The Changing Face of Makeup Purchases
We may never buy cosmetics the same way again. Before, consumers flocked to brick-and-mortar stores, such as Sephora, to try on different foundations and eyeshadows and to seek the advice of experienced makeup artists. However, the growing adoption of internet and smart phones, increases in per capita income, and convenience demands are driving consumers out of malls and onto websites. In fact, the online perfume and cosmetics sales industry is forecast to grow at an average annual rate of 13.9% each year to $13.9 billion by 20211. In contrast, close to a third of all malls in the United States are slated to close in the next few years2.
In the face of this rapidly changing environment, Sephora is finding ways to attract and retain consumers and differentiate themselves from other competitors in the space. There is one challenge though. Online cosmetics shoppers lack the ability to physically try on makeup they want to purchase. To bridge this gap, the Company launched the Sephora Visual Artist application in partnership with technology company ModiFace earlier this year3. The new app applies ModiFace’s portfolio of skin and facial recognition technology to consumer photos and allows users to swipe through various shades of lipstick and false lashes4. In essence, users are able to “try-on” different products. As the user swipes through colors, the product name, brand, and price are shown on a banner at the top of the screen, encouraging the user to purchase items they like. To supplement this exploratory functionality, the app also includes a learning module. Users can experience step-by-step makeup application instructions for various looks using the same uploaded photo.
Sephora’s augmented reality may bring this strategic initiative further mainstream in the makeup industry and drive sales for the brand. According to Bridget Dolan, Vice President of Sephora’s Innovation Lab, “this is a significant expansion because we are adding elements that we know will help empower and educate our clients’ purchase making decisions, and they’re done in a way that is fun and engaging.”5 With over 9.5 million followers on Instagram and 14.9 million on Facebook, Sephora has an opportunity to engage these users and increase adoption of the application. In addition to increasing sales through its website, Sephora may see a decrease in the number of product returns as customers already know what the item will look like. Further, the app can help the Company gather more data points on product sales to better determine the right inventory levels and keep ahead of trends.
While Sephora has a first mover advantage with this technology, it must find ways to increase the stickiness of its customer experience. Michael Porter states, “as with the internet itself, smart, connected products reflect a whole new set of technological possibilities that have emerged. But the rules of competition and competitive advantage remain the same.6” Like its brick-and-mortar stores, how does Sephora prevent users from trying on products in the Virtual Artist and then subsequently purchasing from another online competitor?
Looking forward, there are several initiatives that Sephora can implement to create sticky and recurring customer relationships. Sephora already collects data through its loyalty programs and purchases. It can leverage this data to push relevant new product notifications to its mobile users. The Company can also bolster its private label Sephora Collection product portfolio and include them in the Virtual Artist application, thereby getting consumers to purchase from Sephora versus other competitors. Sephora can also offer promotions and specials to consumers who use the Virtual Artist and incentivize them purchase the recommended products. Lastly, the Virtual Artist app only offers lipstick and eyelash products. As the technology improves, Sephora should continue to add new products such as foundation, blush, bronzers, and eyeshadows. By having a full suite of makeup or a complete look, the user may be more inclined to purchase via one click versus searching multiple pages on another competitor’s website.
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 Britanny Cater, “Online Perfume and Cosmetics Sales in the US,” IBISWorld Industry Report (April 2016), IBISWorld, http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=5090, accessed November 2016.
 Time, “A Third of American Malls Will Close Soon,” http://time.com/money/4327632/shopping-malls-closing/, accessed November 2016.
 Luxury Daily, “Sephora Wields AI for New Wave Shopping Experiences, Innovating in Personalization,” https://www.luxurydaily.com/sephora-wields-ai-for-new-wave-shopping-experiences-innovating-in-personalization/, accessed November 2016.
 Luxury Daily, “Sephora Accelerates AR, AI Sales Tactics with New Products, Features,” https://www.luxurydaily.com/sephora-accelerates-ar-ai-sales-tactics-with-new-products-features/, accessed November 2016.
 Michael E. Porter and James E. Heppelmann, “Spotlight on Managing the Internet of Things, How Smart, Connected Products are Transforming Competition,” Harvard Business Review (November 2014), 8.
Student comments on The Changing Face of Makeup Purchases
Where can I find this? So cool and this is what I’ve needed for a long time. I think your point about stickiness is very interesting and definitely poses a long term problem. What would be interesting to see is whether this product can serve as a customer acquisition tool in the short term. As long as Sephora’s platform has the best UI / tech, they might be able to steal customers away from other online players such as Ulta or even brick and mortar beauty counters at places like Saks, Bloomingdales etc.
Price shopping is definitely a threat, however, I just did a quick search for mac lipsticks and they all showed up at about the same pricepoint which would suggest that there is little price differences in the market today. This does make me think that if places like Ulta understand consumers are buying online, maybe they have room to flex their prices down to encourage people to try out makeup virtually at Sephora and checkout at their store.
I also really like your idea of using the data to bolster Sephora’s private collection. This seems like a surefire way to control for people price shopping around and will enable Sephora to expand its likely higher margin, private label business.
I think they did an awesome job pinpointing one of the huge pain points of buying makeup! I feel like I can never choose because there are way too many types and colors and it’s just so time and energy-consuming. I agree with you that one of the large downfalls is that consumers aren’t actually able to try it on. What happens when it’s different when it arrives at my doorstep? What if the lighting was different for a particular picture, that the color of the lipstick doesn’t actually look good on me? What about the different types of skin that people have? In addition, I’m under the impression that this is a free program – do they have a premium model? Otherwise, how can they make sure that people will buy the product on Sephora, rather than looking for a cheaper product?
Thank you, M. This was a very interesting read. Augmented reality initiatives have a great number of applications, especially as the integration between digital and physical becomes more seamless and believable.
My biggest concern regarding this initiative is how can Sephora stay competitive if it creates incentives for the customer to interact less with its physical outlets and this pushes it to use online channels such as Amazon, etc? The biggest value proposition of Sephora is its service team, working with clients to find them the best color, the best eyeliner, etc, helping them choose what looks best on them. If they just need an app to do it, they might look for other channels.