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What Happens When Sephora Becomes Your Rival

Small beauty retailers have thrived with 'natural' products that became big sellers. Now they are under pressure from the likes of Sephora muscling in on the space.
CAP Beauty store | Source: Courtesy
By
  • Jessica Schiffer

NEW YORK, United States – When Sephora introduced a "clean beauty" seal of approval for additive-free cosmetics in June, Kerrilynn Pamer and Cindy DiPrima Morisse, the co-founders of CAP Beauty, quickly felt the impact to sales.

CAP, with two stores in New York and Los Angeles, was relatively early on the natural beauty trend, selling plant-based cosmetics that were free of synthetics since its founding in 2015. Pamer said she and Morisse hope to grow the brand tenfold, a goal complicated by LVMH-owned Sephora promoting similar products - including a top-selling brand that was previously exclusive to CAP - at many of its 2,300 locations.

Sephora is one of a host of large retailers expanding into the natural beauty market, hoping to grab a share of a fast-growing category. Consumers spent $1.3 billion on personal-care products featuring natural claims last year, up from $230 million in 2013, according to Nielsen. In addition to Sephora, Ulta is also doubling down on the space, and luxury department stores like Barneys are adding more natural products as they modernise their beauty floors. Even grocery store chains like Whole Foods now sell natural beauty products.

Stores like CAP are hoping a track record for discovering new products will help them keep ahead of the new competition, as will personalised customer service and long-standing relationships with leading natural beauty brands. Some of those brands – including Beekeeper's Naturals, Bodha Modern Wellness, EIR and Hannes Dottir – made their debut at CAP and are now top sales generators for the retailer.

“We saw a decline in our sales and that’s unfortunate [after Sephora launched its campaign], but it also highlighted our ability to be at the forefront of what’s new and next,” Pamer said. “We need to be constantly discovering and we can’t really rest on our laurels.”

The client demand for transparency from beauty brands is growing exponentially, so we expect the category will continue to grow.

The sudden surge in competition comes as more consumers gravitate toward the category.

Part of this growth can be attributed to health and wellness becoming increasingly synonymous with beauty itself, so that items like vitamins and supplements are sold alongside skincare and makeup. This focus on a more holistic concept of beauty means that more shoppers are also vetting the ingredient lists of beauty products. Brands with a natural and/or botanically derived orientation, for example, now represent the largest combined share of prestige skincare, according to NPD.

Investors are banking on the naturals space, backing top-selling brands like Drunk Elephant and Indie Lee. The number of acquisitions of skin and body care brands with a natural or organic proposition has also increased significantly in recent years, rising from eight across 2013 and 2014 to 37 between January 2015 and September 2017, according to Catalyst Corporate Finance.

While the industry’s traditional juggernauts like L’Oréal and Estée Lauder have been slow to roll out natural products, that is likely to change. Unilever kicked things off last year with an investment in True Botanicals skincare, a beauty editor favourite that boasts nontoxic skincare that’s just as effective as the traditional competition.

Small retailers have played an outsized role in popularising natural beauty brands. Credo, founded by former Sephora executives Annie Jackson and Shashi Batri, launched in 2015 and has eight US locations. Follain, founded by Tara Foley in 2013, has four stores and plans to open three more this year. The Detox Market opened in 2010 in Santa Monica and now has 11 locations in California and Canada.

Even the biggest lack the scale to match the scale of Sephora.

Aside from introducing a “Clean at Sephora” seal for qualifying brands, dedicated in-store product displays will debut in August, including Clean Skincare and Wellness-themed product walls. On Sephora.com, the category has its own landing page, and the site’s homepage will soon display online buying guides and education sections. Digital advertising, dedicated e-mails and in-store product sampling will also spread the word.

According to Cindy Deily, Sephora’s senior director of skincare merchandising, these efforts are only the beginning.

“It’s apparent that client demand for transparency from beauty brands is growing exponentially, so we expect the category will continue to grow,” she said.

Ulta – whose entrée into the natural space has been quieter thus far – declined to comment on its strategy.

There's a big spectrum of promises and selling points on offer and it's becoming harder to differentiate.

“While category growth is expected, Sephora, Ulta and department stores will capture the lion’s share of growth by leveraging existing in-store and online traffic,” said Chelsea Gross, an associate director of client strategy at Gartner L2. “Expanding basket size to include natural products will be much easier than natural beauty pure-plays acquiring new customers.”

Smaller beauty retailers see an opportunity to thrive in a new niche, given that most shoppers aren’t seeking out larger stores with natural beauty in mind.

“We don’t compare ourselves to Sephora and we don’t aim to be them, but we’d be crazy not to dream of becoming that size,” said Credo’s Jackson, who was a former director of merchandising at Sephora.

One factor working in the smaller stores’ favour may be the need for more intimate consumer education in a confusing category. What constitutes “clean” or “natural” differs brand by brand: some rule out all synthetics, while others avoid only those that are proven to be harmful. Some use the terms as well as “organic” interchangeably, while others consider them separate categories.

“There’s a big spectrum of promises and selling points on offer and it’s becoming harder to differentiate [between what matters],” said Lucie Greene, a lead analyst at JWT Intelligence.

Credo and Follain call their store employees natural beauty experts who not only live the movement but go through rigorous training to understand the individual benefits and composition of each product on offer.

Follain’s Foley said she wants to grow the clean beauty movement “to the level of ubiquity in consumer consciousness,” much like Whole Foods did for organic food.

CAP Beauty regularly holds in-store events, ranging from explainers on CBD oil to makeup consultations with brands like Kjaer Weis. The company’s blog, “The Thinking Cap,” pushes that education even further with brand founder interviews, clean eating tips for better skin, and deep-dives on the benefits of products like Vitamin C and natural sunscreen.

“We’re a company of cult members, so-to-speak, and when you come into CAP you get that – not just the topical products but the total lifestyle,” said Morisse.

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