1

SEPHORA: PHYGITAL EXCELLENCE IN BEAUTY TECH1

Author Ph Rebiere

Abstract
Sephora succeeded in penetrating the highly competitive US BPC (beauty and personal care)
markets starting in 1998 by pioneering an innovative phygital (physical + digital) strategy of
creating customer value by enriching the shopping experience with a focus on emotions.
Customers combining in-store shopping with online shopping channels (omnicanal retailing)
display higher customer engagement, increased interactions and transactions therefore
underscoring the importance of firms to invest in the digital revolution. The US served as a
testing ground and innovation laboratory whose successes were then deployed in Europe.
How, thanks to its skillfully calculated sense of commitment, has Sephora's digital strategy
been built? Through what initiatives has the brand been able to capitalize on technology,
while applying it in a way that is fun for customers? This case describes the market-entry
challenges faced by Sephora and the ensemble of its digital initiatives and online/in-store
innovations over a two-decade period. Sephora’s phygital experiential retailing strategy drove
customer engagement through strengthened emotional bonding and allowed it to face
competitors both in the brick-and-morar market space as well as e-commerce giants like
Amazon.

Learning Objectives
At the end of this case study, the student must be able to:

- Understand and discuss aspects of market entry challenges in the beauty and personal
care (BPC) sector.

- Compare and contrast the physical and digital retailing channels and potential synergies.

- Understand the emotional drivers and dynamics of customer engagement and client
relationship management.

- Investigate the application of innovative digital technologies to enrich the customer

experience in-store and online (omnicanal retailing).
1
This case is intended to stimulate pedagogical discussion of a factual real-life scenario and not intended to bias for or against the
managerial actions taken by the firm described.
 2

- Reflect on the optimal growth and scale up strategies in the context of a firm’s digital
transformation.

Discussion Questions
Q1: Describe the key market trends and environmental factors that have shaped Sephora's
marketing approach.
Q2 : What were the main challenges facing Sephora?
Q3: Analyze Sephora's digital transformation: how has the brand succeeded in combining
customer experiences in physical and digital distribution?
Q4: Show how Sephora understood the emotional drivers of its customers, and how the emotions
created were used to guide Sephora's digital strategy.

Introduction
"Experiential retailing is crucial to our success. Sephora is a place where people come for advice, they come to
listen. We teach, inspire and play... You do not put that online. Online, you can do your research... here you can
come and experiment. " – Chris de Lapuente, CEO, Sephora (FT.com, 2019)

A subsidiary of LVMH since 1997, founded in 1970 by Dominique Mandonnaud and

acquired by LVMH in 1997, Sephora operates approximately 2,300 stores in 33 countries
around the world, with more than 430 stores across the Americas2. The global market for
beauty and personal care products is experiencing strong growth: estimated at $716.6 billion
by 2025.

Sephora made a remarkable breakthrough in the United States, where the brand
generates nearly half of its sales; across the Atlantic, the French brand already has 362
stores. How, thanks to its skillfully calculated sense of commitment, has Sephora's
digital strategy been built? Through what initiatives has the brand been able to capitalize
on technology, while applying it in a way that is fun for customers? This case study aims
to understand Sephora's digital strategies for creating online and in-store engagement
through mobile devices.

2
Sephora, "About Us", https://www.sephora.com/about-us, retrieved January 20, 2020.
 3

Sephora, a French beauty products retailer, operates more than 2,000 stores worldwide and
has experienced strong growth in results and profits for several years. Sephora has achieved
the number one position in the fragrance and cosmetics markets in the United States, both in
physical stores and online stores, surpassing traditional retailers such as Macy's.
The company also has a strong online presence: 15.5 million Facebook fans, 2.2 million
Twitter followers, 485,000 Pinterest users and 860,000 Instagram subscribers. Sephora
directly targets women between the ages of 25 and 35 and indirectly targets women over 35 or
under 25.

1 ‘Premium’ Cosmetics in the USA

"A buoyant market"

The premium segment, by the end of 2020, will represent a turnover of 20 billion dollars,
driven by American and Chinese consumers. Mass consumption of cosmetics is drying up3.
This trend will stimulate lifestyle brands, oriented towards a wide range of consumers, with a
focus on digital.

"Levers of growth"
North and South America constitute the leading markets for 'high-end' cosmetics for the
forecast period 2016-2021. Brazil accounts for 58% of cosmetics consumption in Latin
America. The growth is linked to the evolution of consumers' purchasing habits and, by the
same token, to the evolution of the way of life, encouraging consumers to use more high-end
products. The beauty industry represented 425 billion dollars in 2015 (GCI a, 2016), driven by
the color cosmetics and premium beauty segments.
The United States and Asia-Pacific are particularly buoyant markets for beauty. In China and
the United States, the buoyant segments are those focused on skin care, color cosmetics and
fragrances. This growth is expected to generate US sales of $5 billion by 2020. Online sales
already represent between 8% and 10% of the luxury market. The growth of American
commerce reached 4.5% in 2018 and that of e-commerce 18%, according to InternetRetailing
(LSA, 2019).

"What is the driver of future growth? »

3
"Consumers want a product that suits them, their lifestyle, their skin, their complexion, their appearance".
https://business.critizr.com/blog/5-tendances-à-suivre-sur-le-marché-de-la-beauté-en-2017 accessed May 7, 2020
 4

The fastest growing segments include fast-fashion, derma/health. Millennials, spending the
most via the net, will account for 50% of the world's working population by 2020. This
generation is adept at experiential, fragmented buying, active with the digital mode and ready
to try new products and brands.

2 Demand Dynamics
"State and Market Forecast "
The Beauty and Personal Care (BPC) sector forecast highlights an increase in the premium
segment over the period 2016 to 2021, with an overall annual growth rate of 3.6%4. The key
regions of North America and Western Europe show stronger prospects for the premium
segment. Nevertheless, North America has the highest per capita consumption per resident
spending, which is expected to exceed $90 by 2021.

The premium beauty sector is very dynamic and will bring 20 billion dollars of additional
revenue to the cosmetics industry by 2021 (GCIc, 2017); about 54% of the growth will come
from the US and Chinese markets.

"Millennials: New Behaviors" (GCId, 2017)

The Internet generation is disrupting the beauty industry, particularly with regard to decision-
making and the cosmetic purchasing process. The power of influencers, the persistent appeal
of brick and mortar5 shopping and the importance of tutorials are major elements. The
millennials are changing the rules of the game in the beauty industry. Beauty stars appear on
Youtube and Instagram and are considered beauty experts.
Influencers provide education on beauty; they are confident and act as a source of inspiration
to experiment with new beauty products. The challenge for brands is to gain the trust of social
media in the influencer community. The millennials, placing little trust in salesmen rhetoric,
favor buying in-store, once the research is done on the web, it is the phenomenon of trying
before buying that prevails. It is partly through social networks that trust has been created
between the millennials and Sephora. Online reviews, from beauty bloggers, YouTube,
Instagram are helping to build this trust.

4
Compared to 2.4% in the mass segment. The future is premium Global Cosmetic Industry; New York Vol. 185, No. 7, (Jul-Aug 2017): 18.

5
“Brick & Mortar” refers to traditional sales company (i.e. with "physical" sales outlets), as opposed to "Pure players" who only sell their
products and services on the Internet and "Click & Mortar" which refers to traditional companies with online distribution activities.
https://www.mercator-publicitor.fr/lexique-marketing-definition-brick-mortar consulted retrieved on 17 February 2020.
 5

"U.S. Consumer Behavior"

The Benchmarking Company's publication "2015 PinkReport6: The Sephora Customer"
provides a unique and personal perspective on each generation of consumers buying from
Sephora beauty brands, whether they shop at the point of sale or on Sephora.com.

Nearly nine out of ten women surveyed, who buy beauty products at prestige prices, say they
visit and buy from Sephora, Sephora.com or both. Selling at Sephora is an equally important
business for beauty brands in this category. Sephora.com is very popular. 85% of the women
surveyed say that Sephora.com is the first online site they go to for beauty products.

"What are the customers looking for at Sephora?"

Consumers focus on the customer experience (GCIb, 2016). The survey shows that women
appreciate the point of sale, describing it as attractive, stylish, trendy and fun, and positive
beliefs towards Sephora are strong with consumers; Sephora offers brands and products that
perform well. Sephora.com receives the same affect. 85% of the women surveyed said
Sephora.com is the first online site visited for beauty products. It is also the site where the
consumer spends the most time 'surfing' for beauty products.

3 First Expansion in the United States: Opportunities and Concerns

Sephora had opened its store in an area on the largest and most ambitious avenue to date that
was emerging as Manhattan's new retail center, the Rockefeller Center7. Simultaneously, the
brand launched an online store, sephora.com, supported by a $25 million advertising
campaign. The Fifth Avenue store was the cornerstone of a $100 million plan to open 50
stores nationwide by the end of 1999. The location, across the street from Saks Fifth Avenue,
was strategic. In stores such as Saks, Macy's and Bloomingdale's, beauty booths were run by
6
What Is The Sephora Shopper Seeking? Global Cosmetic Industry; New York Vol. 183, No. 7, (Sep 2015): 36 The report reveals the
buying habits and spending triggers, as well as the affinity of consumers for Sephora's loyalty program: the report provides information on
the use of pre-purchase and in-store technology, the brands the customer buys and 'likes' most, and the reasons why the customer repeatedly
exceeds her budget at Sephora.

7
The following discussion is based on Sephora's strategic revolution Wilson, Marianne. Chain Store Age; New York Vol. 76, No. 1, (Jan
2000): 53-54 The three levels, 21,000 square meters, offered an expanded offering of approximately 600 cosmetic and perfume brands in a
unique setting. Sephora's differentiation has always been its product assortment, combining high-end products with the latest trendy brands.
When entering the US market in the United States, Sephora was competing against the major cosmetics brands, which were reluctant to
accept Sephora because they were themselves under pressure from the department store chains where they did most of their business.
 6

beauticians, seeking to sell a single line of products. For many New Yorkers, Sephora in 1999
was like a huge adult toy store (Financial Times, 1999). For leading department stores,
Sephora was a worrisome threat to traditional retailing.

Sephora, in terms of merchandising, gave equal space to reference brands and differentiated
brands, allowing customers to "play" and try products, and encouraged its staff to offer
independent advice. Make-up artists, beauticians and computer monitors were available to
advise on the best facial cream for certain skin types or how to achieve a specific look.

The formula, which had already proven itself in several countries, posed a serious threat to
American department stores, Sephora appeared likely to cause confusion in the offerings of
all beauty stores. Traditional department stores, for some retail players, would be likely to
attract a mass market, especially younger consumers. Major retailers were investing in their
own beauty and hygiene brands.

US retail analysts had praised the chain for exploiting strong consumer trends of luxury,
"wellness", choice and individualism.

"Sephora a well thought-out store layout"

Sephora's French chic defied American fashion: the perfume and cosmetics chain took Fifth
Avenue by storm. The shops had a carefully thought-out layout: a very wide range of products
was on offer, there was a range of digital elements, and the focus was more on the customer's
personal experience (Figure 1). Sephora wanted to cater to the growing group of consumers
who were less interested in visiting large shopping centers and who preferred to be helped
locally.

Insert Figure 1 here. The layout of the stores leveraged precision mechanics.

"Sephora's first entry into the US: A challenge"

When it first entered the US, Sephora questioned the prestige of department stores. The main
threat to department stores was that Sephora was offering "exclusive" brands sold only in the
oldest prestige stores. To avoid conflict, Lancôme and Estée Lauder limited the presence of
Sephora products to stores that were not in direct competition with Sephora.

Sephora's market introduction in the United States provoked strong reactions from its
suppliers: from Estée Lauder to L'Oréal, Chanel, Clarins and Shiseido, all major cosmetics
 7

groups (except Dior Perfumes) refused to supply Sephora, preferring to concentrate on their
department store corners.
With its policy of exclusive brands, services and an omnicanal8 offensive conducted before
other brands, Sephora US has revolutionized the beauty market. Sephora has invented a
business model based on alternative cosmetic brands, available exclusively in its stores.

"Sephora's Strategic Differentiation."

Sephora's "assisted self-service" strategy has been marked by strong consumer receptivity.
This has not escaped the attention of the department stores, which have rushed to catch up.
Sephora had the merit of influencing the way beauty products were presented and sold in the
United States. The development of the brand via the Internet and more particularly via e-
commerce enabled Sephora to broaden its target by making high-end products accessible to a
larger number of consumers and also to learn about the responsiveness of the markets to the
products. The importance of the Internet is therefore at the heart of Sephora's development
strategy, as the Internet has contributed to the internationalization of the brand. The
company's original website has been extensively redesigned, and the establishment of an in-
house web development department was crucial in propelling the company towards a digital
future (see Fig. A3.1 for an example). The evolution of the website was aimed at providing
better visuals, more product information, and communication tools to customers. Sephora
increased its agility by adapting its web and mobile platforms to meet customer expectations.

4 The Stages of International Expansion in the United States

"Market Introduction Strategy"

The United States represented the first stage of international expansion, after the acquisition
of Sephora by LVMH in 1997; in 2019, the United States was the leading market for
cosmetics distributors. (See appendix 1)
Sephora is striving to differentiate itself from Ulta, the leading US beauty products distributor,
which is more focused on entry-level products and is experiencing very strong growth with
the opening of around 100 stores per year. (see appendix 1)
Sephora's strategy in the United States is based on a broader offering than in Europe, because
American consumers are very fond of young emerging brands. In 2016, sales of niche beauty
brands grew by 43%, compared to an average of 5% for all manufacturers.
8
By investing in its mobile devices and strengthening its presence in the most popular social media for mobile users.
 8

"The pioneer of the Phygital and Beauty Tech business model."

Sephora's beauty retail model is based on both the partnership and incubation of beauty
brands, and the physical "brick and mortar" presence in synergy with digital (phygital =
physical + digital). The company has a number of drivers (differentiating elements) to support
its constantly expanding product range, including Sephora Accelerate, Kendo, and Sephora
Collection.

Sephora Accelerate9
In early 2016, Sephora announced the creation of Sephora Accelerate, a US-based program to
support young brands and start-ups created by women in the US, Canada, Mexico and Brazil.
This latest initiative reaffirms Sephora's commitment to support women.

Incubation of brands
Sephora offers American consumers several young emerging brands that contribute to its
dynamism, and incubates some of them in exchange for an exclusive contract (Beauty
Business Journal, 2018). This is the case for example of Fenty Beauty, a range of
cosmetics designed by the singer Rihanna. The idea is for the brand to entrust its brand to
Sephora, which acts as a brand activator.10
The group relies in particular on Kendo, an accelerator for young offshoots (Figure A3.2).
Chosen '' invention of 2017 '' by the famous Time, the cosmetic brand Fenty Beauty has
managed to create the adhesion of beauty addicts.

Sephora collection
The company renamed the Sephora Collection in 2016, reviving the private label to become
more millennial-friendly and have a more defined scope. Sephora is positioning the brand as a
sort of gateway to introduce novice beauty buyers to its collection with the idea that they
could eventually move on to premium brands. With the slogans "simple beauty", "advanced in
beauty", and "at the heart of beauty", the Sephora collection aims to simplify the beauty
shopping experience.
9
https://www.lvmh.com/news-documents/news/sephora-launches-sephora-accelerate-program-for-female-entrepreneurs-in-the-americas/
accessed 20 January 2020. Sephora Accelerate will create a community of women entrepreneurs in the beauty industry and support them
with advice, tutoring and access to financing.

10
"We serve as a test laboratory for them before international deployment," says McDonald. "We do consumer education to make consumers
appreciate the
 9

The culture of innovation: Sephora Lab

Sephora has an innovation laboratory, located in San Francisco, to conduct advanced
thinking on the future of physical stores. Transforming Sephora into a place where "learning
and playing" is the key challenge for the brand. Group workshops and personalized
recommendations based on technological tools (cameras taking pictures of the skin,
thermometer measuring hydration, etc.) were invented in California. The integration of
technologies into the retail business was incremental. The importance of timing was a key
point in the development of the applications. For example, the Sephora To Go application
was initially launched in 201011.

Fenty: a digital brand12

Fenty is the first fashion house created ex nihilo within LVMH since
Christian Lacroix in 1987. For Sephora, digital is the pillar of the beauty brand. Initially,
Fenty Beauty was created with Kendo, LVMH's incubator for young cosmetic brands. Kendo
is based in San Francisco. Kendo describes itself as a trendsetter. With its concept of beauty
products "for women of all personalities, attitudes, cultures and ethnic backgrounds", the
Fenty Beauty by Rihanna brand, launched on September 8, 2017, has met with tremendous
success. The brand prefigures the reinvention of luxury according to the codes of the 21st
century.

Dynamic adoption of new technologies

The importance of timing has been a key point in the development of the applications. For
example, the Sephora To Go application was initially launched in 2010, but the application's
features such as video and product digitization were only democratized a few years later due to
the limitations of wifi. Sephora's mobile and desktop site currently includes two new features,
called "drag and drop" and "uncomplicated beauty", which help shoppers browse through
thousands of makeup and beauty tools to find what they're looking for.

11
How sephora built a beauty empire to service the retail apocalypse. https://blog.hipavel.com/2018/06/17/how-sephora-built-a-beauty-
empire-to-survive-the-retail-apocalypse/ retrieved 17 February 2020

12
13 May 2019, Les Echos LVMH creates a fashion brand with singer Rihanna. This is what we call, an "instabrand", it's a brand born via
Instagram . "It is a digital brand, followed by more than 100 million followers of Rihanna, and which has the capacity to engage a
community behind it".
 10

5 Sephora: King of Cosmetics in the United States

"The start of the digital transformation: the website"
In 1998, Sephora launched its web site in the United States and the Sephora brand was one of
the first players in electronic commerce (Bornstein & McGinn, 2014). In 2007 Sephora had
key ingredients to become a global digital brand: a strong willingness to take risks, a desire to
commit to its customers and a passion to educate its customers.

"Create the buzz."

Sephora understands that exclusive product launches create 'buzz'; the idea is to create
anticipation, whether through influencers or insider beauty sales; in March 2018, Sephora
joined forces with six of its best-selling brands (Allure.com, 2020).

"How does Sephora successfully confront Amazon13?"

Sephora has benefited from the refusal of traditional brands to be sold on Amazon. Only
a quarter of the brands distributed by Sephora were available on Amazon in September
2017. These are mostly entry-level products such as those from Maybelline, while more
sophisticated brands such as Givenchy or Dior, for example, are only available through
Amazon's Prime service.
Sephora is benefiting from the difficulties encountered in the United States by
department store chains such as Sears, Macy's and JC Penney, which are forcing high-
end make-up brands to rethink their distribution strategy.

"Flagship unveiling in 2017."

In April 2017, Sephora inaugurated its largest American store, a 900 square meter flagship
store, equipped with the latest in-house innovations14:
. The group's difficult start in the United States, linked to the reluctance of major brands to
work with Sephora, contrasts with the current situation. "This refusal has forced us to
reinvent ourselves, to innovate constantly and to be disruptive15. We are now a driving force
13
The make-up giant continues to expand in the United States, its largest market. A performance linked to the decline of department stores
and the refusal of luxury brands to be sold on Amazon. 19 March 2018 Les Echos. How Sephora manages to counter Amazon in the United
States.

14
April 3, 2017, Le Figaro, Sephora, king of cosmetics in the United States. The LVMH subsidiary has become the leader in distribution,
dethroning Macy's. Mirrors allow to observe one's make-up under different types of luminosity, a pulsed-air perfume tester or virtual make-
up screens to visualize oneself with false eyelashes, eye shadow and lipsticks.

15
Remarks by Calvin McDonald, Monday, April 3, 2017, Le Figaro, Sephora, king of cosmetics in the United States.
 11

for innovation in distribution, all sectors combined". Sephora's great strength is that it has
managed to retain its exclusive character without diluting its image. Sephora would occupy
the number 3 position among beauty stores in the United States, behind the American chains
Ulta and Bath & Body Works. The American subsidiary accounted for more than half of the
company's worldwide sales, estimated by analysts at 8 billion euros16.

6 Sephora: The Customer Experience

Social network shopping functionalities, chatbots, mobile applications: these are the features
that conquer and improve the Sephora customer experience. Sephora is positioned as a
pioneer in 'phygital', the integration of digital technologies and methods into the physical
world. Sephora's new-generation stores, enriched with digital tools, enhance the shopping
experience for its customers using digital tools: the idea is to reconcile the physical and digital
experience.
The Sephora model has been copied by the competition, but the brand has succeeded in its
development thanks to a well thought-out customer experience (Koetz, 2019). Sephora's
strategy focused on the customer experience - the stores were designed to offer a rich multi-
sensory experience - consumers can walk around the stands, touch and try products in an
interactive and fun way17. Experiential marketing sees consumers as emotional beings,
wanting to live pleasant experiences. Customers are motivated by emotion.

"Differentiating shopping experiences and services"(LSA, 2018)

Sephora makes educational use of new digital technologies.
The website suggests a new experience in beauty: consumers can create a personalized
profile based on their age, skin type, etc.; write and read product reviews; socialize with other
customers in virtual communities; watch videos to learn how to do their hair or makeup.

"The sephora.fr website

In 2010, the brand's website offered 190 brands and more than 9,000 references available for
purchase. Sephora's mobile application was designed with simple and intuitive software. An

16
March 19, 2018 Le Figaro, LVMH reaps the fruits of its gold rush The world's leading luxury goods company generates a quarter of its
sales in the United States, driven by the success of Sephora.

17
For example, clients can take advantage of exclusive services such as the Brow Bar Benefit. They can also customize their offers.
 12

interface allowed consumers to 'shop around', get product information, access loyalty
programs with personalized information, receive offers, post photos and book a store visit.

"Technology at the service of the customer: virtual artist"

Sephora Virtual Artist is a tactic developed by Sephora that uses technology to solve the
customer's problem from a trial perspective. Sephora has taken an even bigger step towards
digital retail by merging its in-store and digital retail teams to create a multi-channel retail
department. Sephora developed Virtual Artist in-house18.

"Going digital"
Sephora has been able to capitalize on the culture of entertainment. Customers are looking for
entertainment and are not focused on distribution channels. This change has enabled Sephora
to rethink its multi-channel strategy and to make a number of improvements:
Identify new customer profiles / propose combined benefits including online loyalty
benefits / develop analytical tools.

"Today's technology in stores"

Sephora is pioneering a variety of in-store technologies for beauty enthusiasts. Although not
a new offering, beacon technology allows the Sephora application to recognize users in-store
and then leverage an in-store card.

"Social shopping"
The social shopping platform facilitates collaborative beauty browsing.
Launched in the United States in 2014, The Beauty Board is part of the trend of sharing
sites; the platform allows users to search for a particular look like a ‘smoky’ and to be
inspired by other users (Fashion Network, 2016). Sephora has launched The Beauty Board19.

"Introducing Conversational Commerce: Beauty Bot"

18
The new Virtual Artist tool in the Sephora application is a tool that allows the virtual testing of thousands of lipstick colours. It is available
on the Sephora application and in stores adopting the brand's latest Beauty Hub concept. Sephora deployed its platform in 2010. The use of
smartphones is a key element in helping Sephora's customers make the most of their beauty shopping experience. LSA Published on
03/05/2017 https://www.lsa-conso.fr/on-a-teste-le-nouvel-outil-virtual-artist-de-l-application-sephora,258888 accessed 2 Feb 2020.

19
Sephora: The Beauty Board, the brand's social network. It's a digital platform, similar to a social network dedicated to beauty. It allows
Internet users to exchange their beauty tips and buy new products; this initiative fits perfectly into the brand's relational marketing
strategy. https://www.airofmelty.fr/sephora-the-beauty-board-le-reseau-social-de-l-enseigne-lance-a264507.html accessed February 17,
2020.
 13

The Sephora brand is the first beauty brand in the United States to adopt its beauty chatbot
(Forbes, 2016; CBInsights, 2018) accessible via Facebook Messenger, for conversational
commerce20.

"Launching Sephora Assistant"21

Sephora launches its application on Google Assistant.

"And Pantone launches the Color IQ System."

Pantone, the reference brand specializing in color charts, and Séphora joined forces to create
a revolution in the Pantone cosmetics industry.

"Expanding in-store technology"

In-store technologies for experiential retailing are continuously expanded through Sephora’s
innovation lab. Advances in computer technology, artificial intelligence and other
technologies are enabling the development of a diverse range of beauty devices.

"Bringing the Sephora experience to the store: Symbiosis with JCPenney."

JCPenney22 and Sephora make beauty accessible to even more customers across the United
States with the addition of 70 new Sephora locations within the JCPenney sites and 32 Top23
extensions. Sephora is located within JCPenney; the cooperation is an exclusive beauty
destination offering a selection of leading brands in makeup, fragrances, skin and hair care
available in nearly 650 JCPenney stores in 2017 (JCPenney.com, 2017).

7 The Future of Retailing

20
Thanks to chatbot, Sephora is asserting itself as a digital pioneer", in addition to social networks such as Beautyboard. The principle:
converse (or more precisely "chat") with a user to find out the identity of the gift recipient (age, sex, first name), as well as his or her style;
then, propose a personalized selection that the customer can accept or refuse - the bot will then propose other recommendations.
https://www.e-marketing.fr/Thematique/ia-1250/Breves/Sephora-chatbot-allier-beaute-intelligence-artificielle-311821.htm consulted on
20.01.2020.

21
Sephora is part of the era of vocal assistance. The use of voice assistants and more recently voice-controlled speakers is proving to be
much more than a trend, but the preparation of a small digital revolution in which Sephora wants to be a forerunner. It is software that
performs a number of tasks for the user by retrieving information from the telephone or the Internet. Sephora is thus one of the first
applications available on Google Assistant. Sephora points out that in 2016, in the United States, 49 million people used voice assistants and
10 million voice-activated speakers were sold.Fashion network published Nov 2017.
https://fr.fashionnetwork.com/news/sephora-s-inscrit-dans-l-ere-de-l-assistance-vocale,888168.html consulted on 20 January 2020.

22
J. C. Penney Company, also known as JC Penney or even Penney, is an American department store chain based in Plano, Texas, a suburb
of Dallas. Source https://fr.wikipedia.org/wiki/J._C._Penney consulted on January 20, 2020.

23
Sephora has more than 660 locations in JCPenney stores. JCPenney relies on this partnership to generate pedestrian traffic to its stores and
boost its sales. https://www.businessinsider.fr/us/sephoras-jcpenney-partnership-weighs-on-sales-2019-4 retrieved January 20, 2020.
 14

"Tomorrow's Customer Experience"

To boost their online sales, e-merchants like Sephora use24 predictive personalization
solutions: these are based on machine learning algorithms.

"Augmented reality."
Sephora is the first beauty brand to test a new advertising format of augmented reality 25.

"Machine Learning and Artificial Intelligence"(LeMagit.fr, 2020)

Sephora improved its sales and order volume forecasts with AI (artificial intelligence). In
this dynamic, Sephora's e-commerce site is becoming increasingly centralized. A wide
range of AI technologies is used by Sephora in its application and in stores. The objective
is to stimulate retail sales and to refine the transparent and promising shopping experience
for a young consumer.

"Sephora powers the digital lives of its customers."

In addition to new animations, digital technology makes it possible to offer new services and
to get advice in clients’ choices via a chat room. The Internet also makes it possible to
provide much more information than what can be written on the packaging26. Brands have
become famous for storytelling27, i.e. telling a story about a product; this is a way for them to
be more transparent with consumers by reassuring them about quality. In the digital age, the
question is how to attract the consumer to the store and improve the consumer's experience.
Sephora focuses on the 'experience to be lived' around the product. The future of retailing has
shifted from storytelling - the staging of content by brands - to storyliving, the brand as seen
through the prism of its customers28.
24
Thursday, November 15, 2018, LSA Who are the aces of predictive marketing? The predictive algorithms of leading French players in
digital marketing leverage machine learning, allowing them to finely personalize marketing campaigns and brand sites. These predict product
affinities or consumer decision paths. Using these tools, Sephora personalizes its site and marketing to make them more effective.

25
Sephora launches its first augmented reality campaign in France October 26, 2018. La Revue du Digital.
https://www.larevuedudigital.com/sephora-lance-sa-premiere-campagne-en-realite-augmentee-en-france/ retrieved January 20, 2020.
26
Thursday, January 17, 2019. Les Echos. Stores increasingly connected for a better rebirth. The interconnection of online and offline
points of sale is becoming the norm: it's time for "unified commerce".

27
Storytelling is literally telling a story for communication purposes. In a marketing context, storytelling is most often the use of storytelling
in advertising communication. The English term storytelling is usually translated into French as narrative communication (Marketing
Dictionary).

28
We've gone from storytelling to storyliving". Retail stores will remain a mainstay in the universe of brands, discovery, purchase, service
but also "story living". e-commerce will allow to stay in touch with customers. The essential thing is to create emotions that are the cement
of the client's memory, the basis of the relationship of trust. www.influencia.net/fr/actualites/media-com,retail,nous-sommes-passes-
storytelling-storyliving,9117.html consulted on 26/01/2020.
 15

"To look at the emotions: The Beauty Insider Program"

The growing weight of players addicted to digital is growing: "Luxury clients are at the
forefront of the digital revolution29: the digital 'boom' is creating a remarkable challenge, and
at the same time an opportunity for Sephora. Customer behavior influences the brand. The
Beauty Insider program is designed to leverage the emotional drivers of loyalty. Emotional
benefits stimulate engagement and loyalty; millennials want to engage with brands based on
"emotional loyalty drivers"30.

Further Reading

Koetz, C. (2019). Managing the customer experience: a beauty retailer deploys all tactics. Journal of
Business Strategy, vol. 40 (1), pp:10-17.

Straker, K., & Wrigley, C. (2016). Emotionally engaging customers in the digital age: the case study of
“Burberry love”. Journal of Fashion Marketing and Management, vol. 20 (3), pp:276-299.

References
Allure.com. (2020). Sephora new exclusive products. Retrieved
https://www.allure.com/gallery/sephora-new-exclusive-products-30-days-only, February 2,
2020.

Beauty Business Journal (2018). Big Brands Are Incubating Their Own Disruptors
September 17, 2018. Retrieved from https://beautybusinessjournal.com/big-brands-are-
incubating-their-own-disruptors/ , January 20, 2020.

Bornstein, J., & McGinn, D. (2014). How Sephora reorganized to become a more digital
brand. Harvard Business Review, 1-4. Retrieved from https://hbr.org/2014/06/how-sephora-
reorganized-to-become-a-more-digital-brand, February 2, 2020.

CBInsights.com (2018). How Sephora built a beauty empire to service the retail apocalypse.
Retrieved from https://www.cbinsights.com/research/report/sephora-teardown/ , 17 February
2020.

Fashion Network. (2016). Sephora launches its digital platform. Published on Beauty Board.
June 2016. Retrieved from https://fr.fashionnetwork.com/news/sephora-lance-sa-plate-
forme-digitale-the-beauty-board,698548.html , January 20, 2020.

29
Deputy CEO of the LVMH Group, Toni Belloni: "Luxury customers are at the forefront of the digital revolution" Les Echos, May 15,
2019. 90% of luxury sales are made in stores, and Sephora's image has been built on the digital front.

30
These emotional drivers, including happiness, confidence, surprise and pleasure, anticipation and, especially in the luxury field, pride. "We
believe that these emotional rewards are the new currency of loyalty," says Stanley and adds that his program will always have a
transactional component as well. "The right balance between transactional and emotional is necessary," she continues, but Sephora's Beauty
Insider program is more strongly focused on the emotional side. https://www.forbes.fr/business/comment-sephora-ameliore-son-programme-
de-fidelisation/?cn-reloaded=1 accessed May 7, 2020.
 16

Financial Times (1999). Sephora's French chic challenges American way: Perfume and
cosmetics chain set to take Fifth Avenue by storm: Financial Times [USA edition]; 12 Oct
1999.

Forbes. (2016). Sephora Launches Chatbot On Messaging App Kik. Mar 30, 2016. Retrieved
from https://www.forbes.com/sites/rachelarthur/2016/03/30/sephora-launches-chatbot-on-
messaging-app-kik/#1c6889df547e , February 17, 2020.

FT.com. (2019). For Sephora the store is score to its beauty. London, July 25 2019.
Sephora Website. (2020). "About Us", https://www.sephora.com/about-us, retrieved January
20, 2020.

GCIa. (2016). Go Premium or Go Home. Global Cosmetic Industry, New York. vol. 184( 5),
p.5.

GCIb (2016). Beauty Must Refocus on Experience Global Cosmetic Industry; New York. Vol.
184 (5), (Jun 2016), p.28.

GCIc. (2017). How Mass & Premium Beauty are Growing. Global Cosmetic Industry. Vol.
185 (6), (June 2017): 9.

GCId. (2017). Survey: How Millennials Purchase Makeup in the Digital Age, Global
Cosmetic Industry, (January 3, 2017).

JCPenney.com. (2017). JCPenney Partners With Sephora to Expand Beauty Retail Offerings
with 70 New Locations and 32 Expansions. April 24, 2017. Retrieved from
https://ir.jcpenney.com/news-events/press-releases/detail/356/jcpenney-partners-with-
sephora-to-expand-beauty-retail, January 20, 2020.

Koetz, C. (2019). Managing the customer experience: a beauty retailer deploys all tactics.
Journal of Business Strategy. Vol. 40 (1), pp.10-17.

LeMagit.fr. (2020). Big Data: Sephora predicts the performance of its e-boutique with
Machine Learning. Retrieved from https://www.lemagit.fr/etude/Sephora-predit-les-
performances-de-sa-e-boutique-avec-lAI-et-le-Big-Data, January 2, 2020.

LSA. (2018). New ways to consume hygiene-beauty through the internet. May 31, 2018.

LSA. (2019). New York is still doing the show. January 30, 2019. https://www.lsa-
conso.fr/new-york-fait-toujours-le-show,309216 retrieved 1/5/20.
 17

APPENDIX 1

Ulta: Beauty sales accelerate amid online growth. FT.com; London (Accessed: Mar 14, 2019);
Bath & Body Works source https://fr.wikipedia.org/wiki/Bath_%26_Body_Works (Accessed
Feb 17, 2020).

Below we describe some of Sephora's main competitors:

Competitors
Ulta Beauty is an American company specialized in the distribution of beauty products.

Although often compared to Sephora, Ulta has always offered a different value proposition,
focusing on a broader assortment of beauty brands that combines both pharmacy and prestige
products.
The retailer relies on salon services to attract customers and increase loyalty.
. According to Euromonitor, Ulta is now the largest specialty beauty retailer in the United
States.

And this is beginning to threaten Sephora's dominance in beauty prestige. Recently, Ulta
introduced Chanel Beauty, signaling Chanel's desire to connect with a younger population.

Ulta Beauty sales accelerate amid online growth

FT.com; London (Mar 14, 2019).

Ulta Beauty Thursday reported quarterly sales that grew faster than expected as increased
traffic in its stores and continued growth in online sales lifted the retailer.

The Illinois-based company has issued a sales growth forecast for 2019 in the low double-
digit percentage range, with a 6 to 7% increase in sales and comparable earnings from $12.65
to $12.85 per share.

During a tumultuous period for the retail industry, beauty chains like Ulta have benefited from
demand fuelled by the influence of social media celebrities promoting cosmetic brands and
their own product lines.
 18

Ulta has also done well against Amazon, attracting consumers who prefer to buy beauty
products in person. Meanwhile, Ulta's digital operations grew rapidly, with e-commerce
comparable sales up 25% in the fourth quarter. The company's outlook calls for e-commerce
growth of 20-30% in the current fiscal year.

In its stores, Ulta recorded a 7% increase in same-store sales in the fourth quarter,

Overall, comparable sales - which measure sales online and in stores open 14 months or more
- increased 9.4%, easily beating the consensus estimate of 7.9%. Ulta plans to open 80 new
stores in 2019, in addition to 20 renovations or relocations and 270 store refreshes.

 Bath & Body Works is an American chain of beauty and home products (candles, candles, etc.)
belonging to the Limited Brands group, which also owns Victoria's Secret.

The chain, founded in 1990, has been present in Canada since the acquisition of the Quebec
lingerie chain La Senza by the group1. 1 In 2010, the chain opened its first store outside the
Americas, in Dubai, and plans to open another in Kuwait. Its main competitor is the British
company The Body Shop, but it is playing hard with other chains in Canada such as Fruits &
Passions, Dans un Jardin and Yves Rocher, all of which have the same concept.
 19

APPENDIX 2

Sephora, LVMH's locomotive in BeautyTech ( 11/12/2019)

https://www.frenchweb.fr/decode-sephora-la-locomotive-de-lvmh-dans-la-beautytech/385650
(retrieved January 20, 2020).

In the United States, its largest market, Sephora has nearly 500 directly-operated stores and
approximately 700 points of sale within JC Penney department stores. As a sign of the brand's
ambitions on the other side of the Atlantic, it has announced the opening of 35 stores in 32
American cities in 2019, including one in the fashionable Hudson Yards district in New York.

Sephora US took a radical decision in October 2017: to bring its digital and store teams
together under a single management team.

80.7% of worldwide sales of beauty and personal care products are still made in stores.

 Sephora has made the United States its innovation laboratory for adapting its store models
and product lines to digital codes. The French brand has chosen San Francisco, in the heart
of Silicon Valley, to set up its "Sephora Innovation Lab", which aims to transform the
stores of the tricolor chain into forward-looking living spaces.

 Another string to the American bow of the LVMH subsidiary, the incubator of young
cosmetic brands Kendo is also based in San Francisco. Launched in 2010 by David
Suliteanu, who was then the boss of Sephora across the Atlantic, this structure is working
to put into orbit brands developed around an online community, like Fenty Beauty, a range
of cosmetic products designed by the singer Rihanna.

 In 2017, Sephora drew on its experience in the United States to create a new concept of
connected boutiques called the "New Sephora Experience". Behind this name lies
Sephora's strategy to create more intuitive and fun spaces for consumers.

In 2018, LVMH recorded sales of 46.8 billion euros, with a 10% increase in sales. The second
most lucrative sector for the French luxury group, selective distribution generated 13.6 billion
euros, a large part of which came from Sephora. The trend is also on the rise in 2019, as
selective distribution has enabled LVMH to generate 10.5 billion euros in revenue over the
first nine months of the year. "Sephora recorded sustained sales growth and gained market
share in all key markets. Online sales continue to grow at a high rate", noted the world leader
in luxury goods.
 20

"Sephora US is more advanced than Sephora France."

In the perfume and cosmetics market, Sephora quickly found its inspiration in the United
States. The French brand, which entered the US market in the summer of 1998, got off to a
difficult start in the United States due to the mistrust of the major American brands, which
saw Sephora as a European player likely to undermine their leadership. Except that in the
meantime Amazon has taken off and the ever-growing appetite of the American giant has
ended up worrying the traditional luxury brands. In this context, they still continue to stand up
to Amazon by refusing to sell their products on the American market, which is regularly
accused of maintaining an authoritarian and unbalanced relationship with its suppliers.

Merger of the digital and store teams to develop a common approach

Based on the premise that a multi-channel customer has a higher value because they have a
higher shopping basket, Sephora US made a radical decision in October 2017: to bring its
digital and store teams under one management.

A mobile application to boost store traffic

Sephora has understood this imperative, not only by changing the way in-store activity is
measured, with sales taking into account online customers in the catchment area around the
points of sale, but also by placing mobile at the heart of its marketing strategy to boost traffic
in its stores. To create a more engaging experience with its customers, Sephora has developed
an "in-store companion application". Designed to be a formidable marketing weapon, this
mobile application sends regular notifications to its users to encourage them to come to the
store. And as soon as a customer approaches a store, a whole personalized process is set up to
invite them to come to the store.

To achieve this, Sephora relies on a geo-tracking system that allows the company to follow
the customer remotely when he or she is in the vicinity of a store. Using push notifications,
Sephora offers discounts, new products, tutorial beauty workshops and other events that will
take place within the next hour in the store closest to the customer. These notifications are key
to Sephora's strategy in the United States, as they are designed to bring customers together
around events in its stores, thereby developing a strong and lasting community with its most
loyal customers. In turn, this reinforces the idea that Sephora is a local player close to its
customers rather than a global giant with a uniform value proposition.
 21

APPENDIX 3

Insert Figure A3.1 here. Sephora’s website design

Insert Figure A3.2 here. Kendo : Sephora’s brand accelerator

 22

Insert Figure A3.3 here. Sephora’s new range of natural care products
23