Sirko Siemssen: How has your customers’ behavior in China evolved in the past 12 months, and how have they been engaging with you and your channels and brand?
Maggie Chan: The past year has been transformative in many ways. Let me focus on a couple of points and how they relate to Sephora and our direction going forward.
The first – and most obvious – point to touch on is the shift to online consumption: COVID-19 underlined and substantially expanded the importance of online channels for all retail, not just beauty. The rapid expansion of digitization enabled us to reach and engage our consumers – despite the temporary offline constraints of lockdowns.
The second, somewhat linked aspect are the new, much more direct ways we now engage with shopper communities and individual customers online. Last year gave a strong boost to live-streaming, social media connectivity, and private domain sales. These approaches are enabling us to connect one on one with our customers and build a community around our brand. This in turn allows us to better understand customer needs and trends, to more effectively tell stories, to explain innovative brands and products, and to add an emotional dimension to the relationship with our customers. Unsurprisingly, private domain traffic has become very much top of mind for online business in our sector.
The pandemic has not only driven change in how customers shop, but also in what they are looking for in terms of product proposition.
Finally, the pandemic has not only driven change in how customers shop, but also in what they are looking for in terms of product proposition. We have noticed an increase in the awareness of sustainability and in how sustainability connects with wellbeing. How do you maintain your health? How do you maintain your wellbeing and healthy lifestyle at home? How do you manage for things to be uncluttered, given that everything is arriving in a package? In China, this sustainability trend has translated into a desire for products that are simple, direct, and uncomplicated, and packaging that is less wasteful. The simpler, the better.
Interesting! Let’s zoom in a bit further on the private domain point you have made. Why is it that private commerce membership schemes and communities are growing so rapidly and effectively in the prestige beauty sector?
Prestige beauty retail has traditionally been closely tied to stores inside shopping malls and department stores, and relied on a “private domain experience,” in terms of personal advice and product testing. The usual online experience is radically different from that: Just seeing a product on a screen is simply not good enough, because the product is ultimately applied to the skin and influences how we feel and are seen. Private domain is in a sense about bridging that gap and bringing back some elements of the offline experience. This is one of the reasons that private domain is growing rapidly.
The second reason is that prestige beauty is a higher ticket item. There are a lot more requests from customers for the product experience. Personalized service plays a crucial role – not just in terms of bringing authentic customer feedback to us but also by connecting professional knowledge from the beauty adviser to the target audience in a personalized way through social media.
So, how did you react to all the change? What changes to your business model did you undertake? What lessons did you learn?
As a global prestige beauty company, we have always been centered on consumers. Consequently, our retail concept, which we call “True Retail”, takes a holistic view of the full omnichannel retail experience across all customer touchpoints. This thinking was very helpful to begin with. It enabled us to quickly adjust and optimize our strategy, proposition, and priorities. Fundamentally, we initiated a more direct and close conversation with the consumer, leveraging the online ecosystem while connecting it to the offline experience as well. Let me highlight four examples:
One change that we made is the “Smart BA” (BA for beauty adviser). We launched Smart BA in late February/early March during the pandemic as a way for customers to draw on the expertise of our beauty advisers even though they could not be in the stores. By leveraging WeChat, our BAs can connect with customers and provide them with advice that is unique to them. Our goal was to empower all BAs to provide one-on-one service and information to fulfill the beauty promise to consumers. We basically digitalized the physical touch point between the BA and the customer.
We also intensified our collaboration with Meituan, a last-mile service provider or platform. We rolled out this service, which allows customers to go onto the platform, order a product, and have it delivered to their door within 30 minutes, in 16 major cities in China. This is a useful capability to have during the pandemic, but its utility extends beyond COVID-19: For example, if you suddenly remember you need to buy a gift for a loved one on Valentine’s Day or their birthday—you can go on your app, order a gift-wrapped item, and have it delivered in 30 minutes. At the beginning, this was done in order to bridge the last-mile issue, but now we have extended it beyond that.
Because of the pandemic, we launched our first virtual Sephora Day, which literally allowed us to reach millions of viewers much more directly.
We also are leveraging digital to share beauty trends in the broader consumer base in China. In the past, Sephora China launched beauty trends twice a year at a physical fashion show or conference. But because of the pandemic, we launched our first virtual Sephora Day, which literally allowed us to reach millions of viewers much more directly. To maximize the viewership, we partnered with other platforms, like JD.com and Tmall. Together, we presented 100 new products – from Sephora and leading global brands.
Finally, when launching our Sephora Cross Border Tmall Global flagship store, we also coordinated it with key offline stores connected through the virtual “shelf” in more than 40 physical stores.
Talking about stores, what do you see as the future of your stores? Your stores have become famous as real destinations for customers. What role will they play tomorrow?
Physical stores will continue to play a key role for us – especially in building a sense of community around our brand. We will continue opening brick-and-mortar stores in the right places. However, what we see as different for the future is how we go about empowering our community. In the future, we see the store as being the hub of the community. While many of our stores are in shopping malls, some are located in residential and in commercial areas. The type of customer visiting each of those stores has different requirements, both in terms of the time they can spend at the store and in terms of their beauty needs. So the stores will be tailor-made to suit the clientele of the specific environment.
Digital tools will also play an important role in meeting the beauty needs of our customers. We’ve already mentioned the ability to arrange a delivery from your store within 30 minutes. But there are also other digital tools available that help customers to shop better. For example, we are developing a fragrance ID tool that creates a profile for the customer, which, based on personal fragrance preferences, makes fragrance recommendations. There is also a tool that allows you to visualize how a makeup foundation will look on your face, which helps to narrow choices before physically trying them on at the store. Similarly, we also have Visual Artist 2.0, which is a technology that allows you to try out different types of makeup before going to the store to try them on. And the Smart BA will then be able to help the customers when they come in the store.
Brilliant! Sounds like you have the right answers for a lot of the challenges and changes faced by your business. Still, are there some concerns that keep you up at night?
The things that keep me up at night are not the strategy or whether the business is growing – I truly believe we are on the right track in China. The real concern was how to protect and make sure our employees were safe during the pandemic. At the start of the crisis, we had a very strict focus and protocol that was built around protecting employees and customers. So many things were happening all at once that we had to figure out what to prioritize in terms of serving the customer and executing fast. What we learned as a result of COVID-19 is that we have a very resilient organization and workforce, one that is getting better as we continue to learn and evolve.