Photo: iStockPhoto / OlgaArkhipenko
Ulta’s performance is a thing of beauty
Ulta Beauty posted record sales in the fourth quarter, pushing the chain’s annual revenues above $10 billion for the first time in its history. The retailer reported net income of $1 billion for the year, another first.
The chain saw net sales increase 18.2 percent during the quarter as beauty consumers continued to participate in the category even with price increases. Ulta said new brands and product innovations also played a role in helping it achieve a 15.6 percent gain in same-store sales on top of the 21.4 percent increase it posted in 2021.
“Sales of all major categories exceeded our expectations, and we saw solid sales momentum across both our store and digital channels,” said CEO Dave Kinbell, yesterday on Ulta’s earnings call.
Ulta achieved double-digit growth across all major categories and gained share in the prestige beauty segment, said Mr. Kimbell citing NPD Group data. Skincare, he said, was the strongest performer with the chain making double-digit gains in both the mass and prestige segments.
The beauty retailer grew membership in its Ultamate loyalty program by three million, rising to 40.2 million members in 2022.
“We continued to drive guest love, loyalty, and share of wallet, and our efforts created stronger, more emotional connections with our guests. Overall, unaided awareness grew significantly with meaningful gains among key audiences including Gen Z, Hispanic, and Black beauty consumers,” said Mr. Kimbell.
Ulta expects to invest between $60 million and $70 million in 2023, on top of $50 million last year, supporting its strategic initiatives, including expanded selection, personalized omnichannel experiences, scaling its retail media network, opening and remodeling stores, and building its distribution and fulfillment capabilities.
“Our physical footprint is a strategic advantage, and we plan to open 25 to 30 net new stores and remodel or relocate 20 to 30 stores throughout the year,” said Mr. Kimbell. “As we expand our physical footprint, we will also accelerate growth across digital platforms, supported by the completed transition of our digital store to a modern technology and architecture, as well as the expansion of our buy anywhere, fill anywhere capabilities.”
Ulta Beauty at Target has also been a win introducing new customers to the chain. “We intend to leverage our customer insights and CRM capabilities to continue driving additional member acquisition and bounce back to Ulta Beauty,” said Mr. Kimbell.
Ulta is looking for comp growth between four and five percent in 2023.
Discussion Questions
DISCUSSION QUESTIONS: How do you explain Ulta Beauty’s success catering to mass, prestige and luxury consumers when most retailers need to focus on more targeted markets to succeed? What do you see as key opportunities for Ulta to build on its momentum going forward?
Poll
Loading …BrainTrust
Carol Spieckerman
President, Spieckerman Retail
Melissa Minkow
Director, Retail Strategy, CI&T
While Ulta deserves a lot of praise for positioning itself for growth, it does operate in part of the retail market that is holding up significantly better than many categories. Even as economic and financial pressures grow, our data shows that consumers continued to prioritize beauty spend across the whole of 2022. One of the factors underpinning beauty’s success is the fact many people see it as a very important indulgence that makes them feel good or gives them confidence. As such, shoppers are reluctant to forego purchases in the way they have in other categories.
All that said, Ulta hasn’t just stood idly by and allowed the growth wave to wash over it. The company has been very proactive in plotting how it can expand market share with things like product innovations, a focus on its loyalty program, and ensuring a good balance of price points.
More than anything, I attribute Ulta’s success to its willingness to test, learn, and fail fast. Ulta has earned the right to sell good, better, and best beauty products from top brands because it’s done the work to ensure success. Ulta is a flagship location for many brands because it minds the store.
I don´t see any surprises here. Ulta has been focused on specific customer segments, creates value for them by delivering excellent value and experiences, and uses its loyalty program the way brands should. They don´t issue points to make up for lack of value or average experience. They issue points to drive specific customer value that is aligned with a long-term mission.
Ulta is clearly firing on all cylinders — investing in a well-rounded omnichannel strategy and the tech that supports that. We’ve noticed the app has become especially elevated over the last year, which plays a big role in the growth considering consumers’ appreciation for strong apps. I’m excited to see how they continue to be a leader in the industry.
Ulta’s big spending on stores and logistics are table stakes for a growing brand. It’s the “personalized omnichannel experience” that will continue to set it apart and increase the “love, loyalty, and share of wallet.” Look for Ulta to be one of the first to find a “size and fit” equivalent for beauty. Something that allows shoppers to see products as they look on real people that look like them.
Ulta has a cachet that transcends age and crosses all socioeconomic lines. Beauty and its quest captures the wallet of the world, and Ulta seems to know this better than anyone.
When times are tough and you can’t afford a salon visit or new clothes, you can always find a little money to buy a new lipstick. That’s why Ulta does well–it’s got something at a price point for every beauty consumer, so there are options to trade up for a splurge or trade down to watch your budget.
An under-reported aspect of Ulta’s success is their real estate strategy: they stayed out of malls (mostly) and, now of course, partnerships. Look out Sephora.
Ulta’s commitment to inclusivity and diversity makes shoppers of every income level and complexion feel welcome.
As media trends (like Instagram and TikTok content) drive assortment strategy, staying agile will strengthen Ulta’s momentum. Within days of Rihanna’s Super Bowl performance, many Fenty products were sold out.
Mr. Kimbell is doing a masterful job of growing the Ulta business. Some CEOs who experience successive years of 21 percent and 15 percent same-store sales growth would be inclined to add 150-200 net-new stores every year, but he is skillfully adding 25-30 stores and repositioning a similar number to new, more advantageous locations. Moreover, with 40 million loyalty customers (mostly women, which is an astonishing 24 percent of the female U.S. population!), he has established a huge number of brand evangelists who voice their support for the products they buy. With the continued investments in omni, customer experience and new product innovation, Ulta will reach $15 billion in top-line revenue very soon!
Changing product assortment to appeal to different customer groups is challenging. Ulta appears to have found a way to do that: keeping products that traditional consumers want while introducing new products. They also appear to have found a way to successfully combine in-store and online sales. Hopefully they can continue this as they expand.
I believe retailers like Ulta fulfill customers’ desires, which will continue to have a great impact and create compelling reasons to buy. Every retailer should be reading their book!
Ulta has become a force to be reckoned with in the beauty segment and is a serious direct competitor to Sephora. The brand has significantly gained market share in the Gen Z customer segments. Ulta’s investments in a customer-first, personalized, digital-first, socially connected operating model at scale have enabled the brand to grow, prosper, and thrive in a very competitive and economically disrupted consumer market.
It’s fascinating to watch Ulta continue to scale and significantly increase its store footprint in a challenging inflationary economy, yet doing so while providing innovative products, diversified assortments, driving new brand partnerships, and providing value-based products. Ulta’s success story of driving profitable growth while being digital-first, and opening new stores, stands out in a retail industry that is rationalizing its store footprint to drive profitability.
Ulta is inclusive, from its product assortment to its employees to its marketing. This speaks volumes and customers want an assortment that is diverse that they can relate to.
From a personal customer experience, there are more south Asian brands and representation at Ulta and this is exactly why I shop there. I feel seen.
Ulta’s performance is most definitely a thing of beauty.
Ulta knows that beauty shoppers will mix and match “mass, prestige, and luxury” products and — impressively — has cracked the code to product placement that ensures consumers maintain a mix in uncertain economic times. The store layout changes was one tactic, and its mobile store layout, the app, is another.
To retailers that focus on more targeted markets, you can still set up your physical and mobile store with opportunities for consumers to discover and be rewarded along that journey. Here’s what we can see about how Ulta did that: gamification of Ultamate rewards, compounding value of personalization and recommendation engine algorithms, and editorial content to discover, like beauty trends.
Ulta has long had a stronger acquisition channel than Sephora, but its engagement lacked relative to its competitor. In Q1 to date, Ulta is posting its highest quarter-over-quarter growth in engagement (+27 percent) in five years. Still less than Sephora, but it indicates Ulta has figured something out, and I wouldn’t expect them to slow down soon.
The question of Ulta’s target is interesting. Ulta targets a category of product. I suspect we would find their products appeal most to a behavior-based category which crosses the spending levels.
In other words, despite the appearance of less targeting, they have quite smartly chosen to look at the market and target using a very different approach. The freshness of their approach is a major competitive advantage.
I think it’s really pretty simple. Ulta is run by an effective leadership team and is a “smart company” i.e., it learns from experience rather than just chronicling it. That combined with a relentless consumer focus is an almost unbeatable combination.
The success of Ulta beauty can be attributed to a total tune-up-where every product category, every channel (stores and digital), loyalty program and every customer segment was worked upon.
Growth of loyalty program to 40 million Ultamate Rewards members is a testimonial of the customer engagement, value-prop & the trust the brand has built. The milestone achievements demonstrate the power of Ulta Beauty’s highly differentiated model, its brand positioning, the growing beauty category, its winning culture and outstanding teams.
The outlook for the beauty category is bright, Ulta beauty should continue to test, learn and fail fast and keep driving its strategic framework.
Ulta has achieved remarkable success in the past year across mass and targeted segments. This growth gives them the opportunity to cement relationships with new customers through their loyalty program and omnichannel marketing. I would be cautious, however, about celebrating their success with the mass market — those results may be driven by market growth rather than by Ulta’s strategies. If they focus on bringing customers into their loyalty program they should have success in years to come when overall market growth falters.
Ulta’s omnichannel capabilities, product offerings, and defined target audience are major factors contributing to their success, something which other retailers can also learn from and adopt. Ulta Beauty’s use of the right customer data has allowed them to plan their assortments and present the products with the right information, helping customers to make better purchase decisions. Ulta’s own stores and its products at Target are also viable customer acquisition strategies for them to reach out to wider audience segments.
In my opinion, here the key opportunity for Ulta Beauty is to make the digital to physical journey smoother. By capitalizing on its strong network, Ulta can leverage its online presence by bringing physical stores to the customers to build on its momentum going forward.