At the 2018 World Retail Congress, Sephora was named Retailer of the Year for 2017.  How has Sephora been able to grow its retail presence during a time when retail as an industry is declining? One explanation is Sephora’s use of artificial intelligence (“AI”) to create an omnichannel retail approach. By investing in AI, Sephora has created a seamless experience for the customer across both digital and retail outlets.
Founded in 1970, and acquired by LVMH in 1997, Sephora operates ~2,300 stores in 33 countries worldwide, with more than 430 stores across the Americas.  In a world today where brands like Glossier and Huda Beauty are building beauty empires via social media and user-generated content, Sephora is up against a stifling challenge for how to continue to innovate and grow their stores. In 2015 Sephora launched its innovation lab to focus on just this: how to use different types of artificial intelligence such as natural language processing, machine learning and computer vision to bridge the gap between its online and in-store experiences. According to a report by BCG, retailers that have implemented personalization strategies see sales gains of 6-10% at a rate two to three times faster than other retailers. 
In store, Sephora has been able to create a highly curated experience for its consumer by finding ways for the consumer to interact with AI as they would a traditional in-store sales rep. In the short term, Sephora is investing in AI and partnering with personalization specialists such as Dynamic Yield to provide personalized product recommendations to customers. “Dynamic Yield’s machine learning algorithms weigh factors like location, items previously viewed, and items purchased. This led to a return of six times on Sephora SEA’s financial commitment to the partnership.” 
Additionally, Sephora is employing a wide range of AI technology across their app and in-store to help drive retail sales and make the in-store shopping experience seamless and inviting for a younger consumer. Some tools they have used are:
- Sephora Visual Artist – 3D live experience that enables customers to try on product virtually via Sephora’s app and in store
- Tap & Try – ability to tap on a product in store and try the product on virtually
- Color IQ – Device that scans the surface of your skin and assigns it a Color iQ number which reveals scientifically precise foundation matches
These technologies are driving engagement with content and leading to increased purchases. For example, Sephora Visual Artist has led to customers trying on 200 million shades during more than 8.5 million visits to the Sephora Virtual Artist feature. “This state-of-the-art Sephora technology uses advanced AI to decipher the image…and suggest a predominant color, but clients can pick any color from their picture by moving the indicator dot in real time. From there, a list of the top matching shades available from Sephora is quickly returned to the user. Matches can be immediately tried on in Virtual Artist then purchased in app.” 
In the long term, Sephora is headed in the right direction from an organizational perspective. First, the launch of the Sephora Innovation lab in 2015 enables Sephora to “develop and test a broad range of digital experiences designed to inform and enhance shopping across web, mobile, and brick-and-mortar.”  Second, Sephora recently merged their digital and physical retail teams. By merging the teams, Sephora can look at customers from a 360-degree perspective and better use AI to target the customer. Mary Beth Laughton, Sephora’s SVP of omni retail, says “The power of using that data to better appeal to her at every touchpoint and understand her in a deeper way enables us to create these experiences that she cares about across our channels. Loyalty is a data-driven ecosystem, so that’s hugely powerful.” 
Going forward, Sephora needs to continue to focus on its digital innovation lab and leverage ways in its stores and through its app to constantly experiment with new technology. One example for how they could do this is to build out personalization technology for skincare, not just makeup. Sephora has started to segment skincare products on their website based on purpose but they don’t have anything that is personalized like the Visual Artist or Color IQ to recommend products. Whether this is further personalization, curated events for the customer or improved technology that provides customer recommendations, Sephora needs to continue to be focused on what will drive the customer into the store for retail to truly succeed long term.
How will Sephora’s use of AI impact it’s retail footprint in the future? Will there still be a need for retail stores and if so, what do those stores look like? (797 words)
- LVMH, “News”, https://www.lvmh.com/news-documents/news/sephora-named-retailer-of-the-year/, accessed November 2018.
- Sephora, “About Us”, https://www.sephora.com/about-us, accessed November 2018.
- Stephanie Pandolph. “AI in E-commerce: How Artificial Intelligence Can Help Retailers Deliver the Highly Personalized Experiences Shoppers Desire”, August 2017. Business Insider Intelligence, accessed November 2018.
- Stephanie Pandolph. “Sephora leads the way in personalization — Airbnb adds restaurant reservations — Wayfair brings AR tech to iPhone”, September 2017. Business Insider Intelligence, accessed November 2018.
- “How Sephora is leveraging AR and AI to transform retail and help customers buy cosmetics”, Tech Republic, https://steepnews24.files.wordpress.com/2018/02/sephora_cover_story_final.pdf, accessed November 2018.
- How Sephora Built A Beauty Empire To Survive The Retail Apocalypse, https://www.cbinsights.com/research/report/sephora-teardown/, accessed November 2018
- Sephora Virtual Artist Debuts New Cheek Product Try On, Expanded Looks, And AI-Powered Color Match Technology In Latest Update, June 7, 2017, PR Newswire, www.prnewswire.com
- First Look: Inside Sephora’s New Innovation Lab, March 5, 2015, Fast Company, www.fastcompay.com.
- Why Sephora merged its digital and physical retail teams into one department, April 6 2018, Digiday, www.digiday.com, accessed November 2018.