{"id":25353,"date":"2017-11-15T19:45:56","date_gmt":"2017-11-16T00:45:56","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/no-longer-one-single-shade-sephora-and-the-beauty-industry\/"},"modified":"2017-11-15T19:45:56","modified_gmt":"2017-11-16T00:45:56","slug":"no-longer-one-single-shade-sephora-and-the-beauty-industry","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/no-longer-one-single-shade-sephora-and-the-beauty-industry\/","title":{"rendered":"No Longer One Single Shade: Sephora and the Beauty Industry"},"content":{"rendered":"

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\u201cBeauty is a very personal thing. People don\u2019t want to be told. They want to choose what looks good.\u201d \u2013 Nhu Le, Founder of Finding Ferdinand<\/p>\n

The face of the beauty industry has been changing drastically over the past twenty years. In the makeup industry, a 7.3B market, we\u2019ve seen an increase in the diversity of products offered, the need for trial-ability, and the emergence of increased customization [1].<\/p>\n

In 1998 Sephora, a subsidiary of the French luxury conglomerate LVMH and the no.1 beauty retailer in the world, launched its North America presence. In 2014, the company had 343 North America stores with 3 regional centers supplying all locations [2]. In 2016, these distribution centers stocked over 14,000 SKU\u2019s to replenish stores and additional SKU\u2019s to fulfill online orders. Each store had, on average, 9,000 unique SKU\u2019s. [3]<\/p>\n

Given the high SKU count and variability in demand, Sephora\u2019s distribution network faces many challenges. Sephora is often carrying excess inventory in its distribution centers and retail locations because of its inability to accurately forecast demand and its reliance on a monthly ordering schedule [4]. In 2016, Sephora\u2019s planning team used average store demand and average forecast to determine the orders they placed. This rolled up average had an accuracy that was less than 55% from vendor to distribution channel and 80% from distribution channel to store. [4] Coupled with 14 day lead times, this results in an incredibly inefficient distribution system; a system where it could take 16 days to put an SKU back on the shelf [4]. Analysis of Sephora\u2019s distribution system by Envista in 2016 highlighted operational bottlenecks at distribution centers due to the system of monthly buys and labor cost inefficiency due to lack of visibility on inbound transportation [4]. This fragmented, assumption driven system is a major weakness for Sephora.<\/p>\n

Paradoxically, the retailer has heavily invested in building a high tech in-store and online experience to meet the rising trends of customization and enforce its \u201ctry more buy more ethos\u201d [5]. Sephora has launched Color IQ in store- a technology that allows customers to scan their faces and receive a reference color to find products that match their skin tone [5]. In addition, customers can answer a series of questions in an in-store iPad to receive a set of recommendations on bundled products that they can add to their shopping cart. \u00a0Sephora has also launched an augmented reality app that allows customers to virtually try on various shades of lipstick in store. All this technology enables Sephora to bring real-time customization to the hands of its customers and drive product purchases.<\/p>\n

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In contract to Sephora\u2019s emphasis on trial-ability, competitors have emerged focusing on creating a highly customized one product fit. One such company, Finding Ferdinand, creates custom lipstick shades. A customer can visit their website and select a series of color combinations for their custom shade of lipstick. This order is then sent to their Santa Monica fulfillment center and within minutes the color is blended and ready for shipping [6]. \u00a0Finding Ferdinand has grown 150% annually in the last three years with plans for product expansion underway [6]. With competitors like these in the market, Sephora cannot afford to have an inefficient inventory management system that could easily drive customers away when the products they want to try aren\u2019t available in store.<\/p>\n

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A digitized supply chain would enable Sephora to be more efficient in the following ways:<\/p>\n