Issue #111: Why Is Sephora Betting on TikTok Shop?

A couple of weeks ago, Sephora had some important news to share. Starting September 19th, Sephora will be launching “The Sephora Drop Shop”. Each month, a new collection will drop that is exclusively on TikTok Shop before making its way to Sephora’s website. The launch will mimic drop culture, where there are teasers and hints beforehand to encourage customers to guess. They are also using other strategies to build the conversation by partnering with the brands that are featured to drive awareness and working with creators in the space to share more about the products. With the types of products Sephora sells, this education component is super important.

As for why Sephora is doing this? I think this chart below makes it pretty clear. Also, beauty is the most searched category on TikTok, according to the Sephora press release. TikTok Shop is now also the fourth-largest beauty eCommerce retailer in the United States.

Consumers, especially younger ones, are gravitating towards TikTok as a commerce channel. Sephora is rightly betting on collapsing the funnel to meet people when they discover and purchase right away. Sephora has already been consciously cultivating the beauty community without a commerce element. By doing this work beforehand, and finding a way to incorporate commerce that is a natural fit, it doesn’t feel forced. Customers are already used to talking about the latest products and discoveries, so why not make it easy to try them.

Plus, Sephora has a natural advantage on the eCommerce side that their products hold up well for shipping. It is not like they are selling perishable goods. The challenge, and missing piece, of selling their products online is replicating that discovery and education. Now, this drop and content around the drop means that gap is no longer an issue. Additionally, this gives Sephora a leg up on the competition, as they are one of the few retailers who are doing this themselves or have any strategy at all around TikTok Shop. For a company this size, it is pretty impressive.

I am super excited to follow along this new sales channel and see the impact on the broader Sephora business. Will it be incremental or cannibalize existing sales? I lean incremental!

We live in a world where most things you purchase as a consumer have very strong brands. However, in grocery, there are some last areas that have taken a little longer than the rest of the store to have updated branding and flavors. One of those areas is in the dairy aisle. However, a couple of years ago, in the United Kingdom, two chef/influencers, Thomas Straker and Toby Hoppy, started All Things. It started as a branded butter with attractive packaging and fun flavors, like Truffle and Cinnabon. Both were creating content around fun butters and realized that the product was broken. It needed reinvention. They then documented their journey creating the product and have since launched it in the UK. Now, after success in retail there, plus adding additional products like cottage cheese, the butter will be launching in Whole Foods. I am excited to see how this will play out. This type of brand is exactly where I see the next wave of CPG focusing on.

(Perhaps a sneak peek for my 2027 previews)

In 2017, Peter Phillips was one of the founders who started a cookie shop in Astoria, Queens, featuring fun cookies and different flavors. From that one shop, it peaked at 45 locations before cutting back over the last couple of years down to about twenty or so locations. Funds were also raised from Enlighten Hospitality Investments, Danny Meyer’s fund. Behind the scenes, something was not right, beyond the additional closed locations. On September 28th, Phillips filed a lawsuit against the company about not receiving the proper severance when he stepped down in March. Chip City was also looking into $900k of Phillips expenses. The reasons for the sudden closure were not announced, but the timing of all this leaves a lot of questions. It is unclear whether the company will end up re-emerging from this.

Last week, McDonald’s had its investor presentation where it shared updates on the company for mostly institutional investors. Many updates were shared, but what stood out to me was that in its 450 company-owned stores (not owned by franchisees) McDonald’s is piloting a retail media network. As readers of this newsletter are well aware, commerce media, especially retail media, is one of the fastest-growing revenue streams for many retailers. However, it is less common in the restaurant space to have media networks, but restaurants are clearly seeing the value here. The media network will show ads from other brands in its app, kiosks, menu boards, and in the physical restaurants. The challenge to overcome with this type of media is that there isn’t as much competition, which drives a lot of spending. In a grocery store, there are hundreds of soda brands competing for the sale, but in McDonald’s, it is already decided which brand will be purchased because it is only one company.

Last week was clearly a tough time for cookie retailers, with some new reporting coming out around the Crumbl store. At one point, Crumbl was one of the United States’ fastest-growing restaurant chains. It was a $1 billion brand in six years after launching. At its peak, unit volumes were $1.8M annually per store. However, the trend is fading as customers cut back on discretionary spending and are looking to be healthier. Unit volumes are down to $1.1M, promotions aren’t working (aside from Minecraft, which is gold for everyone), and stores are closing. Long-term, I do believe there is an opportunity to come out of the reset on top and continue to build a strong business, but the current model is not working.

The DTC beauty category is crowded. To break through, Jennifer Aniston’s brand LolaVie, worked with Roku Ads Manager to easily set up, test, and optimize CTV ad creatives. The campaign helped drive a big lift in sales and customer growth, helping LolaVie break through in the crowded beauty category.

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