Sephora’s Jean-André Rougeot Reveals His Strategic Vision
“In times of crisis where every other retailer basically behaved pretty selfishly — I’m not being critical, I’m just being factual — Sephora said, ‘No way. We will stand by you.'"
It’s 9 p.m. on a Monday, and Jean-André Rougeot’s printer is not working.
Rougeot, the chief executive officer of Sephora Americas, has been working remotely from rural Maine for a month, where he and his wife own a cottage near Acadia National Park. It’s on “the side of the park that nobody knows about” he said — beautiful and quiet — good for working from home, sort of. (His iPad has been a little finicky, too, he noted.)
“It’s a blessing because it’s a beautiful place and my wife is happy to see me. It’s a curse because it’s not the same as working from an office. You just don’t have access to the technology,” Rougeot said in a phone interview with WWD Beauty Inc.
His first wide-ranging interview since he took the helm of Sephora in January 2019 comes at a pivotal time for the business, which, like all retailers, has been hit hard by the coronavirus pandemic and faced with what to do in response to the resurgence of the civil rights movement in June.
Rougeot and much of his team seem to be working around the clock in order to propel the business through the pandemic, but also to secure Sephora’s place in the specialty retailing environment of the future. Once dominant, Sephora has faced fierce competition in the U.S. in recent years as Ulta Beauty emerged as an added distribution option for brands that were once Sephora loyalists and became the retailer of choice for many Gen Z favorites, like Kylie Cosmetics and Morphe.
Technically, in the U.S., Ulta is the bigger “brick and mortar” player, with 26.7 percent market share, according to Euromonitor. Sephora, which only sells prestige beauty, ranks third on the list, with 14.9 percent market share, after Bath & Body Works. But in the prestige beauty world, Sephora remains the largest player, having edged out Macy’s.
Having spent much of his career on the brand side, Rougeot is the rare retail executive who understands both sides of the business. A key part of his strategy to acquire and retain customers is product differentiation, a key tenet in his previous roles. “We have to drive traffic to both our stores and to our web site, and then when we’ve got the traffic, we need to engage them in a way that they’re going to come back to us and we become their beauty retailer of choice,” Rougeot said.
When he talks about differentiation, he means brands with solid DNA — among those he called out were Fenty Beauty, Tatcha, Drunk Elephant, Olaplex and Pat McGrath. “The ability to bring those very unique brands to our consumers is obviously a huge driver both of traffic, but also of repeat business,” Rougeot said. “Sephora has incredible skill at finding young, up-and-coming brands, nurturing the founders, helping them along. And we see already the next generation,” he continued, citing skin-care brand Youth to the People and body-care player Sol de Janeiro as two that are particularly resonant now.
Rougeot — who is intimately familiar with Ulta from his time leading Benefit, where he was ceo for 12 years — is determined to continue Sephora’s dominance in discovering the next generation of relevant brands, and repeatedly underscored the Sephora merchandising team’s unparalleled brand finding and building abilities. Recent examples, he said, include Sephora’s launch of Patrick Starrr’s One/Size, and the upcoming launch of Selena Gomez’ Rare Beauty, as successes.
“There were times where brands like these would probably have gone to Ulta,” he said. “You saw it with Kylie.” But brands now have looked at Sephora’s offerings in the marketplace — which include business and brand guidance as well as a global store footprint — and are choosing to launch with them, Rougeot said. “Many brands are thinking, ‘Wait a second. If I stay with Sephora and I ride with them on the international wave, I can build a very sizable business. We’ve seen that with brands like Tatcha and Drunk Elephant.”
Sephora, which has been in the U.S. for about 20 years, was built on that differentiation, mostly in makeup, and on driving trends like contouring, Rougeot said. But things have changed, and not just because the contouring craze ended. Many brands that were once Sephora-exclusive have sought growth in Ulta. Lately, that even extends to brands from fellow LVMH-owned business Kendo — KVD, the makeup line formerly affiliated with Kat Von D, just launched there this month, for example.
Rougeot classified the Kendo-Sephora relationship as “incredibly strong,” but said that now, most of the brands Sephora carries are independent, and that the retailer will continue to pursue new relationships with brands and develop its own Sephora Collection products.
Gradually, the Sephora strategy has evolved, as borne out by the Times Square flagship that opened in 2019. Makeup is still there, occupying about half of the selling space, but at least in this interview, it’s the least discussed part of the business. Broadly, makeup sales have plummeted during the pandemic — NPD data shows a 52 percent decline in the second quarter, to $869 million in the U.S.
But skin care has been a bright spot, outpacing makeup sales during the COVID-19 pandemic, according to Rougeot. “Our skin-care business grew versus a year ago during the COVID-19 crisis,” he said.
Sephora, he said, is being “rewarded beautifully” for being early to, or in some cases making, trends.
“For many years, Sephora has really pushed the boundaries, pushed the envelope on creating and delivering beauty in a different way,” Rougeot said, using Sephora’s push into clean skin care as a prime example.
“Four or five years ago, Sephora embarked on a journey about clean skin care, which to be honest, was very controversial,” he said. Skin care then was primarily from the “two quality brands” Clinique and Estée Lauder, Rougeot said, but Sephora was ready to go after the 35-and-under set with a new strategy.
“We started to see the consumer being less excited about palettes and sets in makeup and we started to see young people ask questions about skin care. This is a big jump because skin care used to be a slightly older customer,” he said.
But new skin consumers wanted clean, and they wanted cute.
“What they are interested in is clean skin care, skin care with packaging that is environmentally friendly, skin care that is easy to understand — they’re not into big regimes where you have to buy seven products and spend $1,000. They like simplicity and they also like skin care with a touch of whimsy — that’s why [brands like] Drunk Elephant and Youth to the People are so successful,” Rougeout said.
Eventually, clean became a big enough part of the strategy to warrant its own seal. The retailer launched the Clean program in mid-2018 in order to identify products that aren’t formulated with parabens, formaldehyde, mineral oils and other ingredients that worry consumers.
“What Sephora did with Clean is established simple benchmarks, simple guidelines that allowed the consumer to feel comfortable and reassured that the products that have the Sephora clean seal were generally good products for them and their skin,” Rougeot said. “Everybody and their brother now is trying to copy [it] — Ulta’s doing something, Nordstrom’s doing something.”
The product differentiation point becomes even more important when other retailers look to copy Sephora, Rougeot said. But so do Sephora’s relationships with brands, he emphasized, pointing to a variety of incubation and COVID-19 partnership efforts the retailer has undertaken in order to be a good steward to its brands (like paying on time).
“One of the things Artemis [Patrick], who is our global merchant, and I discussed very early on in the crisis is that we would stand by our brands,” Rougeot said, noting that brand partners were paid within 30 days. “I can’t tell you how many brand founders have called me literally crying on the phone saying, ‘I cannot believe that I got a check from you.’ They never thought we’d pay them on time.” Part of that, Rougeot notes, is because other retailers sometimes delayed payments for 90 days or more, which for young brands, can prove financially devastating.
“In times of crisis where every other retailer basically behaved pretty selfishly — I’m not being critical, I’m just being factual — Sephora said, ‘No way. We will stand by you,’” Rougeot said.
He may only be indirectly critical of his competition, but he did not hesitate to point out the many ways in which he believes Sephora is better equipped than others to withstand “tough” brick-and-mortar retail sales during the pandemic, identify and incubate brands of the future and set an example for the retail community in terms of diversity and inclusion efforts.
Sephora, which has 439 U.S. stores, has navigated the current brick-and-mortar climate — where stores were ordered shut for two months and then reopened to minimal and wary customer bases — through massive upticks in its already sizable e-commerce business.
Before the pandemic, e-commerce made up almost 40 percent of Sephora’s sales, Rougeot said. Since the pandemic hit, online sales are up between 70 and 80 percent, he said, making up for some, but not all, of the volumes lost to an unstable retail environment.
Sephora has been investing “tens of millions” of dollars a year in e-commerce, Rougeout noted, and already had the supply chain, warehousing and call centers in place in order to withstand and fulfill the massive uptick in online orders that it saw during the pandemic.
“Companies like Ulta and Macy’s were just not ready for those volumes to explode on their e-commerce. It was tight…the pressure of the chain of supplies was significant, but it didn’t break, and as a result we were able to ship and satisfy the demand, and our brands got lucky — they were getting a lot of orders,” Rougeot said.
Skin care, hair care and fragrance have all seen sales upticks during the pandemic, he noted. Sales in the rest of the Americas — Canada, Mexico and Brazil — rose, too. “Our shares in Canada, Brazil and Mexico have gone through the roof…because the competition is really weak from an e-commerce point of view,” Rougeot said.
Physical retail has not fared so well, he acknowledged. “We have a 28-page-long book about how to run a store under COVID-19,” Rougeout said. “That said, business is tough. Consumers don’t have the confidence to go into stores.”
He said the impact is likely to be toughest on “traditional malls” and that he expects storefronts to empty out as more retailers go bankrupt. “Suburban malls, convenience malls — that’s where the customer is going to buy,” he said.
Such locales are not where Sephora has its core real estate footprint, which remains significantly tied to malls. Pre-pandemic, the retailer had planned to open 100 new non-mall stores this year. That number has since been more than halved, with closer to 40 expected to open this year, Rougeot said, and more likely to come in 2021 and the following few years.
“We don’t have a fixed number yet because it depends on negotiation with landlords, and the way that’s changed. We want to look at a slightly different understanding of how we work with landlords,” he said.
Still, it’s full steam ahead on implementing a new store design, with high ceilings, good lighting and smaller physical footprints hallmarks of the new era.
“I went to one in Colorado a few weeks ago and I had goosebumps on my back. This is just a good-looking store. It’s exactly the kind of store our customer wants to walk in,” he said.
The layout in those stores is also different, he pointed out. Prestige hair care, a nascent category until about three years ago, is at the front, to the right, he said. “We started doing in hair care what we did in skin care five or six years ago,” Rougeout said. That included going out and finding brands like Briogeo and Olaplex “that really are pushing hair care very differently,” he said. Olaplex, in particular, is a brand that is “just better.”
“That has not happened in hair care for 30 years,” he said, noting that the category had long been dominated by P&G and Henkel, with contributions from L’Oréal.
Fragrance, too, has found itself in a somewhat surprising growth moment at the retailer, where it is up double digits over the last six months. “We didn’t have big market share, it wasn’t something we spent much time on,” Rougeot acknowledged.
Growth is coming from brands such as Chanel, Dior, YSL and Jo Malone, which Rougeot attributed to a shift in channel patterns. “I think it comes from the demise of the department stores. Department stores are struggling mightily,” he said.
Sephora has had a mutually beneficial relationship with one of those mightily struggling department stores — J.C. Penney — for 15 years.
Of those, about 13 years resulted in a “goldmine” for both retailers, Rougeot said. “They were able to get a beauty offering they couldn’t get on their own, and we were getting access to a customer that normally would not shop in our stores,” he said.
But as J.C. Penney’s troubles deepened, Sephora has rethought its relationship with the department chain. Earlier this year, the two got into a legal dispute over opening Sephora inside J.C. Penney’s stores during the pandemic.
Today, Sephora has 615 Sephoras inside JCP locations, and many are “actually doing relatively well in the COVID-19 environment,” Rougeot said. For now, he said, Sephora will wait out the J.C. Penney bankruptcy and see what happens.
“If they remain a department store with a decent size of portfolio of stores, and they do the right thing with their stores, that relationship will continue, probably on a slightly smaller level,” He said. “But at some point, that relationship will be over. But this is not for now, this is for the future….If they come out [of bankruptcy] with a strategy that is supported and financed properly, we’ll surely continue our partnership.”
Sephora has quietly done some restructuring of its own, laying off 7 percent of the corporate workforce, 117 jobs, including some jobs related to J.C. Penney operations. Sephora positioned the move as part of an ongoing review of corporate structure, and added 132 different full-time roles meant to reduce reliance on contractors and center the business “on the new environment that all retailers face,” the company said in a statement.
When Rougeot joined Sephora, simplification was one of his key goals. The business was successful, with talented and passionate employees, but too often distracted by what he called “shiny toys.”
“When I took over, we needed to cull the strength of Sephora, the quality of the team, and focus on a small but mighty amount of initiatives,” he said. He made a shortlist of about eight different initiatives, including prioritizing e-commerce and improving the user experience. “That has been a big plus. I obviously could not predict the COVID-19 crisis, but it has made us tougher as we’re going through the crisis,” Rougeot said.
He’s also refocused the company on its DNA, he said, “not just as a marketing tool, but as a fundamental way to do business.”
“I have spent my life building companies and building brands and the key to success has always been DNA. Define your DNA, and then [drive] it relentlessly. Sephora always had great DNA, which is fundamentally a place where everybody belongs…what did not really happen, is that we did not express it really clearly,” Rougeot said.
Sephora has not always been a place where all customers felt welcome, as evidenced by accounts of racial profiling from Black shoppers, including R&B singer SZA, who tweeted in 2019 that a staff member had called security on her while she was shopping. Sephora later closed all operations for a day for unconscious bias training.
“We know there is unconscious bias in stores. That is true for all retailers. It’s not as bad frankly at Sephora because of the amazing rainbow of people we have in our stores, but it’s still true. We have an unconscious bias problem in our stores,” Rougeot acknowledged. He said it is being addressed through training and efforts to diversify store leadership.
Diversity efforts will extend beyond that though, he said, through all levels of the company. Only 6 percent of leaders across stores, distribution and corporate leadership are Black, Sephora said in a response to Sharon Chuter’s Pull Up for Change campaign.
Sephora has started doing webinars and listening sessions with employees of color, who are encouraged to talk about race relationships, racism and their lives inside and outside of work. Rougeot listens, sometimes anonymously, he said. “People cry. They tell their life stories. It’s incredibly powerful,” he said.
Those stories have become part of his motivation for Sephora’s next act, which is to work to infuse diversity through the retail ecosystem, Rougeot said.
“Like we did with brand relationships, or with Clean, we can do the same in D&I for retail,” he said. “That’s the thing that gets me out of bed in the morning. That we can make a difference and we are 100 percent committed to make it happen.”
As a sign of that commitment, in June, Sephora became the first retailer to sign Aurora James’ 15 Percent Pledge, which calls for retailers to dedicate 15 percent of their shelf space to Black-owned brands, roughly in line with the Black population in the U.S. Sephora plans to bring between 20 and 25 BIPOC founders into the Sephora Accelerate program in 2021, which helps young beauty brands learn the business ropes, and said it will help connect those brands to the investment community.
“It’s going to be a long road and we won’t get to 15 percent tomorrow, we won’t get to a balanced leadership mix tomorrow, but the point I heard from all our employees is we have to start today,” Rougeot said.
The initiative is one that Rougeot sees lining up with Sephora’s broader goal to engage its best customers — some of whom shop 15 to 20 times a year — even more. “Consumers today, especially younger generations, will make shopping decisions based on values,” Rougeot said. “The number-one value that’s going to impact their decision is going to be D&I. They’re going to be looking very carefully.”
In terms of engaging employees, Rougeot has become entirely reliant on Zoom. It’s a new system for a man who describes himself as “old school” and as someone who “thought that being in the office was critical to success.”
He’s been proven wrong, though, and said the past six months have resulted in some of the more productive times Sephora has seen, he said. The business relaunched its Beauty Insider rewards program, launched Instagram shop and is preparing to roll out a reserve-online-buy in-store option later this month, on top of brand and digital efforts, but after six months, he’s starting to worry about the company culture. “I’m worried about the ability to grab somebody in the corridor and say, ‘Let’s spend 10 minutes on this.’ I’m worried about the informal exchanges, the jokes.”
But, on the plus side, people are actually getting to meetings on time. “We have never started so many meetings on time since I have been at Sephora. If we have a 9 o’clock Zoom, everybody’s on at 9 o’clock,” he said.
And, for Rougeot, there’s also a water view. “I’m watching the ocean right now, so I’m not complaining too much,” Rougeot said. “Except when my printer breaks down.”