The Sephora Story

The Retail Success You Can't Make Up

Mary Curran Hackett

• Publisher: HarperCollins Leadership
• Year: 2020
• ISBN:
  9781400220595
• Topic: Business
• Subtopic: Business History
• Index: Business

What can you learn from the most successful companies in the world? The Sephora Story will help you understand and adopt the competitive strategies, workplace culture, and daily business practices that turned the makeup retailer into a paradise for makeup enthusiasts everywhere.

Sephora is a playground for women, chock full of lipstick, eyeshadows, foundations, blushes, and so much more, just waiting to be experienced. It's where teens learn to apply foundation and adults learn how to create the perfect smoky eye. It's the cosmetic birthplace for the iconic Kardashian contour. And it's a dominant brand, taking home a large portion of the $48.3 billion-dollar makeup industry.

The Sephora Story teaches you how Sephora was born in Paris in 1970 and has exploded since it opened its first North American store in 1997. Now, with at least one store in almost every mall, you may find yourself fighting to navigate the store.

Through Sephora's story, you will learn:

• How to lead the evolution of a decades old brand and how to relaunch it in a new market.
• How to create a customer experience that revolutionizes an industry.
• How to bring together multiple brands under one roof without compromising their identities.
• And how to reach a younger audience and ignite a passion for your product.

It's more than just makeup, it's an experience and this book will teach entrepreneurs, innovators, marketers, and executives everything they need to know about creating an iconic experience for their customers.

CHAPTER ONE

THE EARLY YEARS

When Dominique Mandonnaud opened his small single perfume store in Limoges, France, it was nearly impossible for a customer to get up close and personal with the product. Up until then, the French perfume and cosmetics market relied on a commission- and service-based retail model. In other words, the sales staff received a percentage of each product sold. They typically operated out of department stores, where each sales person was assigned one particular brand. Though the self-service model was pervasive in grocery stores and pharmacies by then, high-end perfume and cosmetics required a sales person. Mandonnaud hoped to change all that.

By 1979, he changed his perfume shop’s name to Shop 8, and he reconfigured and designed it so that there was a large open selling floor, and products were all within reach of the customers. He also expanded his product offerings from perfume to include cosmetics as well. What was truly innovative was that rather than dividing products up by brand, he divided by product. In other words, if you needed a night cream, you would go to the night cream section and see Elizabeth Arden’s night cream next to Estée Lauder’s and Chanel’s. Customers could compare products and make their own decision on what was best for them. It was a wholly revolutionary approach to selling cosmetics and perfume—and his customers loved it. Over the next several years, Mandonnaud honed and perfected the Shop 8 “assisted self-service” format, while expanding his organization. By 1984, Mandonnaud had four Shop 8 stores.

Later that same year, the distribution group Promodès, which was looking to expand, purchased Mandonnaud’s Shop 8. Though there are no details anywhere in the public domain about what happened, the relationship, according to the history of Sephora on Cenage’s Encyclopedia.com website was said to have “soured.”¹ Interestingly enough, when searching for Dominque Mandonnaud’s version of the story there is virtually zero digital footprint, which makes a person wonder: what are they trying to cover up? Wild conspiracy theories aside, we’ll stick to the facts: There are no interviews, no reports, or detailed articles explaining the separation. All that is known, according to this one source, is that in 1987 “Promodès had separated itself from Shop 8.”²

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Interestingly enough, when searching for Dominque Mandonnaud’s version of the story there is virtually zero digital footprint, which makes a person wonder: what are they trying to cover up?

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However, at some point while working with Promodès, Mandonnaud borrowed capital from them to expand. This meant that when Promodès separated from Shop 8, Mandonnaud still owed Promodès a considerable amount, so much so that Promodès was still considered to have the majority of voting rights. This proved to be quite the impediment for Mandonnaud. Mandonnaud hoped to expand in Paris. If he was going to sell perfumes and cosmetics, the best market to do that was in the fashion and perfume capital of the world. He hoped to purchase a chain of eight Parisian perfume stores, and hoped to convert them into his Shop 8 format. However, citing his debts, Promodès denied Mandonnaud the necessary funds to infuse the perfume chain.

Upset by this refusal but not undeterred, Mandonnaud hoped to simply buy back his shares of the company to regain full control. Promodès, however, set a high asking price for the company. Though we don’t know what the price was, we do know that Mandonnaud didn’t have the capital to buy back his Shop 8 because he reached out to a private equity firm, Apax Partners. He also reached out to another private equity group, Astorg. By getting backing of two private equity firms together, Mandonnaud was finally able to buy out Promodès. In addition to helping him buy out the chain, the two equity firms were in full agreement with Mandonnaud’s plan to expand the company. They also approved Mandonnaud’s conditions for their own exit: All would exit the agreement, including Mandonnaud, on Mandonnaud’s fiftieth birthday, September 5, 1997, the date which he planned on retiring.

How Shop 8 Became Sephora

By 1991, the buyout was complete and on paper Apax was the majority stakeholder, but it seemed more like an equitable partnership. Though Apax held the majority of the shares, it was in full support of Mandonnaud’s plan to expand his company from three to five stores per year.

However, once again Mandonnaud was met with another unforeseen obstacle—the recession of 1991. It wasn’t just France that was feeling the economic pinch; The entire global economy was shrinking.³ Not exactly the time, one would think, to expand a luxury item goods chain.

However, before the word pivot was shouted by Ross on Friends or used ad nauseum by entrepreneurs and startups to describe quick about-faces in strategy, Mandonnaud and his partners pivoted. Instead of expanding their own line of stores by three or four stores at a time, they thought to take advantage of the economic downturn, specifically the lower valuations of companies, and purchased an already existing perfume chain in order to expand.

Meanwhile, Mandonnaud hadn’t forgotten about his own stores. Still committed to his vision of creating what he dubbed “assisted self-service” stores, where customers could interact with products while still asking for help if need be, Mandonnaud launched a new store called, Mille et un Parfums in the Belle-Épine shopping mall in Val-de-Marne (near Paris). In addition to the “assisted self-service” model, he established a large selling space that was more upscale than mall-like or even pharmacy-like—relying on luxurious details like backlit display cases and refined graphic design elements throughout the store.

This Is Where It Gets Complicated

Not all companies’ stories are linear or even straightforward. While it’s easy to say Dominique Mandonnaud “founded” Sephora, it’s not entirely true. What he founded was the company that ultimately bought Sephora. Say what now?

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Not all companies’ stories are linear or even straightforward. While it’s easy to say Dominique Mandonnaud “founded” Sephora, it’s not entirely true. What he founded was the company that ultimately bought Sephora.

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Let’s back up. Sephora was actually the name of a company of chain stores owned and operated by the United Kingdom’s Boots PLC. Boots, the parent company, was founded by John Boots in 1849 as an herbal medicine shop and expanded over the years to be a full-service pharmaceutical company. In fact, in the 1960s, Boots chemists John Nicholson and Stewart Adams developed ibuprofen in its labs. (A moment of silence for these intrepid heroes: All hail ibuprofen.) Over the years through several different transactions it became The Boots Pure Drug Company, and eventually, in 1971, The Boots Company Limited. Over the past 165 years they have expanded their market from drugs and remedies to pharmacies, opticians, dentistry, cosmetics, beauty supplies and what they call “well-being services.”⁴

During one of their expansion periods they purchased a chain of cosmetic stores, which they named Sephora in 1970. There is absolutely no mention of it on the Boots website and there is no history of an owner of this chain prior to 1970. (Interesting to note: When reading about the history of Sephora, depending on which website you happen to be perusing, some say the company was founded in 1969 and others say 1970.) If you’re a Francophile, chances are you’re going with the 1969 timeline. It was, after all, Mandonnaud’s idea to purchase the Sephora chain, and it was his unique approach to the cosmetic retail experience that made the company what it is today. But if you’re an Anglophile, chances are you’re going with 1970 as the founding date, when the UK Boots bought the chain and named it Sephora. Sephora, the company today, plays the part of Switzerland here. They split the difference, citing on their website’s About Us page, “Sephora was found in France by Dominique Mandonnaud” (nod to France and Mandonnaud) “in 1970” (nod to Boots and the UK). From one writer to another: As Bridget Jones would say, Well done you, Sephora copywriter.

In 1993, Shop 8 (Mandonnaud) through his investor, purchased Sephora from Boots for the equivalent of sixty-one million dollars. At the time, Boots PLC owned a total of thirty-eight Sephora-branded chain stores in the Paris area, the oldest one being the one on Paris’s Rue de Passy, which opened in 1970. During this time Sephora was the largest perfume specialist in France. The Sephora chains under Boots control in France ran their stores like they did in their Boots UK stores. There were both high-end luxury items alongside mass market goods.

This acquisition ultimately expanded Shop 8’s total network to nearly fifty stores. It also gave Shop 8 prime locations. Sephora was already in popular Parisian shopping areas and had an established brand recognition. Immediately after the purchase, Mandonnaud made a major two-fold announcement. First, he intended for all of his new stores to follow his Mille et un Parfums’ format—assisted self-service with a focus on luxurious details in a wide open selling floor plan. Second, all of his stores, including Shop 8, would now be rebranded as Sephora.

Over the next four years, Mandonnaud continued to expand. By 1997—his fiftieth year and intended retirement date—Mandonnaud operated fifty-four stores throughout all of France. Sephora also controlled 8 percent of the total French perfume market.⁵ In some ways, Sephora was making its name as somewhat of a travel destination. People from all over the world flocked to his famed flagship store on Champs-Élysées in Paris. It was there the iconic black and white stripes, reminiscent of Siena Cathedral’s black-and-white striped façade, first appeared.

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By 1997—his fiftieth year and intended retirement date—Mandonnaud operated fifty-four stores throughout all of France.

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Today, no matter where you are, what mall you’re in, what country you happen to find yourself in, you’ll see the faux stone black and white horizontal stripes as a beacon, luring you in to try just one shade of lipstick, one serum (okay, maybe seven, but who’s counting). The store on Champs-Élysées was three-times the average store size, roughly, thirteen hundred square meters and was the template for all future stores. Mandonnaud had finally seen his dream incarnate—from a small boutique in Limogoes to the preeminent shopping avenue in Paris. Mandonnaud had plenty of reason to both celebrate and even, stick around. It was clear, Sephora was here to stay.

Mandonnaud’s Retirement and a New Parent Company

However, Mandonnaud was very clear about creating his company with the end—particularly his own role—in mind. He knew his company would grow and succeed, even without him, and so as originally planned he set out to retire in 1997. His partners, too, were fully prepared to exit their investments as well, as stipulated in their original agreement. Instead of opting for a public offering, Mandonnaud and his partners began looking for interested (and worthy) buyers. There was a none more worthy luxury beauty retailer than LVMH. Coincidentally, LVMH was also actively looking for ways to expand, especially by adding a retail component to complement their designer label products. With time to spare (two months’ shy of his September birthday), Mandonnaud sold his beloved company to LVMH in July 1997 for 344 million dollars—thus making Mandonnaud and his two investors a handsome profit. Quite the fiftieth birthday present for Mandonnaud. It was also the dawn of a new era for Sephora.

Sephora Becomes Part of LVMH

Once part of the LVMH family, Sephora was infused with available capital and was able to expand even further. In 1998, it doubled its existing number of stores after it acquired French perfume chain, Marie Jeanne-Godard.⁶ All seventy-five of its stores were rebranded under the Sephora name, and the purchase quickly resulted in added revenue. It also meant that now Sephora controlled 18 percent of the French perfume market. And within a year of being owned by LVMH, Sephora’s sales reached FRF two billion.⁷ Sephora was ready to expand beyond France. It was ready to go global.

“People like the entertainment environment. It’s the wave of the future.”

—ANNETTE GREEN,

president of the Fragrance Foundation

CHAPTER TWO

FROM BOUTIQUE TO A BEAUTY EMPIRE

“This is a beauty junkie’s paradise,” exclaimed then co-host for ABC’s The View, Lisa Ling, during the 1998 grand opening event for Sephora’s first flagship in the US.¹ In her article “Looks Matter” for People, writer Julie K.L. Dam was an invited guest to the grand opening event and reported on celebrity guests’ reactions to the massive cosmetics store. Actress Kyra Sedgwick was on hand for the opening too, and faced with the overwhelming store c...