Sephora's new look to lure a suitor

LIKE one of its customers seeking a new partner, perfume and cosmetics chain Sephora seems to have embarked on a makeover. The firm shed its flab by closing loss-making German and Japanese stores, its US expansion has been put on hold and it is embarking on a financial makeover to render its core European operations more attractive.

The aim, according to boss of Sephora Europe, Serge Brunschwig, is to double operating margins this year to 6% and push for 10% by 2004. But will Sephora's 're-looking' - as chic Parisians call this kind of overhaul - enable luxury colossus Louis Vuitton Moet Hennessy, which owns it, to get the kind of price it wants?

That Sephora is no longer regarded as a core business by LVMH was made clear by group executive chairman Bernard Arnault last month. After announcing a group net profit of just e10m (£6.2m) for 2001, Arnault was asked by financial analysts whether Sephora was for sale. 'It is not the moment,' he is said to have replied. 'First, we have to achieve a recovery. Then, we will see what action should be taken.'

Sephora was a modest chain of just 54 outlets when LVMH bought it for e244m in 1997. But after breakneck global expansion into big, ritzy stores on prime sites, Sephora sales last year totalled some e760m. Profits have yet to catch up. Indeed, the US stores alone are estimated to have lost e150m in 2001.

Down on the shop floors, Brunschwig has already embarked on the facelift. Underperforming stores will be sold or overhauled. Stock at the 450 outlets is to be cut 30%, starting with slow-moving items. Staff are to spend more time 'advising' customers, since experience shows this leads to 7% more sales per shopping-basket. Sephora's own-label range, the most profitable part of its offer, is to be extended to make-up, bath salts and perfume.

The task is not impossible: specialist perfume and cosmetic stores are winning customers all right. But Sephora is not alone in the market. Acquisitive home-grown rival Marionnaud has rocketed to 982 stores in 12 European countries, and made net profits of e8.6m on e312m of first-half sales last year.

Meanwhile, German retail group Douglas has also focused on expanding its perfumeries, which in calendar 2001 achieved sales of e1.39bn, a third of them outside Germany. Many saw Douglas as a likely buyer, but talks apparently broke down over price. LVMH is also said to have had approaches from venture capitalists. Yet, after a decade of pell-mell acquisitions of his own, Arnault has clearly concluded that cosmetic improvements can add value - especially when selling companies.

BRITAIN is one of Sephora's target growth markets. Since the company opened its first perfume superstore here at the Bluewater shopping centre in Kent, two years ago, seven others have been acquired and opened in leading retail centres around the capital.

'We are about to open another store in London and others will follow in the Greater London area,' said Sephora spokesman Olivier Labesse. 'We are looking for controlled growth in Britain as well as other target European countries.'

Sephora, he said, is a strong brand that appeals to young British consumers. No wonder - the brand originally belonged to Boots the Chemist, but was bought by up and coming French perfume group Shop 8 in 1993, which took the Sephora name for itself before being acquired by LVMH in 1997.