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Sephora is a visionary beauty-retail concept founded in France in 1969 and acquired by Paris-based LVMH Moët Hennessy Louis Vuitton, the world's leading luxury products group, in 1997. Sephora's unique, open-sell environment features over 250 classic and emerging brands across a broad range of product categories including skincare, color, fragrance, makeup, bath & body, and haircare, in addition to Sephora's own private label. To build the most knowledgeable and professional team of product consultants in the beauty industry, Sephora developed "Science of Sephora." This program ensures that our team is skilled to identify skin types, have a knowledge of skin physiology, the history of makeup, application techniques, the science of creating fragrances, and most importantly, how to interact with Sephora's diverse clientele.
Sephora S.A. is a world-leading specialist perfume retailer, with more than 560 stores across Europe, in the United States, and, since 2005, in China. Sephora pioneered the limited assistance self-service concept in the perfume sector, presenting a broad product range encompassing many different brands, in a break from the traditional single-brand retail focus. An increasing share of Sephora's revenues, however, has come from the development of its own private label, Sephora-branded range. This line has captured consumer attention not only from its low-pricing policy, but also for its launch of such innovative products as makeup for legs, and especially the launch of its StriVectin-SD, a hugely successful anti-wrinkle cream, launched in 2004. Another key to Sephora's success in the mid-2000s has been the addition of a wide range of beauty services, such as the hair styling counter called "The Style Lounge" and specialized service areas such as the Nail Bar, the Brow Bar, and the Smile Bar, among others. Architects of the company's turnaround have been chairman and CEO Jacques Levy and European marketing director Natalie Bader-Michel, who have also redesigned the group's retail format. These changes have helped the company end years of losses and post impressive revenue increases at mid-decade. Sephora is a subsidiary of luxury goods group LVMH Moët Hennessy Louis Vuitton S.A., which owns many of the brands positioned on Sephora's shelves. Sephora is the largest unit of LVMH's Selective Retailing Division, which includes the sephora.com online sales site, DFS Galleria and Miami Cruiseline, and the Bon Marché department store in Paris. In 2005, the Selective Retailing division posted sales of EUR 3.65 billion ($4.3 billion).
Self-Service Startup in 1969
Dominique Mandonnaud started out in business with a single perfume store in Limoges, in France's Haute Vienne region, in 1969. The French perfume and cosmetics market, as elsewhere in Europe, remained dominated by a heavily service-based retail model, in which sales staff generally received commissions based on sales. In the case of department stores, which dominated the market for perfumes and cosmetics, sales staff typically represented a single brand. This retail model continued to dominate the perfume sector, despite the rise of self-service retailing elsewhere, especially in the grocery and supermarket sectors.
Yet through the 1970s, Mandonnaud increasingly sought a means to adapt the self-service format to perfume sales. In 1979, Mandonnaud made the leap, launching a new perfume store called Shop 8 in Limoges. The store was a distinct departure from the typical small perfume shop, providing a large and open selling space, and placing products within reach of customers. Mandonnaud's new store also featured an extended range of both perfumes and cosmetic brands. However, these products, rather than being grouped by brand, were arranged according to product family. In this way, brands were presented side by side on the store's shelves--in this way the new perfume store had more in common with the typical supermarket than with traditional perfume shops. The Shop 8 format was, at the time, nothing short of revolutionary in France's retail perfumery and cosmetics sector.
Mandonnaud continued to develop the Shop 8 format and its "assisted self-service" formula, while seeking to build a network of stores. By 1984, Mandonnaud had opened a total of four Shop 8 stores. By that year, too, Mandonnaud's company had come under control of fast-growing distribution group Promodes, then in the midst of a large-scale expansion phase. The relationship with Promodes soon soured, however, as the distribution giant focused its efforts on the international expansion of its core food sector operations. By 1987, Promodes had separated itself from Shop 8. Nonetheless, Promodes maintained a hold over the perfume business, through convertible debt, which, if exercised, would have given Promodes the majority of voting rights.
Part of this debt was generated by Mandonnaud's first external expansion effort. In 1988, recognizing that retail success in France came first and foremost through the all-important Parisian market, Mandonnaud acquired a small chain of eight perfume stores in the French capital city. Mandonnaud quickly converted these shops to the Shop 8 format, and began making plans for further growth.
Yet Mandonnaud's relationship with Promodes proved an obstacle for these ambitions. Promodes refused to fund further growth in the small perfume chain, which had remained unprofitable through the 1980s. At the same time, Promodes set a high asking price for the company, making it impossible for Mandonnaud to purchase back the shares in the chain.
Mandonnaud approached a private equity group, Apax Partners, with a plan to back a buyout of the Shop 8 chain. That plan soon took on momentum after a visit from another private equity group, Astorg, part of Suez, which had become interested in the Shop 8 format. Mandonnaud approached both groups, suggesting that the two equity firms join together to back Mandonnaud in a buyout of the retail chain. Apax and Astorg agreed to back Mandonnaud's plans for the company's expansion. They also agreed to Mandonnaud's stipulations to set an exit date before Mandonnaud's 50th birthday, when he intended to retire.
Becoming Sephora in 1993
The buyout was completed in 1991, with Mandonnaud's holding vehicle, Altamir, maintaining majority control of the company. The three partners then set out to achieve an expansion plan calling for the opening of from three to five stores per year. Yet these plans quickly ran into difficulties, as the French economy entered a severe downturn. Instead, the company began seeking to acquire an existing perfume chain in order to achieve their growth objectives.
In the meantime, Mandonnaud had begun developing an expanded version of his assisted self-service format. In 1993, the company launched the new format under a new name, Mille et Un Parfums, with a first store in the Belle-Epine shopping mall in Val-de-Marne, near Paris. The new format featured not only a larger selling space than the company's other stores, but a more upscale, luxury-oriented interior and graphic design, as well.
The year 1993 marked a turning point for the company. The continued search for an acquisition target had brought the company into contact with the U.K.'s Boots PLC, which operated a chain of 38 Sephora-branded chain stores, largely in the Parisian region. That chain had been founded in 1970, when Boots opened a first store on Paris's Rue de Passy. By 1976, Boots had expanded the perfume business, launching the Sephora brand in partnership with department store group Nouvelles Galeries. That company became part of Boots PLC in 1979. Under Boots' control, the Sephora chain grew quickly, becoming the largest perfume specialist in the highly fragmented French market. Nonetheless, the chain, which had adopted a similar format to Boots's retail mix in the U.K.--blending high end items with mass market goods, and featuring only a limited self-service offering--had failed to find a market in France. After years of losses, the Sephora chain managed to turn a profit of just FRF 270,000 on revenues of FRF 606 million in 1992.
Shop 8, through Altamir, agreed to pay FRF 360 million ($61 million) for the Sephora chain in a deal completed in September 1993. The acquisition not only boosted Shop 8's total network to nearly 50 stores, it also gave the group a number of prime city center locations, including a presence in most of the major Parisian shopping streets. Following the purchase, Mandonnaud announced the company's intention to roll out the Mille et Un Parfum format across the entire chain, and at the same time, all of the stores, as well as the company itself, were rebranded under the Sephora brand name.
Sephora continued expanding its chain into the mid-1990s. By 1997, the company operated 54 stores throughout France, and controlled some 8 percent of the total French retail perfume market. By then, too, the company had innovated again, opening a new flagship store on the Champs-Elysées in Paris. Featuring 1,300 square meters of selling space, roughly triple the company's average store size, the new store served as the model for future group store developments.
Mandonnaud and partners prepared to exit their investments before Mandonnaud's birthday in 1997. The partners initially investigated a public offering. However, because Mandonnaud himself prepared to retire from the company's direction, the group instead opted to find a buyer for the company. This led the company to luxury products group LVMH Moët Hennessy Louis Vuitton, which was engaged in a major expansion of its holdings, while at the same time seeking to add a retail component to complement its designer label products. The deal was completed in July 1997, when LVMH agreed to pay the equivalent of EUR 344 million for Sephora.
From Perfume to Beauty Care in the New Century
Under LVMH, Sephora developed new and far more ambitious expansion plans. Almost immediately, the company more than doubled its number of stores, through the acquisition of the Marie Jeanne-Godard chain. That chain, rebranded under the Sephora name, added 75 stores and more than FRF 790 million in revenues, boosting Sephora's control of the French perfume market to 18 percent. By the end of 1997, Sephora's sales had already topped the FRF 2 billion.
Sephora turned to the international market, opening its first flagship store in New York City in 1998. The company then began to target expansion into the European market. Italy became one of the company's first targets, and it began buying up a number of smaller chains in that country. The company's acquisitions in Italy included Kharys in 1998, the 46-store Laguna chain in 1999, and Boidi, a chain of 19 perfume stores in 2000. By 2005, Sephora operated more than 100 stores in Italy, including its Milan flagship location, opened that year.
Not all of Sephora's international expansion efforts proved successful--the company struggled to impose itself in both the United Kingdom and Spain. By 2006, the company had decided to exit the former altogether. In Spain, Sephora decided instead to team up with that country's major department store group, El Corte Ingles, in order to boost its presence. Meanwhile, in the United States, the company built up a national network of more than 150 stores. The company also entered a number of other markets, such as Japan in 1999, and Portugal and Greece in 2000. By the end of that year, Sephora had been transformed into an international giant with more than 460 stores.
Sephora's rapid growth had come at a price, however, as the company slipped into losses at the turn of the century. The company was forced to slow the pace of its new store openings, even as it entered a number of new markets, including the Czech Republic in 2002. At the same time, the company was forced to abandon its efforts to break into the Japanese markets, where its seven stores had met with relative indifference from consumers. By then, rumors had begun to circulate that LVMH intended to sell its flagging perfume retailer.
Instead, the company brought in new management in 2003, appointing former Staples International head Jacques Levy as Sephora's CEO. Levy, backed by European managing director Natalie Bader-Michel, initiated a revamping of the Sephora concept. Part of the group's revitalization effort centered on introducing an extensive line of private label products under the Sephora brand name. Featuring discounted prices, the Sephora brand quickly distinguished itself for its innovative products, such as the launch of makeup specially developed for use on the leg. In 2004, the company also launched its own anti-wrinkle cream, StriVectin-SD, which became a huge international best seller. That product was followed by the launch in 2005 of a full line of Sephora skin care items. As part of the continued effort to boost Sephora's sales, the company also rolled out an increasing range of in-store services, including hair styling centers and specialized service counters with monikers such as the Nail Bar, the Brow Bar, the Smile Bar, and the like. In another boost to the company's image, Sephora also stepped up the introduction of a growing number of new brands, many of which were imported from the United States and elsewhere, helping to position the company on the cutting edge of beauty fashions.
Sephora also renewed its international expansion drive. In 2004, the company boosted its presence in Eastern Europe, buying up the Empik perfume chain in Poland, then forming a partnership with leading Russian perfumery L'Etoile to bring the Sephora format to that market. Sephora next targeted the Chinese market, creating a joint venture with Shanhai Jahwa United, and opening three stores in Shanghai in 2005. By the beginning of 2006, Sephora had largely transcended its former image as a perfume specialist. Instead, the company had successfully re-established itself as a full-scale beauty care retailer, featuring a large assortment of perfumes, make up, and skin care items. In 2006, the steady success of the line of Sephora branded products led the company to announce its plans to emphasize the future development of the brand. One of the most dynamic parts of the LVMH empire, Sephora targeted further growth in the new decade.
Sephora Italia S.p.A.; Sephora Polska Sp zoo; Sephora Portugal Perfumeria Lda.; Sephora UK Ltd.; Sephora USA LLC.
Douglas Holding AG; Bath & Body Works, Inc.; BeautiControl Cosmetics, Inc.; The Body Shop International PLC; The Boots Company PLC; Buth-Na-Bodhaige Inc.; Duane Reade, Inc.; Marionnaud SA; The Estée Lauder Companies Inc.