When it came to the U.S. in 1998, Sephora was a cut/paste of the Sephora stores bought by LVMH, begun in Europe a few years earlier. It was basically a European parfumerie with a couple of twists — distinctive black and white design stripes, black “costumes” for the “cast,” who also wore a single glove. The aesthetic was everything. The plan was focused on speed (many stores) as opposed to learn and evolve. And to make matters worse, the store locations were crazy expensive and really large.
When I arrived in 2000 from The Home Depot, where I was president of diversified business, the business was significantly under water — both financially and directionally. For the first two-to-three years we (mostly me) were known inside LVMH as black sheep (aka losers). Other than M. Arnault himself (who stuck with us and soon saw the potential), walking the halls of LVMH in Paris felt like Sephora’s signature black and white stripes were seen as a prison uniform.
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It was difficult emotionally, but we had no choice but to fight. That is exactly how we thought of it. It’s us against the world. It didn’t help that department store hegemony labeled us as insurgents. Inside our company the “revolution” hat was worn proudly
The early days, from 1998 through 2002, were characterized by overcoming adversity, lots of perseverance and big celebrations of progress. We knew that we were changing the world. All the stuff that had defined beauty shopping for decades, we had dismissed. Counters, small handful of brands, selling commission, prices not displayed, GWPs. What we could not know (yet) was that our approach would redefine the industry. Similarly to Netflix replacing Blockbuster or the advent of electric cars, the Sephora approach became the default consumer preference for the beauty industry from that point on.
Being risk-averse was not an option. Not when being cautious would equate to missing the consumer opportunity that was literally screaming at you. Embracing risk became one of our core values. Really two values: take the initiative (ie don’t hang back) and innovation.
Our strategy centered around 5 principles:
1. Put the consumer first. Direct learning from my orange apron time at Home Depot. Very easy to say it. Really difficult to pull it off and make it last. We made it our first value. There wasn’t a meeting or a substantive discussion where the mantra wasn’t repeated. It was no coincidence that headquarters was known as the FSC (field support center). Investments were inevitably looked at first through this lens. Store design was repeatedly changed to make the experience better. The online strategy was all about using tech to figure out how to make their experience easier, better, create more loyalty.
2. And put the STORE people right behind them. They are at the top of your org’s pyramid. The very top. Your success depends on them. Not the opposite. This sounds basic. It’s not. Putting it into effect requires you and your team to leave the office (often), visit them, respect them, listen to them, celebrate them, reward them. Their collective voice was all-powerful. Our guidance to them was to be helpful to clients, suggestive as opposed to pushy and to allow consumers plenty of room to experiment/sample.
Beauty is complicated, particularly given the extent of our offering. A hugely important effort was our investment in education. We called it Science of Sephora. This required expert educators. Eventually a facility to provide the training (Sephora University opened in 2007 in San Francisco) along with the time/money to allow our store people to attend.
Our annual store director conference (SDC) was a huge deal. As befits an insurgency, it was part Burning Man and part corporate strategy meeting. Met Gala meets Ted Talks. It was a zoo. Barely in control. Every store manager attended. Equal parts speeches, awards and entertainment. It was our opportunity to shine the light of appreciation on our store people. Eventually we invited our brands to the SDC and they added another important element to this great annual event.
3. Product is everything. The welcome mat went out to brands. A huge mat. It was shocking how many there were who were not in department stores and quickly embraced us. Within a few years the founders of these brands became like family. Their names have since become synonymous with the beauty industry — the Ford sisters, Jerrod and Jeremy, Maureen, Wende, Leslie. It was a lovefest. The key was not to micromanage them. Let them exploit their uniqueness. Share info with them. Invite their feedback. Let them have fun. Our stores became their playground.
It was very important to me to communicate with our brand partners. I didn’t hold much back. I spoke to them separately at our SDC and eventually we had a separate brand conference in SF every year. We wanted to make it clear how important they were.
Our people were also really into the product. What’s in it? What’s the story behind it? How long does it wear? Is the applicator great? We worked tirelessly with brands to bring game-changing products to market and evolve the bestsellers. That’s what a company made up of merchants does.
4. But we could not just be the sum of our brands. If that was all we were, then we were just a distributor — we might as well have been a liquor store. The opportunity to add value with a voice that was truly one of a kind was the key to our long-term success. What did we stand for? We relentlessly focused on exploiting our unique POV. “I go to Sephora because…”. We were aggressive in trying out ideas and quick to invest in the successful ones. Some examples: “Sephora’s Favorite” endcaps, the “Beauty to Go” maze of minis at check-out, our Skin Care Solutions area, merchandising products by end use as opposed to brand, and Best of Sephora, located at the front of every store.
5. Do it online. We were early adopters. Sephora.com, while it had all the traits of the store business, soon developed its own strategy. It was wildly successful and became a huge profit center. The dot-com team also led the Beauty Insider initiative (including later VIB) which turned into a fantastic unique loyalty driver. We invested heavily in search marketing. We were one of the first e-commerce players to allow consumers to post their own product ratings and reviews. Similarly Sephora was early to develop its own mobile app for phone search and shopping.
With our five principles in place, thus began the “Glory Years.” In 2003 we made our first profit. We never looked back. We just kept learning, and because we had experience and money, we put our foot on the accelerator and moved faster and more boldly. We got our report card every month via NPD industry sales. It wasn’t enough to just set fast laps. It was about crushing our competition and watching them fade in the rearview mirror. The prison days at LVMH were over. Our revenue went up 20 to 40 percent every year. Profit was growing faster than our sales. We hit our first billion-dollar in sales in 2007. (Ulta would get there two years later).
Our chutzpah became more evident. We branded ourselves the Beauty Authority, a conscious decision to throw down the gauntlet…for ourselves. We opened stores faster, including our first store in Canada in 2004. Sephora Inside JCPenney opened in 2006 and over several years would grow into hundreds of profitable stores. Sephora’s core loyalty program, Beauty Insider and soon after VIB for the top spenders, launched in 2007.
In 2008-2009, the financial crisis hit. It lasted “only” two years, but riding high as we were, it felt like we had crashed into a brick wall. Things went south in a hurry. A funny story: Every year I would go to Alaska with my buddies. Remote Alaska. We’d arrive via float plane and then get picked up when it was time to go. No communications with the outside world.
That’s where I was on Sept. 15, 2008, when Lehman Bros. went under. Blissfully unaware, I flew back a couple of days later thinking I was returning to the Sephora rocket ship in full flight only to find out when I arrived in the Anchorage airport that the world had …”uh oh’d.” After a quick call with my CFO, my flight back to California was filled with 911 planning. Within a matter of days, the business went into the cryo tank.
As it became clear what we were dealing with, I made a very key decision. The world was hunkering down — cut expenses, save money. Weather the monsoon. We decided to do the opposite, and used the recession as an opportunity to double down on our strengths. We quickly developed a plan for 2009-10 that centered around careful strategic investments in a handful of major competition-leaping initiatives. We would hold our 2009 profit even with 2008 and then in 2010 begin to reaccelerate. I named our plan “The Crusades.” Holy initiatives. Pursued as if our lives depended on it.
The Crusades were based on our strengths: stores, loyal consumers, our people, dot-com, product. While we did not want to invent a new wheel, we were going to make notable improvements to it.
We created Beauty Insider, with a very aggressive sign-up campaign like we were Girl Scouts selling cookies. We then added VIB to incent our consumers to spend more/often with additional perks. We added Sephora’s Favorites Endcaps, a multibrand single category assortment carefully curated by us. A huge Sephora-voice differentiator.
We launched Sephora Originals. We began to develop our own brands as the ultimate way to retain product exclusivity, creating fragrances for Marchesa and Elizabeth and James, Disney collabs and more.
Then we became even more ambitious. We wanted to invest in and build long-lasting brands. Marc Jacobs became a beautiful iconic partnership that was a decent success at retail. Kat Von D, discovered and created by Margarita Arriagada, was a huge consumer and financial win. Kendo would soon be born out of Sephora Originals.
And we developed an elevated in-store service program called FISH. That name came from a fish market in Seattle where store employees toss live fish to each other. We developed extensive tools for tracking our performance.
By the time 2010 ended, our recovery was profound. Our U.S. market share had grown from 13 percent the year before the recession to just under 20 percent. We couldn’t wait to get sales data every day. Just like what happened after the initial dark days the financial crisis quickly became a memory. Everything just worked. The second billion dollars in revenue came in 2012.
The learnings from Sephora were profound for me. Leaving Sephora in 2015 to run Kendo required a big personal reset. From thousands of employees to 35. But core principles don’t change. Empower your employees. Embrace risk. Exploit uniqueness.
Inevitably you will encounter major hurdles. When you are under water, it is very difficult to say “I have principles that are inviolate” and stick to them. The temptation to compromise is immense. You know that in the long term, you’re better off saying “no,” but, man, it is very hard.
Here’s a story about one of my favorite principles — partnership. Two people or entities working together for a win-win. Win-lose feels like going the wrong way down a one-way street.
In the early days Sephora desperately needed department store brands to attract, well, department store customers. To say the brands were reluctant is an understatement. We succeeded in getting an important one to “try us” (name withheld to protect the guilty). It launched in roughly a dozen stores. After a few months, we had a honcho meeting — their execs and ours.
Good news — the results were off the charts. Make that great news. They came in prepared to add more stores. Even better news. Looking at the list of their store adds, there was only one problem — there were zero mall stores. Only street locations. They were tiptoeing around the department stores. No malls — no conflict.
This was a major problem for me and my concept of partnership. I said, “I will give you a list of mall stores. Pick one. Any one. One! And we have a deal.” We would double down on the brand. A couple of weeks later, they came back and said…No. Zero mall stores. At which point we asked them to leave Sephora.
As painful as that was, we simply could not live with a 100-0 partnership — 95-5 we’d tolerate. 100-0 no. They didn’t really believe it. They thought “this is just posturing.” But within two-to three months they were gone.
It cost us money, but the lesson for our teams was priceless. We are not helpless. We believe in winning together. That is our principle. And we practice it.
These kinds of decisions ultimately define who you are as a leader. Being true to hugely important principles in the face of adversity is perhaps the ultimate test. You either are or are not your principles. There is no in-between.