Ulta Beauty Radicalizes Retail

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What does Ulta stand for? Up until about seven years ago when Ulta was tucked away in Bolingbrook, Illinois, it might have been the world of beauty\’s best-kept secret. Or worse, beauty consumers might have defined it as an acronym for Union Leaders Training Award or Union Labor Temple Association or Utah Land Title Association — before recognizing it as the beauty products retailer it was. Founded in 1990 as Ulta Salon, Cosmetics and Fragrance, the business plan was a unique model that would offer more cosmetics and fragrances than any other retailer. It also included a hair salon and later, nail and skin care services. It would carry both mass market and high-end brands – a one-stop shopping trip for all consumers for everything beauty. Furthermore, the location strategy was created for convenience. The stores would be located in strip shopping centers so consumers could get all of their beauty needs in one convenient spot instead of making the time and effort of traveling to, and through malls.

Sephora Who?

Eight years later, Sephora opened its first U.S. store in Manhattan\’s SoHo district, likely not aware at the time that the Ulta brand would one day become their biggest headache. Sephora took off, capturing young consumers as their brand and matching shopping experience.

Ulta\’s Superior Product and Distribution Strategy

However, as Sephora may have been growing on \”rocket fuel,\” there were two aspects of Ulta\’s positioning that gave them a strategic advantage over Sephora, accelerating their path to becoming its biggest rival. One was the fact that they are still the only beauty retailer that carries products across all price points (prestige and mass); and two, Sephora pursued a mall strategy while Ulta was opening stores in neighborhoods, closer to, and more convenient for its shoppers.

[callout]“As the beauty retail leader, we have the unique opportunity to inspire positive change in our industry. Our focus is to educate, guide and simplify product choice and elevate those brands doing good for our world.” Dave Kimbell, President, Ulta[/callout]

So, while Sephora was getting all the media buzz and industry applause, Ulta was quietly moving into the inside rail, rounding into the final stretch.

Then in 2013, Ulta found a nuclear accelerant. As our beauty expert and journalist, Dana Wood so brilliantly laid out, in her 2018 article, \”Then something magical happened. And that magical thing was a woman named Mary Dillon.\”

\"\"Massive Vision, Even More Massive Results

Wood reports, \”When Dillon, whose diverse background includes stints in the top ranks of McDonald\’s, PepsiCo and U.S. Cellular, took the reins as CEO in 2013, Ulta was opening stores at a breakneck pace – 125 that year alone, to be precise, many in the urban markets like Manhattan that Ulta had long steered clear of.

\”Maybe America was just itching to latch onto another way to get its lipstick and deep conditioner fix. Naaaaah, that wasn\’t it. Dillon just had such a clear vision for what Ulta – a bit of an odd duck in beauty retailing, given its high/low product mix, in-store salons and unsexy suburban, \”off-mall\” locations – could be that she basically willed it into explosive growth.\”

And explosive growth they did. Goldman Sachs announced at its Annual Retail Conference in September, 2020, that Ulta is the largest U.S. beauty retailer, offering more than 25,000 products across cosmetics, fragrance, skin and hair care products and salon services. Ulta currently operates 1,264 stores across the U.S., as well as ecommerce, with a total revenue of around $7.4 billion, up from 675 stores and $2.7 billion when Dillon took the helm in 2013.

Strategic Brilliance

Ulta is a 2020 Robin Report Retail Radical propelled by Dillon\’s vision and her team\’s strategic execution. She explains their success, \”I\’d say, (that in this) diverse competitive set, our strength is that we do things that nobody else does. We bring together all the categories of beauty, all the price points in one place. We add services on top of that. Our real estate positioning is strong, as is our ecommerce and omnichannel capability, and our loyalty program kind of really brings it all together in a way that incents our guests to spend their net dollars with us versus fragmented dollars.

\”And lastly, I\’d say we\’ve built a brand around the Ulta Beauty retail brand that is known and loved. We\’re very strong with the Latin community, which is also a large and growing share of the beauty market. And so, I think we\’ve positioned ourselves well. We will continue to gain share. We\’ve been gaining share in prestige throughout the pandemic. So, that\’s good. And I think we\’ve positioned ourselves well to understand how to take advantage of what\’s happening in the department store world.\”

And there are two other strategic moves that Dillon made that serve the zeitgeist of the new young consumer culture. Wood also reports \”… a real indication that Dillon\’s got her finger firmly on the pulse of both today\’s beauty consumer as well as the collective, national id. On the consumer front, there are close to 28 million members of the Ultamate Rewards loyalty program, a straightforward \’spend a dollar, earn a point\’ scenario loaded with perks that has garnered excellent word-of-mouth among bargain-hunters and what Dillon refers to as beauty enthusiasts.

\”And in this emotionally charged era in which women are becoming extraordinarily vocal about equal pay, equal opportunity and just flat-out equality, full-stop, the fact that 92 percent of Ulta\’s 37,000+ associates are women is a feather in Dillon\’s cap. In addition, more than 6,000 women have been promoted to management roles within the company, and three of its highest-ranking technology execs are female. Round of applause, please.\”

The second major commitment to next-gen values is Ulta\’s focus on sustainability, saving the environment, circular commerce and more. As President Dave Kimbell said: \”As the beauty retail leader, we have the unique opportunity to inspire positive change in our industry. Our focus is to educate, guide and simplify product choice and elevate those brands doing good for our world.\” To this end, Ulta recently launched its \”Conscious Beauty\” strategy.

Beating the Pandemic

As with many nonessential retailers, Ulta made the difficult but important decision to close all stores in March; implemented new safety standards in distribution centers as we became an ecomm-only business virtually overnight. On a parallel track, they pivoted creative in marketing to launch See Beautiful Today in an effort to authentically remain connected and relevant. Ulta then launched curbside pickup and focused on ecomm to bolster online engagement tools with increased product offerings in GLAMLab, their virtual try-on app and website tool. In May, they began a phased reopening of stores with new Shop Safe Standards in place; the salons remained closed until June with a phased reopening of select salon services. Ulta also elevated social justice discourse in social content, executive leadership and internal trainings that remain consistent to this day. All stores reopened in July and they launched the app Skin Advisor to respond to the trend of increased skincare as selfcare.

Ulta applied all the lessons they learned during the ongoing pandemic and strengthened its commitment to culture, values, safety and nimble actions for the business as well as their associates and customers.

David Kimbell made this comment at the end of the September 2020 Goldman Sachs session: \”I guess I\’d say we feel like we came into this (pandemic) with a fair amount of pricing power as the largest beauty retailer, with a lot of strength and a lot of growth. We felt like we had a strong amount of influence across the category and we don\’t see that changing. The competitive environment will change. Some of our competitors are struggling through this. Others have gotten stronger through it. But net-net, we feel like we\’re going to continue to be a leader and feel confident with our position in the marketplace going forward.\”

Matt Laukaitis, EVP and Global General Manager, Consumer Industries at SAP (SAP is the official sponsor of the Retail Radicals program) says, \”Ulta\’s ability to bring together a breadth of beauty categories and services, and to deliver them across multiple price points, is an amazing example of a customer-centric strategy. Mary Dillon and her team continue to make impressive strides in the beauty industry, delighting their customers and driving impressive growth. Their ability to adapt and react during the pandemic further highlights why they are being recognized as a Retail Radical.\”

Amen! Ulta is radicalizing the beauty industry and leading the sector in anticipating the future, not catching up to it.

Radical Strategies Yield Radical Results

Ulta Beauty continues to make impressive strides in the beauty industry, as the largest beauty retailer in the U.S. The company announced its second quarter fiscal 2020 results on August 27th. With net sales of $1.2 billion compared to $1.7 billion in the past-year quarter, comparable sales decreased 26.7 percent. However, sales from ecommerce operations increased more than 200 percent. The company ended the second quarter of fiscal 2020 with $1.2 billion in cash and cash equivalents. Mary Dillon has spoken in detail about the hardships the company has faced due to COVID-19, \”While the pandemic continues to impact our business, we are encouraged by improving trends. Comparable sales trends improved significantly throughout the quarter, from decreasing 37 percent in early May, as we began reopening stores, to decreasing by 10 percent in July, when most of our stores were reopened. Notably, sales trends have continued to improve, with comparable sales down in the mid-single digit range for the first three weeks of August.\” These are promising numbers and demonstrate the company\’s ability to recover and push forward despite setbacks due to the pandemic. \”As we transition into the new normal, I am confident the Ulta Beauty team will continue to innovate, move with agility and efficiency, and grow as the largest and most admired beauty retailer in the U.S,\” continued Dillon.

Looking further into the future, Dillon is encouraged by the recent improvement in sales trends and is confident that Ulta Beauty will continue to recover and thrive. The company offered a few insights into their predictions for the rest of fiscal 2020 and further into fiscal 2021.

The company expects to spend between $35 million and $40 million in PPE and COVID-19 related costs in the second half of fiscal 2020. It expects to open approximately 30 new stores and execute approximately five relocation projects. Although plans for fiscal 2021 have not been finalized, the company expects to open at least 30 new stores in fiscal 2021.

As part of Ulta Beauty\’s commitment to deepening customer loyalty, the value proposition of the Ultamate Rewards program continues to grow and evolve with more than 32.6 million active Ulta Beauty guests enrolled in the Ultamate Rewards program. Loyalty member transactions represent over 95 percent of the company\’s annual total net sales, and data demonstrates that loyalty members shop with higher frequency and spend more per visit as compared to non-members. Ulta Beauty aims to continue to innovate this program, ultimately envisioning personalized messaging for customers across all digital and physical experiences.

In addition to this commitment to the consumer experience, Ulta Beauty has also spearheaded a campaign promoting sustainability and clean beauty. On July 14, 2020, the company announced the launch of Conscious Beauty, an initiative dedicated to providing customers with greater choices and transparency. The program certifies brands under five key pillars: Clean Ingredients, Cruelty Free, Vegan, Sustainable Packaging and Positive Impact with the intention of leaving a lasting positive legacy for the world. Under the Sustainable Packaging pillar, Ulta Beauty pledges to ensure 50 percent of all packaging sold, including the Ulta Beauty Collection, will be made from recycled or bio-sourced materials, or will be recyclable or refillable by 2025.

Ulta: 2020 Retail Radical Leader

Retail Radicals are innovators moving their brands and businesses forward by outperforming their competitors. They are also leaders in anticipating consumer trends and responding with solutions and systems that reinforce their relevance and ensure customer loyalty. Mary Dillon and team are role models for radical thinking that yields radical results.

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