Sephora vs. Birchbox: Winning through Digital Retaliation

A brick-and-mortar specialty store is at risk of disintermediation from a subscription company. The response? When you can't beat them, join them.

Sephora in 2011 in the United States

Sephora is a French multinational chain of beauty retail stores founded in 1969, focused on selling premium-brand cosmetics. It opened its first store in the United States in 1997, and it was an early adopter of e-commerce, opening its portal in 1998. Sephora’s standalone specialty stores were different from traditional beauty counters at major department stores because they encouraged customers to try and experiment with products before purchasing (what they called “self-assisted help”). Sephora quickly gained popularity, and it operated approximately 350 outlets in the US in 2011, with most locations situated in major malls and shopping centers. [1]

Birchbox’s Emergence

Birchbox was launched in 2010 as a unique subscription service. For $10 a month, Birchbox sent customers a box of beauty samples assembled conforming to customers’ preferences that the company compiled through initial surveys and continuous customer feedback. Birchbox quickly gained popularity and social media visibility.

Birchbox value proposition to its customers was very compelling: the company was providing its customers the opportunity to discover exciting new premium-brand beauty products in the comfort of their homes, while these experiences previously occurred exclusively at department and specialty stores [2]. Beauty products manufacturers also had a lot to gain from Birchbox. They had a long tradition of offering free samples as a way to encourage adoption, but the rate of success of converting these samples into paying customers was mostly unknown. Birchbox offered a way to provide these samples to potential customers who assessed to be a good match based on their stated interests. [3] Birchbox sought to sell those products that the customer enjoyed best through its e-commerce website, and then to provide sales data to the companies offering the samples to encourage continued future use.

On the back of its strong value proposition, Birchbox was able to grow to 800,000 subscribers by 2014. Following a $60M series B round in the same year, the company was valued at $485M. [4]

Birchbox’s success did not go unnoticed. Five months after its launch, a very similar offering called Loose Button was launched in Canada. Soon, similar offerings appeared both in countries and in vertical segments where Birchbox wanted to expand and operate. [3]

Sephora’s Response

Sephora was quick to react to the threat of Birchbox and similar subscription services. Sephora’s response was centered on aligning and integrating its digital and brick-and-mortar strategies, marketing, and shopping experience. To this purpose, the website and e-commerce operations, which had to this point been run by a third-party provider, were brought in-house; this required significant economic and talent investments, including recruiting and building web development and digital marketing teams. [5] One of the first accomplishments of the digital group was the launch of a mobile site in late 2011.

Corporate realignment allowed Sephora to create digital products that supplemented its physical retail strengths. Digital innovations included:

  • The Virtual Artist Mobile Feature: Launched in 2016 as part of Sephora’s mobile app, this feature integrates user-uploaded photos, augmented reality, and AI to allow users to see how more than 1,000 different products would look on them in real-time [6].
  • Online Customer Community Boards: The community boards allow members to create profiles and upload photo posts that include which products they were using at the time. The products are linked to their product page for easy purchase.
  • AI-Powered Chatbots: Sephora launched Kik bot in 2017, an AI-powered bot that asks website customers about their preferences to provide customized product recommendations [7].
  • Computer stations at stores: Sephora installed dedicated computer stations at its stores used exclusively for online makeup tutorials.

However, while these innovations allowed Sephora to strengthen its physical/digital presence, the primary response to Birchbox had already been pioneered by other competitors: imitation.

Play! By Sephora

The proliferation of imitators right after Birchbox’s launch highlighted its major flaw: Customers could enjoy Birchbox’s samples and then go and buy the full-size products at another store. The economics of monthly box sales were not conducive to long-term growth, but the company had no way to ensure that customers would buy full-size products from its website.

In 2016, Sephora launched “Play! By Sephora” to counter Birchbox [1]. Each box (priced at the same point as Birchbox) contained six products (instead of five) and a certificate that could be used for store associate advice on product usage (encouraging store visits and creating more stickiness). The program also included a similar online initial assessment focused on learning the customers’ preferences and was incorporated into the customer’s online profile. Play! was also launched on an “invitation-only” basis to create a sense of exclusivity for its members (it has since been opened to all customers) [8].

Birchbox’s Fate

Birchbox continued to experience problems with its value-capture strategy and increased competition (of note, Ipsy, a recent entrant, was able to capture more value on an otherwise identical proposition to Birchbox by charging the cosmetic manufacturers for including their samples). Birchbox went on sale in 2017 but was not acquired until May 2018, when one of its VC investors bought a majority stake in the company for $15M. The company’s other investors were wiped out in the deal. [9]

Amazon: The Last Laugh? 

However, even with Birchbox’s apparent demise, there is another company that benefitted from this conflict while mainly standing on the sidelines. While Birchbox’s customers captured the value from customized samples, their online purchases were made at the point where they were paying the lowest cost: Amazon. In a similar manner to other segments, customers are loyal to brands but not to the acquisition channel. Amazon’s beauty sales were more than double those of Sephora in 2018, and beauty and personal care products are the second most-shopped category on Amazon, with a reported 48% of US women buying at least one beauty product from the e-commerce behemoth in the last year [10]. And by offering the same package as Birchbox, Sephora may be encouraging further Amazon sales. Sephora may have eliminated a potential disruptor by imitation, but its challenges have just begun.


[1] “Sephora,” Wikipedia,, accessed March 2019.

[2] Segran, Elizabeth, “Here’s Why Nobody Wants To Buy Birchbox, Even After VCs Spent $90M,” Fast Company, 04May18,, accessed March 2019.

[3] Coles, Peter, and Benjamin Edelman, “Attack of the Clones: Birchbox Defends Against Copycat Competitors,” Harvard Business School Case No. 912-010. Boston: Harvard Business School Publishing.

[4] Griffith, Erin, “Exclusive: Birchbox banks $60 million”, Fortune, 21Apr14,, accessed March 2019.

[5] Bornstein, Julie, and Daniel McGinn, “How Sephora Reorganized to Become a More Digital Brand,” Harvard Business Review, 26Jun14,, accessed March 2019.

[6] Sharma, Amit, “Online Retailers Should Care More About the Post-Purchase Experience,” Harvard Business Review, 24May16,, accessed March 2019.

[7] Rosenberg, Dan, “How Marketers Can Start Integrating AI in Their Work,” Harvard Business Review, 29May18,, accessed March 2019.

[8] Randall, Chris, et al. “How Subscriptions Are Creating Winners and Losers in Retail,” Harvard Business Review, 08Jan16,, accessed March 2019.

[9] Del Rey, Jason, “Birchbox has sold majority ownership to one of its hedge fund investors after sale talks with QVC fell through,” Recode, 01May18,, accessed March 2019.

[10] Danziger, Pamela, “Sephora, Ulta And The Battle For The $56B U.S. Beauty Retail Market”, Forbes, 06Aug18,, accessed March 2019.


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Student comments on Sephora vs. Birchbox: Winning through Digital Retaliation

  1. Thanks for your article!

    One of the not so obvious losers of this disruption of subscription models in beauty are departments stores, which for many years were able to attract traffic to their stores offering all kind of cosmetics samples and beauty services in their stores, partnering directly with world class brands that did not have many distribution alternatives for their products. With the boom of sephora first, and subscription players in a later stage offering samples of all kind of cosmetics and beauty products to customers in a super convenient way, department stores lost one of the key competitive advantages, (one of the “reasons why” women used to visits department stores in first place) as now this new digital enterprises are offering not only trials of high end products but also personalized consulting beauty services.

  2. Very interesting article, Juan Carlos.

    I really like the way Birchbox was able to decouple the purchase process of cosmetics. I think they were brilliant in realizing that the trial piece was the key to convert preferences into purchases, and then they perfectly executed by separating out the trial phase of the process through a subscription box business model, though I believe it was only sustainable if conversions into full-size product purchases were made on their e-commerce site, right??

    However, I wonder what should they have done to sustain their value proposition, in order to avoid the competition from copycats. As you mention, a few years after BirchBox success tens of companies offered the same beauty box subscription: Ipsy, GlossyBox, Play! and even Amazon has a similar service. Perhaps, having exclusive agreements with product manufacturers and brands would have raised barriers to entry…. nonetheless, customers have been always able to disintermediate again and buy the full-size products outside the BirchBox website. Should they have integrated their model with a physical retail presence?? Or was the whole model doomed to disappear anyway??

  3. Hi Juan – great knowledge of the cosmetics space! I was actually interviewing at Ipsy last year for a potential internship and I found them to be much more compelling than Birch Box and a much bigger threat to Sephora for 2 reasons – 1) Viral Brand Voice: Ipsy was marketed as the brain child of Michelle Phan, an ultra famous YouTube beauty blogger ( with 9 million fans who were super engaged and obsessed with her make-up tutorials. Thus, when the subscription product launched, it already had a natural early adopter fan base who helped spread virality like wildfire. 2) Low-investment but super high return physical presence: while Birch Box burned cash by expanding with brick and mortar stores on some of the most expensive real estate in NYC, Ipsy took on a more innovative approach by hosting annual make up conventions (think Comic Con but devoted to all things beauty related) and selling admissions tickets for hundreds of dollars each ( These events capitalized on the relationships Ipsy already had with content creators (who were given free studio space to do shoots, free product, and free publicity on Ipsy’s social media, etc. in return for their endorsements) and brands (who as you mentioned paid to get their products into Ipsy subscriptions) to make a deeper in-person connection with their customer base. Ipsy also gives existing subscribers of their monthly boxes a 10-30% cash back on full-size purchases of products through a rewards program (most of these full size products were previously featured in sample form in the subscription boxes) if they purchase through the “Ipsy Shopper” platform. As such, Ipsy is looking to fulfill all parts of the customer journey from education, trial, to purchase and loyalty. If I were to bet, Sephora should really be worried about Ipsy these days.

  4. Great article! And a good reminder that the platform / network orchestrator doesn’t always win. In this case Sephora’s own product line and its brick and mortar stores were its competitive advantage – it simply had to be ‘good enough’ on the digital side to avoid being sidelined in the latest wave of disruption. I’ll be interested to see where digital innovation in this industry goes next!

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