Sephora has accomplished something that's eluded other US-based retailers—survival in Canada.
"Look at all the great retailers who went and left," says Marie Driscoll, Adjunct Professor at Parsons, The New School, ticking off Target, Nordstrom, Express, and Sam's, to name a few. In 2020, Ulta Beauty scrapped its plans of expanding into Canada in favor of boosting its online capabilities.
With about 107 doors (and growing) across the country, Sephora is the number one sales producer in the $1.1 billion Canadian beauty industry, according to IBISWorld. The research company estimates Sephora Canada's sales top $300 million.
In just the past few months, Sephora unveiled new stores in Ontario—the Dufferin Mall in Toronto, the Lambton Mall in Sarnia, and one in the Cambridge Center. At press time, news broke that Sephora will open in The Well, a new mixed-use development in Toronto, that will be the ninth in the city and 43rd in Ontario. Sephora’s reach is stretching across to the West Coast with a ribbon cutting on a store in the Millstream Village in Langford, British Columbia.
The retailer's multichannel strategy resonates in Canada, as well—sephora.com is ranked as the most popular beauty and cosmetics website in the country, according to Similarweb.
Sephora’s growth in Canada dovetails with its return to the UK and the naming of Artemis Patrick as the next CEO of the North American business. Currently the Global Chief Merchandising Officer, she’ll assume the new title in April 2024.
Canada could play a big role in Sephora’s growth blueprint. More brands are eyeing the country for expansion, especially thanks to proximity to the US. Its population exceeds 38 million who spend more than $1.2 trillion, according to data from Macrotrends.
Beauty sales growth in Canada is even more robust than the US. According to Circana, the category holds the top spot as the fastest-growing industry in the country. Sales expanded 19% to $1.7 billion in the first half of 2023 versus the year before. That was slightly higher than the 15% gains in the US prestige beauty industry and more than double the mass market gains of 9%.
Makeup was the fastest growing segment in the category, up 25%, and contributed more than 40% of total beauty industry gains for the period—slightly higher than the US's gains of 18%. Lip posted the biggest gains in the category, soaring 42% in the first half. Mirroring trends in the US, hair category sales were up a healthy 17%.
“Amidst pricing pressures and financial uncertainty, Canadian consumers remain focused on health, wellness, and an overall investment in themselves, and they continue to see beauty products as an important component of these priorities," says Alecsandra Hancas, Canadian Beauty Industry Analyst at Circana. "Every beauty category is growing in terms of both revenue and units sold in 2023. The highest pricing increase came from fragrance, which is also telling of the consumer mindset and the high value they place on emotionally driven purchases."
She adds consumers returned to in-store purchasing with sales outstripping the online channel, especially for makeup and fragrances.
Despite the promising growth, crossing from the US to Canada hasn’t been seamless for retailers and some brands.
The market comes with challenges, such as the need for multilingual packaging and the vast differences in urban and rural areas across the 10 provinces and three territories. Earlier this year, Canada banned animal testing but only on applies to new items. Canada's amendments to the Food and Drug Act also make it illegal for companies to falsely claim products are cruelty-free.
Despite its number one position, Sephora does face competitors in the beauty space.
Shoppers Drug Mart is the number two player, and the homegrown retailer sells mass and class beauty. "It is our Ulta," says one Canadian-based beauty expert. Shoppers Drug Mart owned by Loblaw, is Canada's largest grocery retailer.
Shoppers Drug Mart counts 1,300 doors (called Pharmaprix in Quebec). While all its stores have elevated beauty assortments, about 400 have high-end presentations called Beauty Boutiques. The retailer also has a robust loyalty program called PC Optimum.
London Drugs is also a strong drugstore competitor and stocks premium brands such as bareMinerals and Strivectin. Jean Coutu is a popular drugstore company with more than 400 doors in Quebec. The retailer offers several dermocosmetics brands including Neostrata, Vichy, Avene, and Jouviance.
In the mass market sector, Target exited Canada in 2015 at a loss of $5.4 billion, citing supply chain problems and other issues. At that time, the chain had 133 doors. That opened the door for expansion of Walmart, which recently expanded its "cool" brand to attract younger shoppers.
"They've been collaborating with smaller brands and growing them via their online store—it is definitely more interesting," says one observer.
The main competitors in prestige include The Bay and Holt Renfrew. The latter closed smaller doors to concentrate on its high-volume doors—the retailer currently has seven stores in four Canadian provinces. Its flagship in Toronto stocks premium brands like La Mer in dedicated spaces.
What those who retreated didn’t do, and what Sephora has done well, is understanding Canadian consumers. Assuming Canadian tastes mirror that of the US is not always on target.
"Retailers don't do their homework. They come here with some sort of edited assortment that just doesn't resonate," says one Canadian beauty expert.
That's where Sephora has cracked the market. Its playbook includes building recognition in major markets and using online sales metrics to find areas to expand. Also, the retailer is applauded for its beauty advisors and a merchandise assortment some estimate is 60% to 70% exclusive to Sephora in the country. The average Sephora houses more than 350 brands.
“Sephora is a great partner—they understand the Canadian cosmetics marketplace and choose brands that they believe have the best chance of thriving,” says Alexandra Zanella, founder/CEO Beauty Revolution, a consulting company that helps brands enter the market. “Canadian consumers want newness—they are tired of seeing the same cosmetic brands in every Canadian retailer. Sephora seems to get that based on their assortments that are often created by Kendo, a brand incubator and also part of the LVMH Family.”
Sephora also stands out for its beauty only focus versus the drug chains that are destinations for healthcare, and beauty is sometimes an add-on sale, she says.
Sephora entered Canada in 2004 and grew steadily to its current portfolio. The 100th unit opened last November in Manitoba. “Our mission has always been to make our unrivaled in-store beauty retail experience accessible to clients from coast to coast, and this is something we'll continue to strive for as we expand our presence in the Canadian market even further," said Thomas Haupt, General Manager of Sephora Canada at the opening of the 4,155-square-foot store.
One of its splashiest debuts to date was the reveal of a 4,175-square-foot flagship in the Toronto Union Station in 2022, the first store inside a major Canadian transit hub. "The transit hub has been a huge success and they also try pop-ups occasionally," says Zanella.
At the store opening in Union Station, Haupt told Retail Insider that expansion and getting a physical presentation in more communities across Canada has been the "number one focus."
He added the retailer learned a lot during the pandemic through its online sales to pinpoint where customers live to help map out future openings. Building upon its strength in major cities like Toronto, Vancouver, and Montreal, Sephora is now backfilling in regional shopping centers and strip centers. Haupt told the publication Sephora plans to open at least 15 new stores annually over the next few years.
In addition to new store activity, Sephora also accelerated its efforts in Buy Online Pickup in Store (BOPIS), same-day delivery, and its online offering.
The growth opportunities now are to fill in markets across Canada's vast landscape, suggests Zanella. To do so, the retailer will use different store sizes, including smaller 2,500-square-foot to 3,000-square-foot concepts. Other stores in Canada are between 5,000 square feet to 10,000 square feet. Many of the new stores will serve populations in the 100,000 and 300,000 range.
Sephora has added many new brands in the past year, including Glossier and Paula's Choice. "Our customers have been asking for Paula's Choice in Canada for a long time," said Jane Nugent, Sephora Canada's Senior Vice President Merchandising in a release.
Brands that thrive understand the differences in preferences across the country.
There are some nuances in what sells across Sephora stores, says Sophia Drozdowska, Director of Marketing at Velour Beauty. The brand is sold at Sephora in Canada. "Lash styles do differ, but more between states and provinces versus the US and Canada,” she says.
“Sephora is a great partner to us, and we've been with them for years. We work closely with them on our assortment, new product ideas, and understanding our customers.” Velour is merchandised in Sephora Canada on The Next Big Thing and Beauty On the Fly sections.
Those familiar with Canada say the timing is right for growth of American brands in Sephora. “If ever there was a good time it is now,” says Zanella, noting that thanks to MoCRA [the Modernization Regulation Act], regulations required for selling in Canada will be more in sync with the U.S.
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