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SEPHORA Kristen Hunt | Fall 2011

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TABLE OF CONTENTS

COMPANY OVERVIEW ................................................................................................ 3

SWOT ANALYSIS ........................................................................................................... 4

STRENGTHS ...................................................................................................................... 4

WEAKNESSES .................................................................................................................... 5

OPPORTUNITIES ................................................................................................................ 5

THREATS ........................................................................................................................... 7

TARGET MARKET ......................................................................................................... 8

MARKETING MIX .......................................................................................................... 9

PRODUCT .......................................................................................................................... 9

PRICE .............................................................................................................................. 10

PLACE ............................................................................................................................. 11

PROMOTION .................................................................................................................... 12

RECOMMENDATION .................................................................................................. 14

REFERENCES ................................................................................................................ 16

APPENDIX ...................................................................................................................... 18

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COMPANY OVERVIEW

Sephora is a French-based chain of stores specializing in cosmetics, fragrances, and

personal care items. While the company was initially founded in 1969,1 Sephora first entered the

U.S. market in 1998 and has since experienced exponential growth.2 Currently, Sephora owns

over 1,000 stores, 300 of which are located in the United States. Additionally, the company

operates 150 store-in-store locations within JC Penneys. The brand is currently in the growth

phase of the life cycle, reporting revenues of $378.4M during the 2010 fiscal year.3

Alongside high-profile brands such as Christian Dior, Marc Jacobs, and Fendi, Sephora is

owned by Mot Hennessy Louis Vuitton. According to the LVMH website, Sephora aims to

express the most refined qualities of Western Art de Vivre.4 Correspondingly, the company

is committed to offering its customers products and services of excellence. Sephoras dedication

to glamour is evident throughout every aspect of the companys concept. In fact, even its

namesake exemplifies the ideal of beauty. According to the company website, the name Sephora

is a blend of sephos, which is the Greek term for pretty, and Zipporah, who was Moses

exceptionally beautiful wife in the Bible.5

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SWOT ANALYSIS

Strengths

One of Sephoras key strengths is its self-service approach to cosmetics. Those who go

to Sephora are able to test as many products as they would like at their leisure. This is quite

different from the approach used by both department and drug stores. For example, when a

customer wishes to test cosmetics within a high-end department store, they must first ask the

sales associate for assistance. Consequently, shoppers may feel obligated to buy a product after

being helped. The associate may even pressure the buyer into purchasing something they do not

truly want, leading to cognitive dissonance. At Sephora, customers are able to freely experiment

with products while still having the option to speak with an expert if they choose. Additionally,

the self-service model is superior to drug stores approach, in which customers do not have the

ability to test the makeup at all. In this respect, Sephora truly offers the best of both worlds by

allowing patrons to take the guess work out of buying cosmetics while in a comfortable and

relaxed environment.

Another strong point that sets Sephora apart from its competitors is its ability to track

customers buying habits. The company employs several different methods through which it

collects a variety of data. Through tracking its website and loyalty card, Sephora is able to

record each brand a customer patronizes. The company then uses this information to target

specific campaigns and promotions to certain consumers, increasing the effectiveness of its

marketing strategy.

The range of products carried has also added to Sephoras success. Known for offering

high-quality products at multiple price points, the company is able to target several different

income demographics. The competitive performance of the companys private label brand, the

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Sephora Collection, is an additional strength. The well-received collection offers makeup,

skincare, and hair care products at an affordable price. According to data collected from Mintel,

revenue from the private label comprises a sizeable ten percent of the companys total sales.6

When coupled with its positive brand image, Sephoras ability to offer a wide range of both

affordable and high-end products has allowed the company to create a loyal customer base.

Weaknesses

While Sephora possesses numerous strengths, there are also areas in which the company

needs improvement. Firstly, Sephora has low brand recognition among consumers who do not

live near a store. Coupled with Sephoras lack of television promotions and print

advertisements, the brands ability to connect with loyal customers is greatly hindered. An

additional weakness is that Sephora is generally more expensive than drug stores and mid-priced

retailers that offer substitutive products. Lastly, the locations of Sephora stores are not evenly

distributed. Since many stores are located in metropolitan areas, it is difficult for Sephora to

reach suburban regions, an obstacle which significantly limits the size of its core customer base.

Opportunities

Several opportunities for future growth and increased profitability exist. In particular, the

retail market for environmentally friendly products is rapidly expanding as consumers strive to

make educated decisions regarding the goods they purchase. Many green cosmetic products

have a reputation for being less effective than traditional makeup. While Sephora carries a

limited collection of green cosmetics, the company could potentially benefit from carrying a full

line of high quality, environmentally friendly products.

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A second opportunity that exists is the prospect of a mens skincare, deodorant, and

fragrance line. Research shows that the majority of men use three to five toiletries in their

regular grooming routine.7 Additionally, four out of ten men report using skin moisturizers.

Since Sephora already specializes in skincare and fragrances, developing an extensive line

especially for men would allow the company to enter a new market and increase its customer

base.

Shifting demographics also present new opportunities for Sephora. Between 2005 and

2015, the percentage of females ages 18 and up will increase by 10.3 percent, potentially

allowing Sephora to further penetrate the market. Comparatively, the 14.6% increase in women

between the ages of 45 and 64 presents Sephora with the distinct opportunity to market their

products towards baby boomers who are interested in upholding their looks.8

Additionally, the company can benefit

by acting upon the increase in

minority populations in the United

States. The buying power of African

Americans, Hispanics, and American

Indians is growing quickly, as shown

in the table at left. Carrying hair and

skincare lines specifically for women of color would help Sephora boost profit margins.

Sephora has seen great success in its recent partnership with JC Penney. A final

opportunity exists in the potential formation of new corporate partnerships with other department

stores. Collaboration will allow Sephora to reach a new audience and increase its brand

recognition.

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Threats

A few threats have the potential to disrupt Sephoras profitability and security. To begin,

the nature of the cosmetics industry presents several challenges. Typically, consumers only

purchase makeup when they run out of a product, a process which could take months. This

factor greatly limits Sephoras ability to form personal connections with everyday consumers.

Further, since makeup is often seen as a discretionary purchase, economic downturns pose a

significant risk for Sephoras profitability.9 During recessions, consumers often choose to

purchase cosmetics from more affordable venues like drug stores.

Additionally, it is nearly impossible to recognize the brand of makeup a person is

wearing. Unlike identifying a logo on a handbag or t-shirt, consumers who are fond of someone

elses makeup are unable to directly equate their keenness with a specific brand. This limits the

amount of free marketing cosmetic companies can utilize.

The landscape for the industry in which Sephora competes is also a threat for the

company. Esteemed department stores such as Neiman Marcus, Bloomingdales, and Nordstrom

sell products that are identical to Sephoras, including high-end perfumes, makeup, and skincare

merchandise. For example, both Nordstrom and Sephora carry Burberry fragrance sets and

Lancme cosmetics. Consumers who value convenience may be more inclined to purchase

personal care items in the same place where they buy clothes and shoes.

Lower price-point customers who do not live near a store may prefer shopping at drug

stores or mass merchandisers. Finally, there are several specialty stores that serve similar target

markets. MAC Cosmetics and Ulta Beauty are two of Sephoras direct competitors, offering

product lines that are quite similar. Additionally, stores like Bath & Body Works and the Body

Shop specialize in fragrances and personal care items at an affordable cost.

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TARGET MARKET

According to a recent report published by Mintel, the foremost consumers who shop at

Sephora are from households that earn over $150,000 per year.10

While these individuals are

affluent, their partiality towards testing products before purchasing demonstrates their inclination

towards making well-informed and budget conscious decisions. Additionally, Sephoras trendy

selection of cosmetics and chic store layout imply that the company aims to target young women

in their late teens through late twenties.

Since Sephora is currently in the growth phase of the life cycle, it is important for the

company to keep reaching out to those within their primary target market. Sephora should aim

to increase the brand recognition among these consumers, which will enable the company to

form a solid base of loyal customers. Accordingly, I have defined Sephoras target market as

follows:

Affluent, young females who are influenced by the perception of

beauty and trends, are concerned with high quality and esteemed

brand names, are willing to go out of their way for excellent products,

and are committed to making the most educated purchases possible.

Targeting these consumers will allow Sephora to further penetrate the market and take advantage

of the growing demographic of women over the age of 18.

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MARKETING MIX

Product

Sephora carries 200 different brands and over 13,000 products including makeup,

skincare, fragrance, bath & body, hair care, and beauty tools.11

Within each of these categories

are numerous sub-categories, expanding the companys offerings significantly. The

substantiality of depth for each of the product lines solidifies the companys position as a one-

stop shop for any personal care need. Carrying a blend of up-and-coming and highly esteemed

brands, Sephoras product offering is able to meet the needs of a diverse set of customers. While

the well-regarded brands draw affluent consumers into the store, the availability of more

affordable goods helps purchasers compare their options. Although many of the brands carried

by Sephora are manufactured by different companies, they are all united by an air of trendiness.

Each brand features dynamic packaging, eye-catching colors, and unique product concepts that

are aligned with Sephoras image, helping to unify the store despite brand differences.

The variety of trendy services offered in each store also adds to the Sephora experience.

Customers can get a makeover from a Sephora professional, have their hair styled at an express

hair station, or even receive a manicure and pedicure at an in-store nail bar. These innovative

service offerings set Sephora apart from its direct competitors and reinforce the trendy style of

the store.

Overall, Sephoras product offering effectively meets the needs of its target consumer.

Carrying a variety of cosmetic products allows the company to differentiate itself from its

indirect, lower priced competitors. When shoppers go to Sephora, they can be certain that the

store will have the products they need. Additionally, the fresh and original business model

reaches women who are looking for the trendiest place to shop. Gaining an exclusive and chic

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shopping experience while still getting the high quality goods desired creates value for the target

customer.

Price

Sephora offers a differentiated pricing model in which costs span from middle to upper

range. The model is evident through all product categories at Sephora. For example, a consumer

looking to spend a moderate amount on lipstick can purchase the Tarte Vitamin brand for $8.00.

Although this brand is up-and-coming, the product is still set at a higher price point than a

comparable good at a drug store or mass merchandiser. For those looking to spend a bit more,

the Cream Lipstick by LORAC, a brand that has existed for several years, is available for $19.00.

Since this brand is more established, its price lies in the middle of Sephoras overall pricing

range. Finally, the Lancme French Touch Absolu Lipstick is available for $35.00 and rests in

the upper pricing range. The well known brand is highly respected in the cosmetics industry,

thus constituting a higher price.

While the three foregoing products were at different stages in the life cycle, Sephora

assures consumers of their quality by simply committing to the brands. Confident in the

products value, customers are willing to pay more. Despite the fact that the prices at Sephora

are generally greater than those at other stores, the companys affluent customer base is willing

to pay since Sephora justifies greater costs by providing higher quality.

Additionally, the companys pricing model effectively lessens the cognitive dissonance

that could potentially be experienced with the purchase of expensive makeup. If a customer

wishes to wear a certain color or style of makeup for only one event, she can simply purchase a

less expensive brand. Thus, the wide range of prices gives consumers different purchasing

options, joining together the target markets need to make well-informed buying decisions.

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Place

To effectively reach numerous consumer groups, Sephora offers its products through a

variety of outlets. Sephoras most notable retailing channel is brick and mortar stores, with

stand-alone stores typically existing in metropolitan areas. Operating over 1,000 stores in 25

countries, Sephora has made a notable effort to increase its presence on a global scale. In 2006,

the company secured a partnership with JC Penney in which Sephora operates mini stores within

certain JCP locations. By 2010, 161 store-in-store locations had been opened, bringing in $1

billion in sales. Sephora has signed a contractual agreement with JC Penney to open 75

additional locations each year until 2015.12

The company also operates the top online beauty website, Sephora.com.13

Offering the

most comprehensive selection of personal care products, the site has experienced rapid growth

since its launch in 1999. The website allows users to purchase products, view feedback, and

watch makeup tutorials. Users are even able to connect with other customers through the social

networking component of Sephora.com. Internet retailing has been critical to Sephoras success

as a beauty vendor; online purchases now represent five percent of total sales in the industry.14

Leading the business in innovation, the company also sells its products through iPhone and iPad

applications. From 2006 to 2010, automatic vending machines selling Sephoras top 50 products

were positioned in malls. Their effectiveness is currently being assessed.15

Sephora uses

traditional placement as well, relying on seasonal catalogues to broaden the reach of its product.

Taken as a whole, Sephoras positioning allows it reach much of its target customer base

through the high degree of accessibility. The chic, hip target audience appreciates having the

power to purchase Sephora products through both web and the app channels. However, by

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concentrating its stores mainly in metropolitan areas, the company overlooks scores of suburban

communities in which their target market may reside.

Promotion

Sephora utilizes various promotional efforts to influence consumers opinions regarding

the company. Firstly, Sephora has built a strong online presence through Twitter and Facebook.

The company updates these sites regularly and encourages user interaction among all parties.

Boasting 290,000 followers, the company relies on its Twitter platform to post daily tips, to

allow followers to give feedback on discussions, and to raise awareness on new products through

contests and giveaways. By helping Sephora fans feel more connected with the company, the use

of Twitter will hopefully lead to an increase in store loyalty. Sephora also promotes itself

through the use of email listservs. Bi-weekly emails update subscribers on new product

launches, in-store events, customer feedback opportunities, and exclusive coupons.

Another essential aspect of Sephoras promotion campaign is their Beauty Insider loyalty

program. The card, which is free to all customers, offers coupons, discounts, and points for

frequent buyers. For every $100 spent at Sephora, a Beauty Insider receives one free deluxe-

sized product. Once a cardholder reaches the $350 benchmark, they are awarded the exclusive

Very Important Beauty Insider card.

Finally, Sephora runs several ongoing promotional campaigns through its website. To

encourage online purchasing, the company awards customers with free returns and three free

samples with every order, as well as free shipping on orders over $50. While purchasing makeup

online may cause some to be apprehensive, these promotions impart consumers with confidence,

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persuading them to place an order. Additionally, these campaigns strive to provide the in-store

experience to online consumers through offering free samples.

While there are numerous positive aspects of Sephoras promotional initiatives, some

shortcomings are certainly evident. Sephoras promotions only serve people who already have

an interest in the company. These efforts do not inform potential customers of the products and

services offered by the store, an aspect which could critically hinder Sephoras ability to further

penetrate the market. However, Sephoras campaigns do effectively encourage infrequent

buyers to explore the new products and services offered by the company. A second positive

aspect of Sephoras promotions is that a significant amount of the promotional efforts are based

online, effectively reaching the young target audience.

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RECOMMENDATION

Sephoras main objective should be to penetrate the market through increasing brand

recognition by members of its target audience. To accomplish this goal, Sephora should

establish a strategic partnership with Victorias Secret, a retailer of womens clothing, lingerie,

and beauty products. Boasting annual sales of $7 billion, Victorias Secret has a target market

that is very similar to Sephoras.16

Both companies direct their marketing activities towards

affluent young females who are influenced by the perception of beauty and who are partial to

esteemed brand names. However, Victorias Secret operates over 1,000 stores in the United

States, considerably outnumbering Sephoras 300.

The retailer currently carries Beauty Rush, its own line of private-label cosmetics. I

suggest that Sephora develops a co-branded line of makeup for the store, called The Victorias

Secret Collection by Sephora. The full line will feature products of similar pricing and quality to

Sephoras current private-label collection and will be sold at Victorias Secret and Sephora stores

and online. Since Victorias Secret reaches a greater amount of people, Sephora is able to

leverage the powerhouses loyal customer base and abundance of stores. Thousands of

Victorias Secret customers who were once unfamiliar with Sephora will now recognize the

brand and potentially gain loyalty to the cosmetic store. Promoting the line through the

Victorias Secret catalogue and website will allow Sephora to utilize marketing channels that

have already been put into operation by Victorias Secret. Thus, Sephora extends the amount of

customers it can reach without having to invest capital in store construction or expansion.

Further, by transferring the responsibility of developing their own cosmetic line to Sephora,

Victorias Secret is able to save both time and money.

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Promotion of the emerging partnership will consist of advertisements in magazines that

are primarily read by members of the target audience. Possible publications include Allure,

Glamour, Cosmopolitan, and Elle magazine. All of the marketing materials promoting the line

will feature well-known Victorias Secret models and could follow the campaign: The most

gorgeous couple ever: Victorias Secret Collection by Sephora. By emphasizing beauty and

glamour, this slogan will draw the attention of members of the target market. A sample

advertisement and logo is enclosed.

The partnership will enable Sephora to better compete in the marketplace through

increasing the convenience and accessibility of products. As previously stated, one of Sephoras

central weaknesses was their lack of presence in the suburban market. Through offering a line of

products in Victorias Secret, Sephora is able to increase ease of access for target consumers.

Allowing Sephora to strengthen its brand recognition, the partnership will aid the company in

further penetrating the market. Overall, the joint venture proves to be advantageous for both

Sephora and Victorias Secret by providing enduring cost benefits that allow both firms to save

money while fulfilling the needs of customers. Further, through providing quality products in

relevant channels, the companies are able to enhance their image in the public eye and add value

for the target market.

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REFERENCES

1. "About Sephora." Sephora.com. Sephora, 2011. Web. 19 Nov. 2011.

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2. "Sephora." NYmag.com. New York Media. Web. 19 Nov. 2011.

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3. Pierce, Rachel, comp. "Sephora USA, Inc." Hoovers. Dun & Bradstreet, 2011. Web. 20 Nov.

2011.

4. "Group Mission and Values." LVMH.com. Mot Hennessy Louis Vuitton. Web. 2 Dec. 2011.

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5. "About Sephora."

6. Private Label Beauty. Rep. Mintel. Web. 1 Dec. 2011.

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7. Men's Toiletries. Rep. Mintel. Web. 1 Dec. 2011.

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8. Beauty and Personal Care Consumer. Rep. Mintel. Web. 1 Dec. 2011.

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9. Beauty Retailing. Rep. Mintel. Web. 1 Dec. 2011.

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10. Beauty and Personal Care Consumer

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11. "Sephora." Sephora.com. Sephora. Web. 20 Nov. 2011.

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12. "JC Penney Buy/Hold/Sell Analysis." Forbes.com. Forbes, 2011. Web. 12 Dec. 2011.

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13. "Sephora.com." Sephora.com. Sephora. Web. 2 Dec. 2011.

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14. Beauty Online. Rep. Mintel. Web. 1 Dec. 2011.

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15. "Sephora to Install Beauty Vending Machines." Huffingtonpost.com. TheHuffingtonPost.com, 18

Mar. 2010. Web. 20 Nov. 2011. .

16. Biesada, Alexandra, comp. "Victoria's Secret Stores." Hoovers. Dun & Bradstreet, 2011. Web. 20

Nov. 2011.

17. Victoria's Secret Stores, LLC Company Profile." Biz.yahoo.com. Yahoo, 2011. Web. 7 Dec.

2011. .

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APPENDIX

Figure 1: Sample Victorias Secret Collection by Sephora Advertisement

Figure 2: Sample Victorias Secret Collection by Sephora logo