Type: Economics
Pages: 8 | Words: 2106
Reading Time: 9 Minutes

Sephora is a network of perfumery and cosmetic shops. Sephora was created in 1969, but in 1997 it was bought by the French holding Moet Hennessy Louis Vuitton (LVMH) – one of the world’s largest producers of luxury goods. In 1999, Sephora opened its own line of cosmetics and accessories under the name “Sephora”. At present, the brand represents 28 types of production, such as face and body care products, products for a make-up, collection of brushes, cosmetics bags, accessories, and a wide bathing line in the world market.

Sephora is highly regarded as a beauty trailblazer, thanks to its unparalleled assortment of prestige products, unbiased service from experts, interactive shopping environment, and innovation.

Sephora works in 26 countries of the world and has more than 1800 shops. The turn of Sephora’s shops made more than $3 billion in 2009; the turn of LVMH – $17.2 billion. More than 250 trademarks are presented in Sephora network. Moreover, Sephora produces own brand, in particular, accessories for make-up.

As a brand, Sephora is the strongest competitor in the beauty industry. When individuals think of the Sephora brand the overall feeling is that Sephora is the leader in perfume, skin care, and cosmetics due to the way the company is marketed, advertised, and designed. When customers were polled on their overall feeling of the Sephora brand, nearly all customers replied that Sephora is modern, innovative, fun, knowledgeable, professional, friendly, and trend-setting.

Sephora’s Organizational Culture

Sephora is characterized by the hierarchical organizational culture. Its main features are:

  • Formalization and structure: the activity of employees is strictly regulated by procedures;
  • Leadership Style: leaders are proud of the fact that they are rationally conceiving coordinators and organizers;
  • Binding essence of the organization: formal rules and the official policy;
  • Criteria of success: low expenses, luxurious services and products, planned schedules;
  • Priorities in the organization: crucial maintenance of a smooth course of the organizational activity. Long-term cares are in the maintenance of the stability of indicators.
  • Management of the hired workers: an accent is on a guarantee of employment and maintenance of long-term predictability.

Ulta’s Organizational Culture 

Ulta is one of the largest beauty retailers in the USA, which offers different beauty and salon products and services. The provision of affordable services is the main feature of Ulta. The company combines the breadth of products, convenience of a beauty store with the ability to be a competitive retailer.

Founded in 1990, ULTA.com caters to the woman that desires more than just beauty products. The ULTA.com consumer wants to know what’s new from the hottest brands and what will work best for her skin and/or hair type. Whether she’s the teen looking to make the perfect impression, the busy mom with little time, or the aspiring executive, ULTA.com provides the most comprehensive online one stop shop for all her beauty and health needs.

Ulta is characterized by the autocratic organizational culture. Its main features are:

  • Dynamics and creativity: people are ready to take risks.
  • Leadership style:leaders are considered as innovators.
  • Binding essence of the organization: fidelity to affordability, experiments and innovations.
  • Criteria of success:manufacture and granting of unique and new products and services.
  • Priorities in the organization: the necessity of activity on the advanced boundary is focused.In a long-term prospect, the organization places emphasis on the development and finding of new resources.
  • Management of the hired workers:the organization encourages personal initiative and freedom.

Merge of Sephora and Ulta

Sephora and Ulta should decide as soon as possible how to implement the merge and to select the corresponding approach. The organization of the merge is a difficult issue. The structure and mechanisms of implementation of the majority of merges coincide, and, nevertheless, each element of the structure depends on the long-term goals of the merged company, sources of formation of the cost and culture of the merging organizations. The merge of the companies can be successful if the approach to merge is systematic and structured.

The ultimate goal of the merge of two companies is the creation of a new strong company – a leader, more effective than each of the merged companies before the merge. This goal can be achieved if the merging process takes into consideration all the peculiarities of the merged companies. 

Merge is the integration of two or more managing subjects as a result of which the new, incorporated economic unit is formed. The merge of Sephora and Ulta can bring positive results if there is a merge of forms and merge of assets. The merge of forms of Sephora and Ulta is the integration, at which two companies terminate their separate existence as the legal entities and the taxpayers. The new company takes all assets and obligations to clients of the companies under control and direct management. The merge of assets for Sephora and Ulta is the integration with a transfer of the rights of a control over the companies and maintenance of the activity and organizational and legal forms of the participating companies to the owners. The contribution in this case can be a control exclusive right over the company. Moreover, the merge should be horizontal as the companies offer the same production. The advantages of such type of merge for two companies include the increasing opportunities for the development and growth and the decrease of a competition.              

There are really four dynamics causing this trend toward merge. First, the available market for third-party management is shrinking because more owners are buying properties and self-managing them. The second dynamic that favors merge is the reduction of risk. The third dynamic is the increased need for cost efficiencies to remain profitable in a climate of flat growth in fees and rising property-staff increases. Larger firms have advantages not only in economies of scale, but also in their ability to absorb capital costs more easily.

It is necessary to solve some issues before the merge of Sephora and Ulta:

  1. To define all possibilities for receiving the synergetic effects; at this stage it is possible to estimate both companies from the point of view of the synergetic effects, but also all potential advantages from the merge; 
  2. To cover the principle factors for the creation of cost into the merge;
  3. To reveal and interest the most talented employees; in the majority of successful merges the most capable, competent and skilled workers from both merging companies were defined long before the completion of the merging process;
  4. To formulate the basic principles of the merge; it is necessary to develop accurate principles, which will be the basis of the plan of the merge, to determine the management methods of the merge;
  5. To begin the development of the program of merge as early as possible.

Synergy is the main sense of the merge of Sephora and Ulta. Synergy is the advantage of the joint activity. The advantages of the synergy of Sephora and Ulta are the following: downsizing (the reduction of the personnel); economy of assets at the expense of the scales (the new company can cut expenses on the wholesale conditions); growth of sales (the distribution networks spread).

Positive Results of Merge of Sephora and Ulta

The merge of Sephora and Ulta will have the following positive results:

  1. Product line extension. The merge will consolidate the non-competitive products, the distributive channels and the process of production of which are similar. This merge will substantially increase the share of the merged company on the American and world market of the cosmetic products and services.
  2. Market extension. The merge will promote the acquisition of the additional channels of products distribution, for example, new beauty shops and salons in the regions, not covered by the distributive network of the company.
  3. A pure merge. The merge aims at the diversity of the activity for one of the companies (Ulta in this case). Diversity is a powerful stimulating factor of the merge of two companies. It is especially seen on the example of the merge of Sephora and Ulta, when the merge of two companies promotes the decrease of the risks of bankruptcy caused by a sharp worsening of the economic situation in the branch, a sudden considerable decrease of demand or any other factor.

It is possible to single out the following main motives of the merges of Sephora and Ulta:

  • Aspiration to development;
  • Synergetic effect (a complementary movement of assets of two companies, the cumulative effect of which exceeds the sum of the results of the separate actions of these companies. The use of a scale effect of production can be one of incentives to merge);
  • Diversification;
  • Underestimation of the merged companies in the financial market;
  • Personal motives of top managers;
  • Improvement of quality management;
  • Motive of monopoly;
  • Motive of the demonstration of promising financial performance in the short-term period.

Moreover, the most important motives of the merge of Sephora and Ulta include the economy on a scale effect, receiving access to the necessary resources, and investment of extra money. This merge corresponds to a long-term strategy of the merged company and, as a result, increases its value, a diversification activity, growth of an EPS indicator for the attraction of investors and reduction of the expenditures for financing.

The diversification of Ulta does not affect the reduction of the risks on the quotations of securities since the merged company can diversify the portfolios of securities independently, without demanding an award for a specific risk. Thus, the main practical motives for the merge of Sephora and Ulta are the receiving of new technologies  and intellectual capital, a scale effect and regional and geographical diversification of the activity.

The main goal of the merge of Sephora and Ulta is the foundation of the leading world network of the beauty products and services. Moreover, the merged company can possess the serious opportunities by the growth of the debt for the financial investments in order to expand the distribution.

The given merge promotes the growth of the cost of the merged company at the expense of the increase of the market share, the reduction of expenditures and unification of the resource base. Moreover, the merge will reduce the operational expenditures as a result of the scale effect, exchange of the technologies, and the increase of the effectiveness of the provided services. Also, the merge will minimize the administrative expenditures at the expense of the consolidation of the administrative units and elimination of the doubling functions.

At merge, the customers constitute one of the main zones of risk as they feel negative changes on themselves. The merged company should make special programs for its customers, namely increase loyalty of clients, reveal the key clients and develop the strategy of a continuous interaction with top managers. It is not obligatory to cover all personnel, but it is necessary to establish certain incentives for the key employees. Sometimes the loyalty programs with key clients and key employees can be interconnected.

The First-year Strategic Goals

The key factors, which ensure the implementation of the first-year strategic goals, are:

  • To make the company more rational and manageable;
  • To make the merged company a monopolist in its sphere;
  • To make the merged company strong and successful in a long term perspective.

There are the technology tools, which can be used after the merger to help the merged company to implement its administrative technology. The first technology tool is the variant on the finance management for minimization of the risks at merges of the companies by means of the tool “on calculation of optimum cumulative risk cost at a choice of a method and the size of a merge payment”. It is chosen as the most optimal one. The second technology tool at the merge of the companies is the correct estimation of the growth of efficiency and productivity, prospects of development, and an increase of profitability. The merge can boost productivity of the united companies, but it can also worsen the results of the current industrial activity, and to strengthen a burden of bureaucracy.

Concluding the paper, I would like to note that the possibilities of the success of merge of Sephora and Ulta are defined at an early stage – in the analysis of the role of the planned merge within the long-term strategy of the company. Besides, the concrete motives of implementation of merge, as a rule, influence its efficiency. At a final stage of merge, it is necessary to make the integration of the merged companies correctly; it will promote the best further development of the merged company.

Thus, the merge of Sephora and Ulta has one main goal: synergy. At the merge of these two companies, the new company will be bigger than simply the sum of two companies. If the synergy is achieved, the merge is considered to be successful.

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