As consumer spending fell by 7.5% in March and reports of steeper declines are expected for April, Sephora is trying to make shopping for beauty easier.
Today, Sephora.com announced it is partnering with buy-now-pay-later company Klarna, allowing Sephora North America customers payment flexibility for all of the 290-plus brands it carries. Orders can now be split into four equal payments, with no interest. Because the goal is to attract and retain Gen-Z and young millennial shoppers, there will be no lower limit (or upper) for average orders, said Kim Stromberg, Sephora vp and gm of e-commerce.
“We had been monitoring the market and were aware that many Gen-Z and young millennial customers don’t own credit cards and only use debit cards. It’s critical for our Sephora.com strategy to make checkout easy and as seamless as possible, now more than ever,” said Stromberg. She said the Klarna partnership fits the company’s evolving range of payment options such as adding Apple Pay in 2014, Paypal in 2016 and introducing the Sephora Credit Card last year.
The company’s Klarna play comes soon after launching free shipping on Sephora.com, due to coronavirus. Through stores remained closed, Sephora has seen e-commerce sales increase by 30% since mid-March. Internationally, Sephora Germany and Sephora Sweden have partnerships with Klarna, but Stromberg said that this partnership was designed with U.S. and Canadian customers in mind. Klarna has 12 million U.S. customers and 85 million customers globally, and works with 3,700 retailers in the U.S. and 200,000 worldwide.
Sephora has a luxury position in the market and sells high-price-point brands such as La Mer, Gucci Beauty and Dyson, and Stromberg said Klarna’s offering will make these lines “more accessible.” Ulta, Sephora’s main beauty competitor in the U.S., uses Afterpay as its point-of-sale lender, but amounts must be between $35 and $1,000, and some items, such as Ulta-branded gift cards, are not eligible. Stromberg said that, for now, this partnership will not affect purchase orders or payments to the beauty brands Sephora works with.
Sephora will be promoting its Klarna partnership in email marketing and on social media beginning this month. Stromberg said Sephora plans to include its Klarna payment option in-store when doors eventually re-open.
Some prestige brands may have a hard time understanding this layaway-like feature, but Afterpay works with Armani Beauty and YSL Beauty, which Sephora carries. Klarna primarily works with many mono-brand retailers like Burberry. But Sebastian Siemiatkowski, CEO at Klarna, said that Sephora was particularly interested in increasing average order value among Gen-Z and millennial shoppers, which Farfetch, another multi-brand shop, has done seamlessly with Klarna. According to Klarna data, retailers’ AOV sees at least a 45% uptick and conversion increases by between 14-18% during a partnership with Klarna.
“Overall, as stores are closed, retailers like Sephora know they need to quickly improve their online channels. They want to grow the bigger pie, but especially reach the addressable younger market,” said Siemiatkowski, who reported that Sephora’s contract was signed just about 60 days ago. Across the beauty industry for the last several months, layaway-like features have been gaining traction, and seem to be a way for customers to get over the mental hurdle of price especially for more expensive or niche brands
“We need to be flexible to the diverse needs of all of our clients, this economic climate makes this even more important,” said Stromberg.
