Sephora Leads a Wake Up Call

One thing the overly heralded tech-driven start-ups do not have is brand recognition. They do not have the indelible consumer connection that has taken the “old world” power brands years and millions of dollars to nurture, build and maintain.

Brand recognition aside, the techie entrepreneurs do have three advantages over established brands that afford them the ability to launch and quickly ramp up their businesses:

1. Creative new way to market a product or service.
2. Understanding how technology can facilitate the concept.
3. Limitless funding from “casino playing” investors, allowing them to scale without making any money.

I have written about this bubble-up economy and the insane investors who sink millions in anything that has the word technology attached to it.  And how the newbies are spewing out more and more stuff without profits into an already over-stuffed world, stealing share of market from the old world brands and retailers who still have to show a profit.

I opined in my article, “Walmart Can Crush Amazon”, that the old world brands could one up the disruption and damage these newbies are creating by simply copying their clever new marketing ideas and technology-driven models, then use the power of their iconic brands and financial leverage to squash the start-ups. This is also a no-brainer strategy for organic growth.  Finally, the power brands have the advantage of scaled resources and talent to learn from the start-ups’ mistakes and launch their own “copycat” model from a higher platform.

In the Walmart crushing Amazon article, I concluded by saying if I were Jeff Bezos I would not want a copycat named Walmart coming after me, which by the way, is just the scenario that is underway. Stay tuned for that report, coming soon.

Sephora Leads the Way

Sephora is among the first, if not the only, power brand to put this entrepreneurial strategy to work by copying the beauty products subscription-box model. Think Birchbox subscription-based marketing to consumers to receive monthly boxes filled with beauty products matching their profiles. Sephora’s take on this is  “Play! By Sephora,” launching in September. This now over-crowded $20 to $25 million space, occupied by leader Birchbox, followed by Beauty Army, Glossybox, Beautybar.com’s Sample Society, New Beauty’s Test-Tube, Sindulge, MyGlam and Goodebox, does not really need another player.  Indeed, given the total current brand and revenue volume of this sector, one might question how giant Sephora thinks it can find significant additional growth.

However, to my point of brand power and credibility, Sephora can realize such potential growth. I believe that Sephora is likely projecting its ability to scale well beyond the combined sales of all other competitors in the field, combined. And I think they can pull it off. Sephora has great relationships – and a massive track record – with other power brands, and it\’s using that leverage right out of the gate. Still, it\’s playing ever-so-slightly niche and indie with its first box, which contains products from the Estée Lauder-owned Glamglow and Bumble and bumble, as well as those of its LVMH sister brands Marc Jacobs Beauty and Ole Henriksen.

The rest of the online competitors in the space do not have the same brand presence and the bench strength pool of power brands to select from. And it’s possible that with Sephora’s entry, their product pool may even shrink.

In fact, many of Sephora’s brand partners see Play! By Sephora as a new distribution channel and expect both organic growth and an increased spend among current customers. Another great advantage Sephora has out of the gate is its deep knowledge of customers’ personal preferences, having aggregated big data from its online and in-store transactions. And maybe the most important angle in their success: Sephora’s customers really trust them.  The level of customer service, return policy, and choice of quality products (the Sephora house brand standing alongside their array of other iconic products) gives them a leg up over the smaller online companies.

This new initiative is a brilliant and a leading strategic move by Sephora.  Ironically, it reminds me of the late 90s when brick-and-mortar retailers were lamenting that e-commerce was going to wipe them out, only to wake up to find that at the end of the day, they had an enormous advantage because they could leverage the omnichannel distribution concept, thus developing a lucrative synergy the pure online players could not.

I again predict that Sephora will best the current pure play model, crushing most of them, particularly those reliant on the “casino investors” funding model.

So Hey Step Up to The Plate: Neiman Marcus, Hertz, Luxottica, Macy’s

A copycat strategy can work for many power brands for new growth and gaining a stronger synergy with their core businesses.  RealReal sells used luxury products.  Why couldn’t Neiman Marcus do it better? I believe Hertz could copy the Uber model, scaling to mass quickly, based on its value as a globally recognized, credible brand.

Warby Parker publicly acknowledged they were attacking Luxottica when they launched. They claimed that Luxottica cornered 80% of the global eyewear business, and implied monopolistic high pricing practices. Warby Parker played to the millennials’ desire for authenticity and giveback social programs. So let’s look at it from the other perspective, Given Luxottica’s behemoth size and myriad global brands, they could spin off a Warby-like branded model and race past this now storied new brand. And maybe it’s a bit of an exaggeration, but Macy’s could copy and immensely improve on Rent the Runway’s concept.  And anyway, the jury is still out on the ultimate success of RTR, in my opinion.

The copycat strategy, from one variation to another, makes enormous sense for many of these established power brands, just as omnichannel distribution has. It’s also an antidote to the malaise of today’s slow-growth economy.

And there are hundreds of old-world power brands that would be wise to learn from pioneering entrepreneurs and their innovative models. Here’s what I say: Pivot, be nimble and beat the new kids on the block at their own game.

By the way, that\’s why Amazon is racing to \”get big fast.\” It’s also why all of these newcomers are doing the same, sacrificing profits for growth to rapidly achieve scale to own a commanding share of market, and making it tougher for the old-world and competitive new world copycats to jump ahead of them.

So, Birchbox, you better watch your back! And Mr. Bezos, new CEO Doug McMillan at Walmart has you directly in his sights with a $500 billion-plus howitzer to your $90 billion-plus flyswatter.