Beauty brands spend millions negotiating Sephora placement, fighting for endcaps and brand activations, accepting margin splits that favor Sephora heavily because the entire commercial infrastructure is built around treating Sephora as the make-or-break retail partner.
Meanwhile TikTok Shop is on pace for $66 billion globally in 2025 after hitting $26.2 billion in H1, and most beauty brands are treating it like something their social team experiments with on the side rather than the channel that should be getting the majority of their commercial investment.
Sephora and Ulta combined do roughly $21 billion in the US annually. One platform is generating more than three times what both major US beauty retailers do together, and beauty brand P&Ls are still structured around Sephora partnerships as the primary growth driver.
Beauty brands are investing in the channel where they have legacy relationships, while revenue is moving to the channel where they have minimal infrastructure. The gap between those two realities is widening quickly.
Does the Sephora Investment Make Sense?
What beauty brands invest in to maintain Sephora relationships is wild. The margin split gives Sephora a considerable margin of the retail price. Add the additional fees brands pay for placement, promotions, marketing support, exclusive product launches, coordinating the supply chain to meet Sephora’s inventory requirements, participating in Sephora’s loyalty programs at their own cost, and maintaining minimum order volumes to maintain distribution. Millions in samples, inventory and more.
Puck reported that brands doing $8 million in wholesale and $15 million in retail are losing money on Sephora shelves. You’re paying all that just to struggle getting by.
The justification used to be straightforward in that Sephora was where beauty consumers discover and buy products. The margin hit, and the fees and the complexity were worth it because the alternative is invisibility. But now that justification is broken. The brands I work with that are in Sephora are looking to go viral on TikTok so they can drive revenue in-store.
Consumers aren’t discovering products at Sephora anymore. They’re discovering them on TikTok through creator recommendations, viral moments, and algorithm-driven product feeds. Sephora became a fulfillment infrastructure for products people decided to buy based on what they saw on TikTok. The discovery layer is separate from the purchase layer, and beauty brands continue to invest in the purchase layer while value creation occurs at the discovery layer.
TikTok is built for discovery in a way Instagram never was. Brands use Instagram as a static homepage, serving controlled, curated, branded content that doesn’t drive product discovery. TikTok’s algorithm surfaces products through creator content that feels organic rather than advertised, and that discovery mechanism converts better because consumers trust creator recommendations over brand messaging.
TikTok Shop unified discovery and purchase on a single platform. You see a product in a creator’s video, you click the product link in that same video, and you buy without leaving TikTok. The entire funnel collapsed in seconds. Impulse purchases that used to require consumers remembering the product name and navigating to a retailer now happen instantly, while the desire is still fresh.
The revenue gap between TikTok Shop and traditional retail proves impulse-driven commerce converts better than browse-driven retail, but beauty brands are still building their commercial strategies around the browse model because that’s how beauty has always worked.
The Ulta Lesson Beauty Brands Didn’t Learn
Beauty executives who’ve been in the industry for more than five years remember what happened when brands broke Sephora exclusivity to launch at Ulta. The conventional wisdom said expanding to a second major retailer would unlock growth. More doors, more consumers, more revenue.
What happened instead is that Sephora stopped supporting brands that went to Ulta. Marketing support disappeared, placement got worse, and sales at Sephora dropped 20-40% within months of the Ulta launch. The incremental revenue from Ulta rarely made up for the loss at Sephora, and after a year, most brands saw total US sales decline despite being in twice as many doors.
TikTok Shop is now doing to both Sephora and Ulta what Ulta did to Sephora-exclusive brands, except the stakes are higher because TikTok Shop’s revenue is larger than the combined revenue of both retailers. Beauty brands launching on TikTok Shop are breaking exclusivity not with one retailer but with the entire traditional retail model.
Sephora has started deprioritizing brands that do significant TikTok Shop volume. The support doesn’t disappear overnight, but it erodes, says a founder I work with who is currently in Sephora.
Sephora-exclusive brands face the starkest version of this conflict. They’re contractually unable to use TikTok Shop without breaking exclusivity agreements. These brands are watching TikTok Shop do more revenue than Sephora while being locked out of participating in the channel driving the most growth.
The difference between the Ulta decision and the TikTok Shop decision is that brands could survive without Ulta. You can’t survive without TikTok Shop if that’s where your consumers discover and buy products. The platform that’s going to kill your Sephora relationship is also the platform you can’t afford not to be on.
Where Beauty Revenue Is Moving
Revenue concentration on TikTok Shop is uneven. Some beauty categories are seeing 70-80% of their growth come from TikTok Shop while Sephora sales stay flat or decline. Skincare, makeup tools, and K-beauty products are heavily driven by TikTok.
TikTok Shop commerce works differently than traditional retail. The platform rewards bundling, discounts, and limited-time offers rather than full-price positioning. Major beauty conglomerates are launching products TikTok-first before expanding to traditional retail, signalling they’re treating TikTok as the primary launch channel rather than a marketing amplification tool. The brands winning on TikTok Shop are structuring entire product launches and pricing strategies around how TikTok commerce works.
Beauty brands looking at their sales data see Sephora purchases and assume Sephora is still driving discovery. They’re not tracking how many of those purchases started with a TikTok video that sent consumers to Sephora to complete the transaction. The attribution gap makes Sephora look more valuable than it is because brands can’t see that TikTok is doing the discovery work and Sephora is just processing the checkout.
TikTok Shop’s revenue proves that when you own both discovery and checkout, you capture more value than when you only own checkout. Sephora is becoming the checkout layer for products TikTok sells, and beauty brands are still investing in Sephora partnerships as if Sephora owns the customer relationship.
The Budget Allocation Problem
A typical beauty brand’s commercial budget tends to be broken down into 40-50% going to retail partnerships (Sephora and Ulta placement, promotions, in-store marketing), 30-40% goes to digital marketing (Meta ads, Google ads, influencer partnerships), 10-20% goes to brand building (PR, events, content creation). TikTok Shop gets maybe 5-10% because it’s treated as experimental.
But the revenue data suggests the budget allocation should look like: 50-60% to TikTok Shop and TikTok creator partnerships because that’s where discovery and purchase are happening, 20-30% to traditional retail to maintain baseline distribution, 10-20% to owned channels (DTC site, email, SMS) to build direct relationships.
The gap between those two budget structures is the gap between where beauty brands are investing and where they should be investing based on where revenue is moving. The brands that close that gap in the next 12-18 months will capture disproportionate growth.
The challenge is that reallocating budget away from Sephora accelerates the Sephora relationship deterioration. If you pull marketing dollars out of Sephora co-op programs to invest in TikTok creator partnerships, Sephora notices and your placement suffers. But if you don’t reallocate budget toward TikTok, you lose share to competitors who are going all-in on the channel driving the most revenue.
What Smart Brands Are Doing
The beauty brands growing fastest right now made a choice to prioritize TikTok Shop even if it damages Sephora’s relationships. E.l.f. Cosmetics restructured their entire commercial strategy around TikTok and social commerce. They treat TikTok as the primary channel and retail as secondary distribution. Their growth numbers prove the strategy works.
K-beauty brands entering the US market are launching on TikTok first and treating retail as an afterthought. They’re not trying to enter Sephora because they know TikTok Shop will deliver higher revenue with better margins and less complexity. The brands that would have spent two years trying to get Sephora distribution are instead spending that time building creator networks and optimizing for TikTok’s algorithm.
Emerging brands that historically would have needed Sephora to scale are reaching eight-figure revenue without ever securing retail distribution. TikTok Shop is the only channel they need, and they’re not dealing with margin splits, fees, inventory requirements, or the relationship management that comes with traditional retail.
The pattern emerging is that brands born on TikTok stay on TikTok, and legacy brands trying to balance TikTok growth with retail relationships are getting squeezed from both sides. They can’t compete with TikTok-native brands who move faster and invest more aggressively in the platform. They can’t maintain their Sephora business because going hard on TikTok damages those relationships.
Most brands are trying to keep both channels happy. That means underperforming in both. The Ulta lesson should have taught beauty brands that half-measures don’t work. You can’t kind of invest in TikTok Shop and maintain your traditional retail partnerships at the same level. The channel conflict is real.
The brands that will win the next five years are the ones willing to accept that Sephora relationships are going to deteriorate as they invest in TikTok Shop, and that’s acceptable because TikTok Shop revenue will more than make up for the Sephora losses. The brands that will struggle are the ones trying to protect Sephora relationships while dabbling in TikTok without full commitment.
Thanks for reading today,
Xx Camille
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