Senior Vice President of Sales
Amy Lauer has over 25 years of experience in the fashion and prestige cosmetics space. She served as VP of Digital at leading cosmetics brand Kendo before recently becoming SVP of Sales for Sephora. She currently oversees the Sephora retail and E-commerce business within the Kohl’s department store chain in the US.
Section 1: Immediate Impact
1.1. Within Sephora, what did online consumer purchasing habits look like pre-COVID?
I want to give you just a couple of caveats, but just my frame of reference is in prestige beauty. So, I think a lot of things that are applicable to masstige and mass, but there are some nuances there. So, I think on a category trend, those trends happen across all price points. There may be some nuances by channel, so depending on how developed out those retailers are. So, I’m going to talk more specifically to beauty retailers, and then some of it also does apply to department stores. I have some background there, because I was running the business inside of JCPenney. Now, my new job is I’m in charge of launching Sephora inside of Kohl’s, which is very successful mid-tier department store in the USA.
At a high level, I would say that COVID-19 accelerated things that were going on already. Those beauty retailers that were prepared and had already started shifting their E-com capabilities, the ease of customers using their loyalty program, and also those beauty retailers that have worked with brands to develop out broader skincare and hair categories; reducing the reliance on makeup, specifically categories like lip, which had been in decline. Those retailers that were already addressing those things were in a better place than those who were lagging.
In the United States, which is also my frame of reference, depending on the retailer, a retailer like Sephora, on average beauty E-com would be about a third of the sales. During a promotion or during a sale, it could spike as high as 40 during those times, but comfortable, low 30s. I think Ulta is quite a bit lower as their E-com capabilities are less developed. Then in department stores, there is a range between 20s to the 30s.
Within makeup, because of the try-on factor, a lot of that E-com business is replenish, and a lot of that is buying bulk sizes that might only be offered. Also, there’s some discovery that goes on as .com could have newer brands that may not fit in the store or have brands that have been discontinued in the store, but they remain on .com. It fits in that replenish but replenish at a brand level. For example, more mass distributed brand, Sephora might take it out of their stores to put in a new exclusive brand, but there’s still volume there so they just shipped it online.
1.2. What has been the immediate impact of COVID-19 on online consumer purchasing habits during this pandemic period?
Of course, during the pandemic, all the stores closed. There was a point where 100% of the sales were .com. but store traffic has not rebounded. I would say on an average, store traffic is probably down in the 40s. However, when people go, they’re motivated and therefore conversion is higher, and baskets are bigger. However, .com and even planning through 2021 is very comfortably in the 50% of sales.
Those retailers who first they have the site, and the site experience, and the frankly younger customers who have all grown up in digital, they are at an advantage. Retailers that were able to respond where they thought they didn’t need more of this omni-channel, fluid inventory, ship from anywhere to make a sale, also ship from anywhere to alleviate backlog, those retailers that either were there, had been thinking about it, had resources to fund those types of things and they all have an advantage.
Furthermore, you see some even sluggish department stores, like JCPenney very quickly lit up curbside. Curbside’s really small, but it is a way to get a little bit of inventory flowing, and at least they’re not buying the product from your competitor.
1.3. What have been some of the challenges around altering e-commerce purchasing processes during COVID-19?
In the early phases, and even over peak, you saw month long backlogs of shipping. Then, just based on some personal experience, the last thing a fulfillment center was going to prioritize was returns. So, you could see two months after sending back a return, your credit comes through. There were those things and call centers were not prepared at all.
The interesting thing is that retailers had to decide what do we do with all these people who support our stores? How can we leverage them to support this digital business? So, I actually think it means the retailers that are willing to do the work and do some of the painful org-shifting around those retailers will also come out ahead.
Different retailers are set up differently in how they manage the businesses. Still, there’s a lot of legacy. “Oh, our .com is a unique PnL. It’s over to the side. Has its own team.” But then, what do you do with all these other people that are oriented for the stores? How do you pull it together? So, I think it’s accelerated that desire for more of a matrix, and people thinking about customer experience in a much more fluid way. I think words have been slow to figure out how to do that.
There is also E-com subscription although I haven’t seen a lot of it. Sephora tried the whole subscription box and that was very hot for a while. It has not been successful I think because in prestige beauty, the customer, there’s a bit of the customer who wants the newest thing and there is a big trend element. Although, core products remain 80% of the business, but that 20% of new is what brings them in.
I do see in something like hair color where if you have a routine and you’re doing it yourself, you know when you need it; but with a lot of other things, there isn’t that need. Instead, retailers do a lot of triggered email programs to remind you, “Oh, it’s been this amount of time. You must need a new one. If you don’t want this one, here’s some others just like it.”
So, subscription has not really been something. What I see happening that is quite interesting is that, to your point about the need to try on make-up, is that in most stores, you can’t try on by yourself. If you can try on at all, you need help and there’s not a lot, and depending on where you live stores are 20% capacity, which means you’re waiting in line.
The in-store experience is a very interesting to think about the new ways’ retailers are addressing the fact that people are queuing. So, people come and they’re pre-informed because a lot of people have seen things online, they’ve seen things in social, they’ve been on the website. Now they’re close, but they’re not quite there so how do you pre-sell them? So, either you service them from the line, you spark their interest in new things while they’re in line. How do you engage that?
Then application, and paid services, and that whole realm, that’s also something that is in a major reboot, and retailers are trying to figure out how do they invest in digital technologies? How do they invest in the online classes, online one-on-one, online videos? All those types of things, how do they amp up the amount of custom, but also have it when you want a service online. A lot of that is how much demand will there really be for that? So, I think that’s what’s lingering out there, but it is something that is a shift in how we provide service.
1.4. What have been some of the unexpected e-commerce success stories during this pandemic?
Absolutely if you are a brand that’s in the skincare, hair, wellness, home sense, body, any of those types of things, your business is on fire. People have been treating themselves, looking inward and this whole idea of taking care of yourself is something that had already started, but now it’s been funneled into those categories where even with stores closed, and then operating at 30% of their total, and .com making up, depending on the retailer, again, making up a portion to most of what’s lost, the money has all shifted around.
So, if you’re in a more traditional makeup company, or if your business was a little soft and not growing, you’re singing the blues. If you are in a clean makeup company, or like I said, skincare, hair, fragrance, which is a sleepy category, explosive, people were spending money and they were spending it in these categories. So, that is an absolute silver lining.
In terms of E-com, one silver lining is that it really forced companies to move money, investment, and focus to E-com faster. Every year for the past I don’t know how many years, every time there’s the holiday season from Black Friday through Cyber, “Oh, record .com sales.” and that’s been the trend for five years.
It’s interesting because where I am now, E-com reports to the CEO. So, that just shows the strategic importance. I think for those companies that said, “Okay. This is a real thing,” the silver lining is that they were moving in that direction, it just was impetus for them to jump ahead of their competition. So, I would say that is a bit of a silver lining. Those who are more prepared are doing better than those who were lagging.
Going into ’21 and thinking about the back half of ’21 is that there is a lot of talk about, “Oh, pent up demand. There’s going to be a boomerang.” I actually think that if you think about more societal trends, and the power of the younger generation’s ability as they have some spending power, the trends we’re seeing I think are here to stay.
Will spending habits go back to the way they are? I don’t know, because people also have been really confined. So, people haven’t spent on travel and experiences the way they had. I remember years ago, the problem with Boomers is when they retired is, they didn’t want to buy stuff, they wanted to buy experiences because they’ve been working so hard for so long. So, I actually think that there may be a pent-up demand, not for stuff, but experience.
Section 2: Lasting Impact
2.1. What will be the lasting impacts of COVID-19 on online consumer purchasing habits?
I think that the hope, and what I think will happen is people will go back to stores, but I don’t think the penetration is going to go back to the way it was pre-pandemic. In part, because the trend line was showing that it was going to continue to grow in penetration, where stores struggle to maintain positive competition.
So, if you keep your stores, and I don’t know how all the economics work, but if you build your model, so your stores just need to more or less maintain their level of business and not have a lot of growth or very low growth, like 2% or something like that, most of your growth then would come from E-com, which is a more profitable channel anyway.
So, it means that fewer have to be open. Your E-com and your inventory management capabilities across channels, so you can buy in any way you want and get fulfilled any way you want it. So, you could be in a store and have it shipped to you. You can order online, pick it up. Maybe they don’t have it, but they ship it to you from a store. So, there could be all of those things under the covers.
Part of it comes to where do you attribute the sale and that’s a problem retailers have. Everyone wants to own the sale. Do you own it where the demand is created? Do you own it where the inventory was sent? So, I don’t really care about that too much, I say “Just get the sale, and make sure you’re making money doing it.”
I think that the way the economics will play out and the demand will play out is E-com will continue to grow. In part, like I said, people have gotten accustomed to buying everything online, and it’s just easy replenishment. As long as I think the fight is going to be more over loyalty, and keeping your customer, and acquiring new ones, and beating the competition as opposed to being obsessed about where does the sale come from because it gets kind of murky due to the customer journey today.
To your point at the very beginning is people do like to experience these things, and especially things that have shades. You need the right one and it’s impossible to tell online. People end up buying multiples, returning, it’s a real pain and plus, then the retailer has to throw it away if you opened it.
The store experience won’t go away, and I also think that a lot of people love being in stores; it’s entertainment. If you can go and get information, and have a great experience, and you leave feeling better than you went. The other thing with the reopening is that, back to the question about service is if they were going to have paid services, which is something Sephora started. If you can have that hybrid experience where you’re shopping and you can get services done, whatever you want, then it’s more reason to spend time and go to a store than just order online.
2.2. How will Sephora look to further optimize its e-commerce channel for the future?
With Sephora, it has built for years very close partnerships with brands that are exclusive to them. It’s not like your grandmother’s private label. These are sexy brands that everyone wants, like Drunk Elephant, Tatcha and Olaplex. They work really hard to keep these exclusive contracts, so part of the loyalty is you can only get it there.
The loyalty program where the perks makes sense, and it’s really easy, and you can use it anywhere, and that is important. The reliable service model that you connect with and on E-commerce, having that constant dialogue. CRM, of course, which goes hand in hand with the loyalty program.
2.3. How will consumer demographics towards online purchasing change?
There has been the talk of opening up to men in the cosmetics space for quite some time. In my experience with the JCPenney business, actually what brought men in was fragrance, and then some skincare, and hair. We actually didn’t have the right hair products for them, they bought them at the JCPenney salon.
Men are a very small percent of the prestige makeup business. I think depending on the environment, like in a specialty store like Sephora, there are men who shop there and there are men who wear makeup. When I was running fentybeauty.com, we actually discovered men buying foundation, and so we started marketing to them. I think that you have to be a retailer or a brand that resonates. I think it’s a lot easier for a department store where he’s already there buying his clothes, his suits, shopping for his family. In some department stores, there are a lot of customers who actually shop as a family. So, having the right environment and the right product assortment is important.
What I’ve learned about men and shopping in this system from my apparel experience is that they’re very loyal. Women flit around more and so once you get men, it’s great. If you can build that out in your E-com channel, and have that very specific tailored messaging and programs, it could be an opportunity, although smaller. Someone has to be driven and see the connecting points of what else they get. It’s a missed opportunity for Sephora but they have bigger fish to fry at this moment.
All I know is that I used to run five beauty brand websites for LVMH under the Kendo umbrella, so it was Fenty, Marc Jacobs, Kat Von D, Lula, Ole Henriksen, and BITE Beauty, our customer was absolutely younger than Sephora customer, who of course so much of their customers are in store. Then, just comparing to JCPenney, which is very under penetrated in .com. that customer’s even older. You could say, “Oh, the E-com customer is younger,” but everyone shops online today. So, it could just mean that you’re missing the Boomers and above, but you have everybody else.
2.4. How will long-term consumer marketing strategies change due to the shift towards e-commerce?
Absolutely but this has been big for a long time, because it’s where people are. I’m not a CMO, but I do know that marketing budgets have gone under significant change. But going into the pandemic, those retailers that still invested quite a bit in traditional media, and catalog, and things like that. Well first of all, the stores were closed, and there were no sales. Everyone is cutting budgets, so I don’t think those traditional marketing strategies will bounce back.
I do feel like retailers are very attached to their stores and love the romance of the in-store experience. I still think that there’s way too much invested in, “Oh, every month we need a whole new store campaign with new posters, and we need to move all these goods around, and we …” Because no one’s in every month and you might as well just do that on your website every week, and then on a less frequent basis implement that, and put your money somewhere else. That hasn’t changed yet I would say for the most part.