Despite the recession and the increased prices that cut into the disposable income of households and limit consumer appetite, beauty products are still resisting, as reported by ot.gr.
And Sephora, owned by French luxury group LVMH, proves it: the division that houses Sephora – known as select retail – was LVMH’s fastest-growing in sales last year, with the beauty retailer growing sales by 20% to 17.9 billion euros and profits by 76% to 1.4 billion euros.
LVMH does not break out financial performance for any of its 75 plus brands, but the group said the division’s performance “reflects the outstanding performance achieved by Sephora globally”.
HSBC estimates the beauty retailer had 14.4 billion euros in sales last year and generated 1.4 billion euros in earnings before interest and tax, making it the third-biggest contributor to the group after Louis Vuitton and Christian Dior.
“I think Sephora has the potential to reach 20 billion euros in sales. . . [και] the reality of our performance in 2023 confirms this dream and even tells me that we will undoubtedly reach it sooner rather than later,” says CEO Guillaume Mott in an interview with the Financial Times.
The “black and white blood” of employees
As the FT points out, with its black-and-white brand — longtime employees are said to have “black and white blood” — Sephora is one of France’s best-known retailers worldwide, founded around 1970 by Dominique Mandonnaud. His main innovation was the development of “open screen beauty retail”, which allows customers to touch and try on products.
Its success within LVMH belied those who were skeptical about how it would fit in with luxury labels such as Christian Dior after the group bought the beauty retailer in 1997. Unlike the group’s other companies, Sephora is not a luxury house. .
“Sephora is very impressive in terms of sales,” said Erwan Rambourg, global head of consumer and retail research at HSBC. But he added that profit margins – which he estimates at just under 10 percent – while high for retail are far below the estimated 20 to 40 percent generated by Louis Vuitton and Dior.
“At the same time, the business is a huge source of cash. . . . I can’t think of another retailer that has the credibility in as many markets as Sephora.”
While growth in the global luxury goods market has slowed after a multi-year boom, the beauty sector has proven resilient despite the economic pressures facing middle-class consumers.
The “lipstick effect”
Motte said the company benefited from the so-called “lipstick effect” – the theory that, even in times of financial stress, consumers are willing to spend on cheaper luxury items to pamper themselves.
“We have a product that makes people happy, an affordable product. Will we have explosive growth? The answer is no. I worry; The answer is also no,” he said.
Paris-based L’Oréal also benefited from a strong post-pandemic global beauty market to boost annual revenue by nearly 40% compared to 2019 — although 2023 sales were below expectations as China’s beauty market collapsed.
Motte took over as chief executive just over a year ago after roles elsewhere in billionaire Bernard Arnault’s LVMH empire, including a previous stint at Sephora, with a mandate to grow the prestige beauty market and Sephora’s stake in it.
“When Bernard Arnault talks about building brand desirability, we do exactly the same thing. Our obsession is to make beauty desirable,” said Motte.
Under LVMH, Sephora began a period of rapid international expansion, particularly in Europe and the US, its largest beauty market.
It now has about 3,000 stores in 35 countries and about 46,000 employees. Although Sephora has a strong digital presence, the company remains largely focused on stores, also using them as a warehouse network for e-commerce distribution.
The network
For LVMH chief financial officer Jean-Jacques Guiony, the store network is a factor behind the retailer’s success. “During the pandemic, that worked against us because [Sephora] it was mostly in city centers and shopping malls where nobody was around. Now, it’s the other way around,” he told the FT.
The newly renovated 12,900 square foot flagship store on the Champs Elysees in Paris is staffed by 40 to 50 salespeople per shift to ensure good service.
“Customers don’t go to Sephora to buy [καθιερωμένες μάρκες όπως] Estée Lauder or Lancôme. They go to discover new brands,” he said.
Sephora’s merchandising team, which consists of more than 200 people, is known for its ability to identify and cultivate previously unknown brands. Drunk Elephant and Rare Beauty are among his recent hits, as are his Sol de Janeiro sunscreen line and Glow Recipe, a viral skincare brand.
Led by San Francisco-based global head of merchandising Priya Venkatesh, Sephora’s teams use social media, press and word of mouth to scout for new names. “There is no scientific process to it,” says Venkatesh. “I’ve met brands in the past that didn’t even have a product yet.”
New markets
Sephora does not invest directly in the independent brands it seeks, although it provides regular business advice and product feedback, helps expand into new markets and letters of intent to secure funding. “It’s often these early predictions [παρέχουμε] which help them get loans,” Venkatesh said.
The group hasn’t stopped moving into new markets, reopening in the UK in 2023 after an absence of nearly two decades. Sephora closed its handful of UK stores in 2005 after struggling with high overheads and stiff competition, but its comeback has been touted as “very successful” by LVMH — with plans to open another store in Manchester in 2024.
#Sephora #compass #lipstick #effect #black #white #blood
