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The Surprising Secret to Sephora's Digital Success Is a Focus On Brick-And-Mortar

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Sephora is one of the few brands whose retail prowess is equally matched by its digital savvy. Since LVMH acquired the company in 1997, it has grown to become the biggest beauty retailer in the world, now even gaining on hallowed luxury ground within its own company. LVMH has named Sephora its primary growth vehicle, with some analysts estimating that LVMH's Selective Retailing division (which includes Sephora) will overtake LVMH's luxury goods as its most lucrative business by 2018. That means it will outperform Marc Jacobs, Givenchy, Louis Vuitton, Celine, Fendi, and Kenzo's sales combined. So it's fair to say that when Sephora make a move, the rest of the industry pays attention.

And Sephora is making moves. Last week, they announced a revamp of their wildly successful Beauty Insider program, adding a super-high-end third tier to the rewards program. Dubbed VIB Rouge, it's for shoppers who spend over $1,000 in a calendar year, offering access to to private events, free gifts (ones that aren't sample-sized), complimentary beauty studio access in any store, and unlimited free shipping.

All of which, to be sure, are nice perks. But are there really that many people spending $1000 a year at Sephora that a complete revamp of an (already quite successful) customer loyalty program was necessary? Apparently, yes.

It turns out that one of Sephora's biggest foot-traffic drivers is the brand's customer loyalty program. Their Beauty Insider program has attracted 10.6 million Sephora customers to date, and the brand uses that momentum not to drive web traffic, as we might have guessed, but to drive customers to stores.

The new rewards program marries Sephora's store-focused philosophy with the Sephora customer's passion for new beauty products. "Sephora's clients are avid beauty junkies and we want to reward her beauty addiction with a program that is built around what she loves: product," Sarah Choi, Vice President of the Beauty Insider program, told Racked.

The revamp includes a redesigned mobile app, which features nifty services (like a digital beauty bag that records your exact foundation shade) and upgraded perks (including a wider selection of products to pick from when cashing in Beauty Insider points). And though those perks are mostly product oriented, nearly all of them are centered on experiences customers can enjoy in stores, rather than an item they can simply throw in their online shopping cart.

Sephora's Chief Digital Officer Julie Bornstein has said that the brand always puts brick-and-mortar first. In her words, "The stores are our essence... They're where we built our relationship with our customer and where our customer built her open and free relationship with beauty. Our stores are the core of our brand."

But despite Sephora's front-runner status in the industry, other beauty companies don't seem to be following their lead in this particular area. "Less than 40% of beauty brands and prestige retailers have invested in cross-channel loyalty programs," Stasha Rosen, a research associate from L2 Think Tank, told Racked. "In the company of some relatively static options from other brands, Sephora stands out for continuing to evolve its six-year old loyalty program to maximize user engagement."

Because Sephora has the advantage of being able to sell products and market through its own stores—a luxury many beauty brands can't afford—they can use the in-store experience to grow their business, which is harder to do in a wholesale relationship.

According to Rosen, "Fewer beauty brands than specialty retailers offer loyalty programs because beauty brands tend to distribute through department stores and drugstores and don't necessarily have access to that data at point of sale." —Erika Graham
· LVMH Counts On Sephora For Growth As Louis Vuitton Slows [BoF]
· Behind The 'Genius' Brand: Sephora's Julie Bornstein [L2 Think Tank]
· Store Credit Cards: Still Very Much A Thing [Racked]