Sephora Direct: 3.25.

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This is an interesting case with a lot of current issues many retailers are wrestling with when it comes to
CX. Customers are changing buying behavior based on digital technologies and those changes are reinventing
how retailers market, and I don't mean just Amazon. Think about recent projections about mall closings
within the next five years! Google it.

As you read this case consider Julie Bornstein's high class problem. Her CEO likes what he has seen so far in
Sephora's marketing efforts using digital. But how does he measure this going forward? How will the
strategy Sephora develops in the future have to change; what do they keep; what goes away? Where is digital
tech going and how can Sephora get ahead of the curve and take advantage of what's coming? Finally, how
will their competitive environment change? Very interesting case.

Have a great weekend.

Situation Analysis & Challenge

Sephora is a French mulƟnaƟonal chain for beauty and personal care products founded in 1963. Once
perceived as a niche player, today, Sephora is owned by the luxury label conglomerate Louis VuiƩon
Moët Hennessy (LVMH) and operates over 1,000 stores in 23 countries. In 2010, the $58.9 billion beauty
industry was exposed to an increasing number of disrupƟve forces; most notably, the proliferaƟon of
e-commerce, advent of social media, and changing consumer preferences. Both disruptors required
thorough aƩenƟon and Sephora was poised to make changes that would allow to expand, acquire new
customers, and enhance customer service while maintaining core elements of its current business
model. Sephora strived to become the number one online desƟnaƟon for anything beauty related. First
successes were already achieved and their social media followership has been growing as steadily as
rapidly. However, several key quesƟons had to be answered in order to address the changing nature of
retail business appropriately and achieve set objecƟves. How can Sephora remain relevant, unique, and
unexpected? What would a three-year strategic plan for Sephora Direct look like? How can Sephora
deepen its connecƟon with its loyal customers (also Beauty Insiders)? What should the mix of
tradiƟonal
and online adverƟsing be like for Sephora? Which way would the markeƟng budget be allocated most
efficiently? Should Sephora engage in partnerships with new online entrants and at what price? Which
technologies offer the biggest opportunity for Sephora? Can Sephora win in the social media space?
How
can Sephora own the video category for personal care products? How should Sephora measure success
of its digital efforts? All these were key quesƟons

Competitive Landscape - U.S. beauty and personal care market

The U.S. beauty and personal care industry is $58.9 billion (2009) in size. The industry is made up of
department stores such as Macy’s and Nordstrom as well as single brands and mulƟ brand specialty
stores such as MAC and ULTA Beauty, who is considered Sephora’s biggest compeƟtor. Besides the
tradiƟonal retailers new compeƟtors have emerged in recent years covering the e-commerce segment.
The most notable market entrants are Amazon and Beauty.com.Sephora’s retail concept can be
considered a hybrid with addiƟonal features of the aforemenƟoned concepts. In fact, Sephora.com was
the largest online presƟge beauty website, capturing roughly 30% of the U.S. online market. However,
since growth in the online segment is enormous, smaller entrants to partner with such as Shopkick,
ShopSocially, Foursquare, and Groupon come to the surface.
Changing Competitive Environment
Generally, mature industries such as the beauty industry in 2010 are predesƟned for consolidaƟon.
However, with the advent and proliferaƟon of e-commerce and social media, the compeƟƟve
environment is changing in different ways. Digital led to informaƟon being readily available anywhere.
This has led to an erosion of trust in society, a race to the boƩom (lowest prices), and shiŌing sources of
influence (shiŌ towards digital adverƟsement). Beauty product retailers require to rethink the way they