There was a time in the beauty retail landscape when Ulta was considered a second-tier retailer with Sephora being the preferred retail launch partner, and Amazon wasn’t even a consideration. Times have changed, and the mass offering in Ulta’s merchandising mix that once was a liability for attracting top beauty brands has become a unique differentiator as consumer behavior has shifted. Ulta has worked hard to compete with Sephora, and it’s paying off.
“It’s a very competitive landscape, and we are hyper-aware of what our competitive set is doing,” Monica Arnaudo, SVP of merchandising at Ulta Beauty, told Glossy. “So to win, we look at our DNA: We have the unique proposition of bringing together the high, mid and low price ranges and assortments, and we’re laser-focused on continuing that strategy.”
Ulta Beauty just reported above expectation sales and earnings results:
- Sales in the fourth quarter 2018 increased 9.7%, or 16.2% excluding the 53rd week of fiscal 2017.
- Comparable sales in the quarter increased 9.4%. For the full year, net sales increased 14.1% to $6.7 billion.
- Excluding sales for the 53rd week in fiscal 2017 of $108.8 million, net sales increased 16.3%.
- Comparable sales for the fiscal year increased 8.1%, positively impacted by both the number of customers shopping and their average purchase.
- Growth was driven 5.3% by transaction growth and 2.8% growth in average ticket.
- Retail comparable sales increased 5.1% while salon growth was 3.6%.
- Net income increased 18.6% to $658.6 million, up from $555.2 million in fiscal 2017.
- Fully diluted earnings per share increased 22.1% to $10.94 from $8.96 in the previous year.
So what is the Ulta recipe for success?:
- Brick and Mortar: While Ulta has upped their digital game, the magic for them happens in-store. They believe engagement in the physical store builds brand loyalty and an emotional connection that is reinforced with each visit. The ultimate personalization happen in-store person to person.
- Exclusive Launches: Ulta is competing head to head with Sephora on buzzy exclusive brand launches that boost sales. Ulta launched Kylie Cosmetics and Morph while Sephora launched the Kendo-incubated Fenty Beauty.
- Demographics: Ulta is more popular with the 45+ ground, but with the launch of digital native brands like Jeffree Star, Color Pop, Cannuka, and Kylie cosmetics they are gaining ground on Sephora’s millennial and Gen Z foothold.
- Accessibility: With their high/low positioning and open design, the physical format of an Ulta store is more accessible both from a price point and demographic standpoint.
- Rewards Program: The rewards program has 31.8 million active members and grew 14.4% in the past year and has recently been enhanced by a new Elite Diamond Tier. Their reward program is sticky. Ulta has reported their loyalty program customers make up 90% of sales.
- Mass Migration: Ulta attracts a wider consumer base because of its mass offering. Ulta has an intentional strategy of introducing prestige products to mass shoppers as well as the ability to do so.
- Personalized E-Commerce: Ulta is focused on delivering a personalized e-commerce experience through product and co-product recommendations, replenishment reminders, and going as far as customizing their guests’ home page experience.
- Credit Card: The retailer has stimulated double-digit growth on credit card participation. Customers receive a gift upon signing and are automatically entered into the rewards program.
- Supply Chain: Management is not only focused on product and customer service. They are working on the back end towards achieving a two-day fulfillment commitment.
- Technology: Ulta has doubled down on its investment in technology by acquiring QM Scientific AI retail platform and online booking tool Spruce.
Photo: Raphael Lovaski via Unsplash