SEPHORA EXITS JAPAN (2024)

SEPHORA EXITS JAPAN

Byline: Jennifer Weil / with contributions from Koji Hirano, Tokyo

NEW YORK — Sephora is retreating from Japan to focus its energy on Europe and the U.S.
LVMH Moet Hennessy Louis Vuitton, owner of the 400-plus-door perfumery chain, said Wednesday that it will shut the seven Sephora doors in Japan by yearend. The announcement intensifies the buzz surrounding Sephora, which is rumored to be on the block or even partially sold already. The closures in Japan also come following losses estimated upward of $50 million this year.
Industry sources speculate Sephora’s flagging Japanese and U.S. businesses are sticking points for Germany’s perfumery giant Douglas, which is purportedly interested only in acquiring Sephora’s European stores. Some sources even say Douglas has already inked a deal for those.
Yet LVMH has repeatedly denied any sale of Sephora and Douglas will not comment on the rumor.
Sephora’s move to close the stores in Japan reflects the belief that “the U.S. and Europe offer the greatest potential growth opportunities and continued success of Sephora,” explained a company spokesman. Severe economic conditions in Japan were cited as the biggest hurdle for carrying out Sephora’s expansion plans there.
When Sephora opened its first Japanese door — a 10,300-square-foot, three-level perfumery on the Ginza in November 1999 — the company’s five-year plan included more than 40 doors throughout Japan. Locations in Taiwan and Korea were also on the docket through 2002.
“Sephora has a poor variety of merchandise here compared with its stores outside of Japan, and its prices and services are not attractive to the Japanese consumer,” said one industry source, who explained consumers in Japan are more attracted to drugstores, specialty stores and department stores, which provide assisted service, rather than Sephora’s self-service format. Not only is service a must in Japan, but the country has an extremely small fragrance market — historically accounting for 2 or 3 percent of beauty sales — and fragrance is a large part of Sephora’s appeal.
Sephora Europe, meanwhile, is more lucrative. Its 350 sales points there generated an estimated $584 million in sales last year, while the company’s U.S. holdings, including its beauty Web site, rang up an estimated $200 million in revenues in the period.
Merrill Lynch wrote in a recent report that Sephora, whose volume makes up about 7 percent of LVMH’s estimated sales, could post global operating losses of $153.9 million this year. This includes a $167 million loss in the U.S. alone
All figures are converted from the euro at current exchange.
The bank provisionally estimates Sephora’s exit value at $395.7 million worldwide, valuing the business at 0.5 times revenues.