The sephora effect how the cosmetics retailer transformed the beauty industry – the washington post gas lighting urban dictionary

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Before these stores began popping up at malls across the country, beauty shoppers largely had two choices: Buy their makeup at a no-frills drugstore, such as CVS or Duane Reade, or go to a fancy department store counter and let a white-lab-coat-wearing specialist spend an hour dabbing their face with pricey anti-aging creams.

Experts say that Sephora and Ulta have filled in the wide chasm between those experiences. They have an assortment of upscale brands and trendy store design that give them a more exclusive luster than a drugstore. And yet they feel more accessible than a department store because shoppers can test out all the products for themselves.

By occupying this middle ground, both brands have seen extraordinary growth. Since 2007, Bolingbrook, Ill.-based Ulta Beauty has more than tripled its store count to about 765. About 50 of those outposts were opened in the third quarter of 2014 alone. In that quarter, Ulta delivered blockbuster results: A 30 percent increase in profit and a 21 percent increase in revenue, growth that was fueled by an increase in the number of transactions at its stores and an uptick in the average value of those transactions. The impressive performance has driven its stock up nearly 59 percent in the last year.

Sephora, which today has 360 North American stores and nearly 1,800 outposts worldwide, is owned by French luxury conglomerate LVMH Moet Hennessy Louis Vuitton. LVMH said in a February earnings announcement that Sephora “had an exceptional year and continued to gain market share.” The “selective retailing” division of LVMH, of which Sephora is a cornerstone brand, saw an 8 percent increase in revenue in 2014.

With an announcement last week that it is opening an Innovation Lab in San Francisco, Sephora telegraphed its seriousness about continuing to grow its market share in this category. The company said the team there will be responsible for developing and testing new technology to be used in its stores and e-commerce operation.

Instead, customers approach buying beauty products as more of a treasure hunt, and the mission is that much easier in a place where you can easily test virtually any product. Plus, both Sephora and Ulta carry a selection of niche, under-the-radar brands, which can be appealing to millennial shoppers who gravitate toward items that give them a sense of individuality.

The rise of Sephora and Ulta has also pushed traditional beauty players to rethink their offerings. You’ve likely noticed that CVS and other drugstores have moved to create splashier, better-lit displays in their beauty aisles to try to give them a more upscale, experiential vibe. And department stores are moving more products from behind the counter so shoppers can do more testing of their own. In perhaps the clearest concession that customers prefer Sephora’s model, JCPenney has partnered with the brand to open some 430 “store-within-a-store” Sephoras at JCPenney locations across the country.

Macy’s recent acquisition of Bluemercury may also offer some clues about how department stores view the future of the beauty category. Macy’s hadn’t made an acquisition in about a decade, and yet it announced earlier this year that it will put up $210 million for a chain of 59 specialty stores and spas that compete directly with Sephora and Ulta.

Direct-selling models such as Avon’s are also under siege, thanks to millennials’ changing beauty preferences. Why go to a party in someone’s home to test makeup when you can do it at the mall on your own time? While Avon has been weighed down by a number of business woes in recent years, including bribery charges, experts say the change in the cosmetics market may be part of the reason that the brand is struggling to recruit a U.S. sales force and has seen its profits slide in recent quarters.