The chink in LVMH's crown -- Why Mecca is superior to Sephora
Or, a trip to the Newmarket mall
I was at Newmarket in the weekend (and by Newmarket, I mean of course, the enormous mall that seems to dwarf the rest of the area, an all-encompassing giant tentacle squid of a building that is perhaps Auckland’s highest temple of pure consumerism — you can get your brows done, eat good ramen, shop at Saint Laurent and get a bucket of KFC and then get some Botox). At 9.30am the mall was sleepy. By 9.45 it was not. By 10.30 it was a deluge of people. There are two main beauty stores in the mall. The first is Sephora, which is owned by the mighty LVMH. The second is Mecca, which is Aussie owned.
LVMH is one of my favourite companies as you know. They’re almost inescapable in modern luxury world — really, there’s luxury and then there’s LVMH. In almost every area LVMH competes they dominate — I don’t think this is due to the hackneyed GE-esque idea of “1st in all areas, or don’t play”. It’s simply due to the size of the company, which, much like the Westfield mall, is a giant tentacled squid moving across all areas of the world.
At this point it is important to remember LVMH’s rather brutal start. Arnault took control of Boussac Saint-Frères, which employed about 9,000 people and also owned the Christian Dior brand and Le Bon Marché. Arnault fired all 9,000 people and sold almost every asset the company had, only keeping the two I’ve mentioned (the rest are footnotes in history). Arnault is brutal, first and foremost. LVMH was formed around ‘87 and Arnault deployed similar tactics there, pushing out other owners and buying more of LVMH via his holding company Christian Dior (CDI). The rest is a long tale of acquisition after acquisition. Arnault has frequently jettisoned houses or brands that don’t perform as well. He’s called “The Terminator” for a reason.
In 1997 LVMH acquired Sephora, which is where we get to the story about the mall. Sephora is international now and has grown quite well — especially in the US. And yet at the Newmarket mall I found a sad sight. The Sephora there felt a little abandoned, a little worn down, a little frayed. The shop assistants walked around wanly and sullenly, like workers at the WINZ office who just want to go home to watch The Chase. There were plenty of fluorescent lights which cast a harsh glare down upon the product. The product samples itself felt messy, as if you’d found them in a Otago student flat’s dresser. The few customers who were there trickled in and trickled out, not buying much — and who could blame them? Even cosmetics I consider “good”, like Tarte, looked about as appetising as a left over roast from the RSA two days later1. I remembered the words of my art teacher, Mrs. Ward, who said — you look first with your eyes. I mean, duh. Of course.
A while later (needed to make a pit stop at the Lego store) I went to Mecca. It was pumping. It was thriving. There were no fluorescent downlights, only small lights you might find in an art gallery casting a sympathetic glow on both the product and (more importantly) the customer. All shop assistants were friendly and happy to help. The store had many people and a long line and a wrapping area and beautiful wrapping and the entire vibe was one of jubilance — of course you wanted to shop here; you too could be part of the Mecca magic, get the Mecca “beauty boxes”, etc etc.
Mecca does just south of a billion dollars in revenue. LVMH does about 82bn euros of revenue. They are not the same. But I was thinking while looking at Sephora — at the sad despondent rows of foundation and the slightly dirty floor that resembled an OK diner — what was gone wrong in the LVMH empire for it to be this way?
After all, you don’t see a Vuitton store or a Dior store or a Loro Piana store looking this way. What gives?
Mecca, I think, exemplifies the power of localism and regionalism. It’s really and Aus/NZ chain, and with that comes a deep understanding of their customer and what the customer wants. Sephora exemplifies the mass market — sales are around 17bn eur, which actually means something to the LVMH empire — whether Arnault wants it to or not (after all, a mass-market mall brand doesn’t quite have the ring of the rest of the luxury empire, does it?)
Obviously Sephora does very well, especially overseas. But its NZ operations (and Aus?) are lacking. The Queen St store has recently announced its closure. And I think where this comes from is a lack of understanding of the NZ and Australian market by large corporations.
Another example, by the by, is White Claw. White Claw is a horrible RTD that is very popular in the US. In NZ, it is not particularly popular. Pals is. (I have my own opinions about Pals, but that’s more on the subject of my theory that the modern palette has gone the way of many modern movies — i.e. mindless Marvel dreck flavoured with the delightful taste of a Pals that you order by colour, not by flavour2).
The White Claw advertising is fairly American and seems like it was drafted by some corporate flunkie in billidibunk, Ohio, and sort of falls flat. So of course the product doesn’t work. There is sometimes an insistence from overseas corporates that NZ and Australia must like this product, because everyone else does!
This is pure nonsense, of course, because none of the work to build up the product has been done as it was done in the product’s home country. You can’t just copy and paste and hope the colonials down in Peter Jackson milk loving Pinot Noir drinking country will love it!
Coming back to Mecca, they understand their audience intimately. They have staff who seem willing and enthusiastic to help (I have no idea what their incentives/bonuses are, but if you are a current or former Mecca employee, please email me and let me know!). They insist that the product they range is exclusive to them (at Sephora I couldn’t help but notice The Ordinary range, which Farmers also stocks). The business works because it is comparatively small and it does sweat the details.
There are a few lessons here I think — and also I think this is the inherent danger Arnault and co sail at LVMH every day. The first lesson is that localism and details matter (the “anti-LVMH”, Hermes, works on a far more local level … Dumas, their CEO, picks locations just by strolling around each city and getting a “feel”). LVMH’s comparative copy-and-paste approach works to an extent but it loses its gloss when you look at a “lesser” store in their crown like Sephora. The second lesson is that your staff matter. Again, this should be obvious to anyone with half a brain cell. I’ve been to Mecca many times and I’ve never had a bad experience. I have been to Mecca looking half homeless and never had a bad experience. I have been to Mecca in a hurry and never had a bad experience. Etc. You get the gist.
I think the third and final lesson is how important ranging is — the fact that Mecca insists on exclusivity is powerful. Costco often insists on the same arrangement. It is a kind of “walled garden” but with actual product — but again, the real “walled garden” comes from the overall experience — if you have miserable staff and lackluster lighting, you’re going to move less product3.
At the same time, I think this also illustrates the inherent challenge the current behemoth, LVMH, has. It’s harder to be as consistent and do all those things when you are so big. They’ve done incredibly well so far — it’s incredible to me that they can sell “luxury” which usually comes with scarcity at such scale.
Generally Arnault deploys one of his children when an area of the business is struggling. Sephora, though, is not struggling. As I said — its sales actually have hit record highs, and it is taking share from other players in the US.
I coulnd’t help but wonder (Carrie Bradshaw voice) — are Sephora’s stores in NZ a sign of things to come? And should, perhaps, one of Arnault’s children come in sooner rather than later?
Programming note
Yes, Merry Christmas to you all. It’s a privilege to write to the 9,000 or so of you who read this. I’ll write to you again tomorrow and then we’ll take a day or two to recover from the Christmas festivities. Money never sleeps. But I do. Especially after a long Christmas lunch.
I love the RSA.
'“Oh let people enjoy things, Eden!”
At this point I would like to tell you how much I loathe fluorescent lighting. It is not flattering, has never been flattering, makes everyone look universally flat, and should probably be made illegal.