A great case study for growth through CX is Sephora, which has been a trailblazer in the beauty retail industry for decades. In 2016, it gained market share across all regions and recorded double-digit growth in both revenue and profits. More than 100 stores were opened in 2016; the brand has opened 70 new stores in the United States in 2017 alone.
From its early days, Sephora has been focused on inventing new ways to make the beauty shopping experience fun and engaging for its customers. Originally, it didn’t sell anything but other companies’ products. So, what made the brand so unique? Many would say it wasn’t what it sold but how Sephora sold it — and how its customers felt when they engaged with the brand and its employees.
Sephora was one of the first beauty retailers to organize stores by product instead of brand, launch an e-commerce platform, launch native mobile apps, utilize data from its Beauty Insider (loyalty) program to send personalized communications and recommendations, integrate with Pinterest, use advanced technology such as beacons in stores, introduce mobile point-of-sale (POS) systems—the list is long.
In its early days, Sephora, and its entrepreneur CEO, Dominique Mandonnaud, recognized that the context of the beauty business was changing from boutiques to large, multiproduct stores and from small-lot production of a finite number of items to vast catalogs of increasingly consumer-defined product lines.
Mandonnaud also was one of the first to recognize the increasing interconnectedness of discrete industries, such as cosmetics and perfumes, into a more monolithic “solutions”-oriented industry called “beauty.” Thus, the history of Sephora is the story of how Mandonnaud and those who followed him combined these different businesses and turned them into interactive (and eventually digital) customer experiences.
One of Mandonnaud’s first product innovations was what he called “assisted self-service” — essentially meaning that, unlike the rule at other cosmetics stores of the era, he let customers actually try products before they bought them. He used it to sell more products to existing customers, attract new customers, and optimize sales. Needless to say, this concept was copied and has since swept the world of beauty retailing.
The first sign that Sephora was going to do something new came in 1999, right at the peak of the e-commerce boom, when the company announced its first online store, targeted at the U.S. market. In an era when almost every other beauty product company was still selling its products in supermarkets, drugstores, and pharmacies, such a move was unorthodox, even shocking. Indeed, many of Sephora’s competitors didn’t take the same step for another decade — giving the brand a big head start.
In 2006, the ever-innovative Sephora was once again pushing the envelope. It wanted to get closer to an entirely new set of customers — those who weren’t interested in patronizing an exclusive beauty and cosmetic store. It began by opening small — typically 1,500 square feet — “pop-up” shops inside JCPenney stores in the United States. By the end of 2017, there were nearly 650 of them in operation, covering 75 percent of all JCPenney stores.
Crucial to Sephora’s success was the sequence in which it struck these partnerships, launched its own initiatives, and worked with previous competitors. A large part of what allows Sephora to continue to find growth opportunities is the usage of the data it collects. From point-of-sale machines and loyalty programs to online purchases and social media campaigns, Sephora’s ability to learn what its customers want and what they may want in the future helps it stay ahead in delivering a compelling customer experience over time, resulting in repeat and loyal customers.
As the definition of a customer evolves, some companies will need to consider that a customer could also be a thing: a smart refrigerator, a chatbot, etc.
Sephora also learned that there are two different types of beauty product customers: those who know what they want and those who want to try the items first, which meant that even as Sephora was showing strong growth on its own and through its partnership with JCPenney, it began selling its products on Amazon, once again using co-opetition to serve its common customers better. Whether it is in its own branded retail storefront, in a pop-up in JCPenney, or via (an online) partnership with Amazon, when it comes to growth, nothing is off the table if it meets customer expectations and satisfies pent-up demand.
The company’s newest concept, the Sephora Studio, a smaller store concept with high-tech beauty upgrades, pushes the CX envelope even further. Research found that 43 percent of consumers would pay up to 10 percent more for a personalized shopping experience, and brands that create personalized experiences by integrating advanced digital technologies and proprietary data for customers are seeing revenue increase by 6 to 10 percent — two to three times faster than those that don’t. That’s great news for Sephora, which, according to Sailthru’s first annual Retail Personalization Index, provides the most personalized customer experience in the beauty business.