For beauty brands, Sephora is both a blessing and a curse. For Esteé Lauder and L’Oreal for example, the cosmetic-focused retail stores have provided a critical channel to reach consumers, especially as their traditional routes—through department stores in malls—continue to shut down. But Sephora also is owned by the massive LVMH conglomerate, whose other brands include competitive beauty brands such as Marc Jacobs and Make Up For Ever. In this sense, Sephora is both a source of sales and a site of intensified competition.

According to some estimates, LVMH brands account for about half of the shelf space in any given Sephora store. Although the retailer insists that its applies the same criteria to all brands competing for space—namely, whether customers want them—some of its aggressive tactics suggest that partner brands get some priority.

For example, Sephora often requires outside brands to assign it exclusive rights to certain products. Determined to get their products in front of customers, through Sephora’s nearly 2400 stores, many smaller or new brands agree. But if they have a hit product, they confront a difficult discussion with other retailers that demand the popular items for their shoppers too. In another tough move, it asked Nars Cosmetics simply to remove all its products from Amazon, if it wanted to continue to appear on Sephora shelves.

Although most brands comply with these demands, some have balked. Chanel—which competes with LVMH in multiple industries—not longer sells any cosmetics through Sephora, though its perfumes remain. Although its products also still appear in Sephora’s stores, Esteé Lauder has made some clear moves to expand its own retail channels, such as through its website and by adding more dedicated stores to push its MAC Cosmetics brand.

Discussion Questions: 

1. How does Sephora determine which merchandise brands to carry?
2. Should national brands like Esteé Lauder sell to Sephora? Why or why not?

 Source: Khadeeja Safdar and Sharon Terlep, The Wall Street Journal, January 8, 2017