Inside Sephora’s Branded Beauty Strategy

By Lauren Sherman, Business of Fashion

Sephora has changed the way women shop for cosmetics, giving traditional department store counters their first real competition in over 50 years. Now, teaming up with Marc Jacobs to launch an ambitious new colour cosmetics collection called Marc Jacobs Beauty, the retailer is venturing into a new waters and creating new synergies within the LVMH group, which owns both companies.

NEW YORK — In the year leading up to the August 9th launch of Marc Jacobs Beauty, developed in collaboration with beauty retailer Sephora, the lauded American designer was generous with the press. Lengthy profiles appeared in outlets from New York magazine to Women’s Wear Daily, in which Jacobs praised the line, declaring that he was “surprised by how delighted I am with the results.” The collection of shiny lip vinyls, gel eyeliners and high-gloss nail polishes — comprising 122 skus (stock-keeping units) in total — was an instant hit with beauty magazine editors, offering the just right mix of compelling back story and appealing product to fill the pages of their September issues.

Marc Jacobs Beauty. Source: Established

In contrast, Sephora was only briefly mentioned in these write-ups and the beauty retailer has declined to comment on the collaboration. That may be because Sephora Originals — the moniker under which Marc Jacobs Beauty sits — is part of a wider strategy for the company, which now operates stores in more than 30 countries and is seen as one of the LVMH group’s biggest drivers of growth.

Founded in 1969 by Dominique Mandonnaud and acquired by LVMH in 1997, Sephora’s rise is well-documented. Measured in terms of retail sales, it now commands a staggering 12 percent of the beauty market in the United States, 15 percent of the market in China and 27 percent of the market in its native France, according to Sanford C. Bernstein, a sell-side equity research firm. Bernstein says Sephora will push LVMH’s Selective Retailing division — which also includes the DFS Group — to sales of 14.7 billion euros (about $19.8 billion) by 2017, surpassing the conglomerate’s Fashion and Leather Goods division by 2018. (In 2012, Selective Retailing brought in 28 percent of LVMH sales, or 7.9 billion euros, while the Fashion and Leather Goods division brought in 35 percent of sales, or 9.9 billion euros).

Sephora’s ascent has a great deal to do with its unique approach to merchandising. Formatted like an apothecary but furnished like a nightclub, the chain has become known as a low-pressure, consumer-empowering alternative to traditional department store counters. At Sephora, customers can get their hands on high-end products without going through the rigid interactions that characterise beauty counters. The store’s fluid layout allows shoppers to hop from brand to brand, product to product, and test them out at their leisure. Makeup tutorials are available, but it’s on a opt-in basis. And critically, employees are not instructed to push one single brand.

Over the years, Sephora has also developed a reputation for championing niche lines, a segment of the market that has grown exponentially over the past decade, according to Karen Grant, global beauty industry analyst at Port Washington, NY-based market research firm NPD. “They’ve been able to take brands without a name, without a presence, and bring them to life,” Grant says, citing both Bare Essentials and Benefit (also owned by LVMH) as companies that were catapulted forward thanks to Sephora’s support. Vegan-makeup line Obsessive Compulsive Cosmetics and the argan oil-based skincare collection from model Josie Maran are two niche brands that have recently benefited from Sephora’s support.

But winning merchandising strategies and product development are two different things.

Sephora’s first foray into product development was its own private label, which currently includes over 700 skus. In 2010, the company launched Sephora Originals, a project akin to Target’s designer collaborations, except that these lines are devoid of Sephora branding. The first Originals line was created for Hello Kitty. Tarina Tarantino and Charlotte Ronson soon followed. (Tarantino’s line was discontinued at Sephora in 2012, but the accessories designer relaunched her namesake collection of lip glosses and shimmering face powders via her own e-commerce channels earlier this year.)

The Marc Jacobs collection is certainly the most high profile of the Originals projects yet and is projected to generate more than $20 million in North American sales in 2014. Crucially, it also marks the first time Sephora has tapped into parent company LVMH’s own stable of fashion brands to develop an entirely new offering.

“It’s the only way to really come into the [branded beauty] category strong,” says Mario Ortelli, senior luxury goods analyst at Sanford C. Bernstein. “I expect they will launch more lines with LVMH brands.”

For LVMH, at which synergies across brands have traditionally been limited to things like using reputation and collective buying power to negotiate better rates for media buys and retail rents, this would be an interesting move.

Read the full article by Lauren Sherman from Business of Fashion.

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