International cosmetics giant Sephora has gone into damage control amid a customer backlash over revelations it is flouting promises that it would not engage in price gouging.
Sephora held a meeting on Friday morning with its public relations agency in Sydney to discuss how to respond to the allegations it has broken its promises.
It follows a story published by Fairfax Media that revealed it was selling some products up to 60 per cent higher in its Sydney store than the United States, factoring in taxes and the exchange rate. Even if shipping costs are taken into account, the price differentials are still massive.
Ravi Thakran, the Asia and Middle East president for global luxury goods group LVMH Moët Hennessy Louis Vuitton, which owns Sephora, told Fairfax Media on December 5 the company would not take advantage of Australian customers. "Many brands have done a disservice and many retail players have also done a disservice to the retail consumer," Thakran said. "I believe the Australian consumer does deserve to be treated exactly the same [as US consumers]."
It is believed that part of the problem is the cost of rent. Sephora is renting a flagship store in Sydney which is believed to cost $3.8 million in rent. The speculation is Sephora will need to sell $40 million worth of products to get an adequate return. To put it into perspective, David Jones is believed to generate a similar amount of sales in its Sydney CBD store with more than double the floor space.
It might explain why Sephora decided it wouldn't "undercut local retailers on existing brands" such as Clarins, Lancome or Clinique. But it doesn't explain the promise that "any brand we bring in, we'll bring that in with pricing equality [with the United States]".
The most glaring price differences are in its own brand, Sephora Natural Volume Mascara, where the price in the US is $US12 or $US12.84 including an average sales tax of 7 per cent, and $15.66 when converted into Australian dollars. Last Friday, the same product was selling in its Sydney flagship store at $25 including GST, making it a whopping 60 per cent more expensive than the US.
Other examples including Formula X Nails, another Sephora-owned brand, which sells in the US for $US11.24 including tax, or $13.70 in Australian dollars. The same product retails in Sydney at $20, making it 46 per cent more expensive than in the US.
A non-Sephora brand, Becca Beach Tint, shows a similar pattern, with theUS price fetching $US26.75 including tax, or $32.62 when converted to Australian dollars. The Becca product sells in Sydney for $42, which is 30 per cent more expensive than in the US.
.@Sephora charging inflated prices despite promises to undercut locals.. anyone surprised? Really? http://t.co/uLfjeI7eKk — Elysse Morgan (@ElysseMorgan) December 18, 2014
Social media has gone nuts.
Comments include Wendy P's "Just the same old price hike … I thought this was going to be a new leaf for Australian beauty pricing … I'm still going to order makeup from overseas." Kaboom says: "Oh man, what is going on with Sephora? We all get that there is no way they could have matched US prices, and that's fine but what's wrong with just saying that at the beginning? And why are they marking up some products by 40 per cent and some by 10 per cent? ... It's honestly just cheaper for Australians to buy online, even if Sephora do end up launching an Australian website, it's more expensive anyway, so why not just save money and continue to shop overseas?"
Some shoppers at the Sydney story said prices were high.
"It's a bit too expensive. And Sephora in store is more expensive than online, " office assistant Tam Hoang said.
"I thought prices would be more like America," retail worker Brigette Bradley said. "There are probably some products I'll pay the more expensive price for but only if I can't get it somewhere else."
Soo I thought sephora coming to Aus would be good, turns out they aren't even matching the American prices — Teagan (@teagannoel) December 18, 2014
Jessica Ngo said Sephora "did not live up to expectations.
"It was very disappointing. I waited until the crowds had died before I came, but it was just a waste of my time. The brands are good but I can get them all off another website. I'll stick to online."
Not everyone was disappointed, however.
"I'm a big fan. I kind of basically counted down the seconds to its opening," student Lizzie Stenmark said. "Everyone says the prices are so bad, but it's not appalling.
"I think people forget to take taxes and shipping into account. The convenience of having the store outweighs the cost. Some of the prices are bad, but compared to brands like Dior it's still good."
The fact that Sephora's pricing claims fall short of reality is bound to have an impact on brand trust.
If it continues to adopt a policy of silence instead of confronting the questions head on, including an explanation for why its prices are up to 60 per cent higher in Australia than in the US, its reputation will suffer.
Macquarie Equities released a report days after its launch warning the company's entry "will comprehensively impact the Australian department stores, challenging the traditional retail model around beauty products (make-up, fragrances, skin care, etc), where Myer and David Jones have historically faced little competition. They will now directly compete with a large, global, vertically integrated player with a strong brand, low-cost base and developed online offering".
Its impact might not be as dramatic as some might think. Sephora has been massively successful in the United States and some European countries, but it has had a few failures and withdrawals, including Britain, Japan,Germany and Hong Kong. The way it handles the rising discontent of social media and consumers will play a big role in its success, or otherwise, in Australia.
