s South Coast Plaza and on Stockton Street in San Francisco. Later this year, Sephora will open at the Galleria in Sherman Oaks and in San Diego. By the end of the year, the company expects to have 50 U.S. locations.

“It seems like we’re opening a store at the rate of one a week,” said Sherry Baker, Sephora’s vice president of marketing in the United States. “We have an aggressive plan because we know some people will think the Sephora concept can be easily imitated and start opening their own stores.”

Sephora’s plans have caught the attention of the U.S. beauty industry, partly because of the speed at which stores are being opened. (The first American store opened in Soho only last July.)

Sephora is owned by LVMH Moet Hennessy Louis Vuitton, which many believe has the marketing muscle and money to turn Sephora into a global player. Sephora was France’s premier perfumery chain before LVMH snapped up the company for about $262 million in 1997. With duty-free giant DFS Group also under its helm, LVMH now is the world’s leading distributor of perfumes and beauty products.

In Europe, Sephora’s sales total about $312 million, with same-store sales rising last year by 11%. The company wouldn’t discuss its goals for the U.S. market, except to say its annual sales goal for the Soho store is $10 million.

“And we’re well on our way to meeting that goal,” Baker said.

However, some doubt that Sephora will alter the shopping habits of affluent women, who traditionally purchase beauty products at major department stores and take advantage of their product samples and make-over demonstrations. Although popular in Europe, Sephora’s formula is untested in the United States, industry insiders say.

“Department stores are still the stronghold,’ said Maya Ganatra, who handles merchandising for Los Angeles-based Stila Cosmetics, which are sold at Sephora, Saks Fifth Avenue and Nordstrom. “Sephora is for women who know exactly what they want, and they’re coming to replenish their supplies.”

Easy Access to Products, Prices

The concept for Sephora is to offer a stylish, spacious atmosphere, where merchandise is easy to find and where every product has a visible price tag. Staff is available to answer customer questions, but Sephora stocks its shelves with about 13,000 products that are accessible without sales pressure. Unlike their department store counterparts, Sephora employees don’t work on commission.

“If you go to a prestige department store, you don’t know what you’re spending until you get hit up on your credit card,” Baker said. “Here, there are no surprises. And nothing is in your face.”

The French retailer also sees itself as a laboratory for small beauty companies, selling niche brands such as Shu Uemura, Vincent Longo, Peter Thomas Roth, Benefit and Stila that sometimes have a hard time getting retail space at major department stores.

That appeals to people like Karolina Amaris, an 18-year-old New Yorker who spends about $150 a month on cosmetics and fragrances.

“I like Stila, Prescriptives, Hard Candy,” she said. “That’s all I wear, and I can get it all at Sephora.”

Sephora targets women and men between the ages of 21 and 39. And although primarily higher-end brands are sold, the company carries some lower-ticket items, such as Sephora’s own mini nail polish line, retailing for $3.50.

Sephora plans to do little advertising. It will do some local outdoor ads to reinforce store openings, which are occupying much of the company’s energy. Sephora is searching for a site in Santa Monica or Beverly Hills, but is having difficulty finding suitable real estate, Baker said.

Ann Gottlieb, a New York fragrance consultant, finds Sephora a desirable alternative to department stores, where she feels she needs a “bodyguard or blinders to escape the attack from salespeople.

“When I go into the Soho store, I’m so turned on,” she said. “I don’t know what I want to buy first.”

But Gottlieb believes Sephora won’t become a threat to department stores unless it can convince major brands, such as Clinique, Estee Lauder and Chanel, to come on board at every Sephora site.

“I don’t know if Sephora can make it without the big brands,” Gottlieb said. “There are many customers in the United States who want to buy highly advertised brands, because advertising gives them the OK to buy a product.”

Clinique, Estee Lauder and Prescriptives now are sold at a few Sephora stores, but Estee Lauder Cos., which owns all three brands and commands about 44% of the prestige beauty market, won’t distribute to Sephora stores near department stores carrying the same lines. For instance, Estee Lauder products aren’t sold at the Sephora site at South Coast Plaza.

“We want to reach consumers where we don’t normally reach with our brands,” said William Lauder, president of Clinique Laboratories and a board of directors member of Estee Lauder Cos. “We went into the Soho store, because for a brand like Clinique, it’s a couple of miles before you can find another outlet.”

Lauder said brands such as Clinique are selling well at Sephora, but he doesn’t believe Sephora will steer away core department store customers. Although Sephora is attracting attention, business is nowhere near that of a top department store, he said. He also believes people will continue to shop at department stores because they offer trained salespeople who are knowledgeable about each brand.

“The Sephora model doesn’t offer that same level of brand expertise,” he said.

The Department Store Advantage

Carly Marie, Nordstrom’s cosmetics merchandising manager for California and Arizona, argues that customers benefit from salespeople, who provide firsthand information about the brands they sell and beauty trends. Besides offering customers promotional gifts from major brands, department stores also sometimes carry exclusive collections from popular lines, Marie said.

And some department stores are experimenting with self-service, though they have not eliminated salespeople.

But John Pitt, a retail analyst at LJR Redbook Research in New York, said any aggressive specialty retailer that’s opening stores at a significant rate poses a threat to department stores.

“The sheer look of [Sephora] is novel,” Pitt said. “It’s hard to say whether it will become a model of how cosmetics will be sold. But it definitely seems to attract a younger and hipper crowd. And there has to be an overlap in business with department stores.”