Ulta Beauty’s Strategy: 6 Reasons for its Outsized Growth

UBS once commented that Ulta Beauty is one of the “best growth stories in retail” and it was right. Last year Ulta Beauty’s sales were up 18.3% to reach $10.2 billion. No one is successful without hard work and clearly Ulta Beauty has made a number of strategic choices that have enabled it to succeed in a constantly evolving retail environment. Are you curious about how Ulta Beauty continues to succeed? Here are six reasons why Ulta Beauty’s strategy is a success.

1. A high-low product assortment that customers love. While the beauty industry has historically sold mass and prestige beauty products through different channels (i.e. high end vs. low end) consumers tend to shop high-low. Ulta Beauty has capitalized on this trend or some might say it created it by selling both mass and prestige beauty products within its stores. Prices in an Ulta Beauty store range anywhere from $1.50 for eyeliner to a Dyson Air Wrap that sells for $599.

Speaking about Ulta Beauty, Fabian Garcia, the former CEO of Revlon, said: “[Ulta Beauty] has completely debunked the old notion that you were either prestige or mass.” “The fact that Ulta challenged the old paradigm is a good enough proof that the world is moving.”

2. A loyalty program that customers crave. Ulta Beauty’s loyalty program, Ultamate Rewards, has more than 40 million members, which is more than the number of members enrolled in Starbucks’ popular loyalty program which has around 30 million active members. Ulta Beauty’s loyalty program members drove drive more than a whopping 95% of the retailer’s sales.

Ultamate Rewards members receive one point for every dollar they spend. For example, 100 points = $3 in savings while 1,000 points = $50 off. Speaking about its loyalty program, Linh Peters, Ulta Beauty’s former senior director of loyalty marketing said: “I can’t emphasize enough how important it is to keep your program simple for the guest to understand.”

3. One-stop shopping that fulfills customer needs. Perhaps Ulta Beauty should be called the department store for the beauty customer. In addition to selling beauty products Ulta Beauty also provides customers with many services such as in-store hair salons. These salons are a driver of foot traffic with salon customers making twice as many trips to an Ulta Beauty store as those who do not use the service. Customers can also get their brows done, have a facial, have a bikini wax, get new eyelashes or have a make-up consultation all within one visit.

“Beauty services can mean an additional visit, which may result in product purchases beyond the beauty service itself,” said Manola Soler, senior director at Alvarez & Marsal Consumer Retail Group. “Services have been part of [Ulta’s] long-term strategy and they remain at a relatively low penetration of total revenue, at around 3%-4% in recent years. [But] well-executed services present an opportunity to grow their share of consumers’ beauty wallets and could have a halo effect on their overall spend with the retailer.”

4. Partnerships that work. Ulta Beauty prides itself on its many exclusive brand partnerships. For example, Kylie Cosmetics exclusively launched with Ulta Beauty after selling direct to consumer. Beautycounter made a similar move when it recently entered an exclusive partnership with Ulta Beauty. These partnerships attract new customers and keep customers coming back for more.

Ulta Beauty also began a partnership with Target in 2021 that will see over time 800 Ulta Beauty shops within Target stores. Speaking about the partnership Jessica Ramirez, research analyst at Jane Hali & Associates said: "it complements each other on each side." "You're able to get this consumer into Target, discover these new brands that maybe Ulta has that Target may not have. So that's, I think, quite beautiful."

5. A store experience that is worth it. Some of the fundamentals of the beauty industry have worked in Ulta Beauty’s favour. It is hard to find that perfect shade of makeup that matches your skin while shopping online. Although digital tools now exist that allow customers to digitally apply makeup to their face from the comfort of their homes customers still like to test products in-store and like the immediacy of being able to pick out a product and have it right away.

When shopping for makeup and skin care products having expert advice matters. While there are millions of YouTube makeup and skincare tutorials nothing can match the one on one customized advice a customer receives when speaking to a sales associate at a store like Ulta Beauty. “When we get a store-only shopper to start shopping in both stores and online, their spend with us increases by about 2.5 times. And they end up shopping more frequently in stores, not less frequently,” said David Kimbell, Ulta Beauty’s CEO.

6. Stores that work. Most of Ulta Beauty’s stores are in suburban strip malls that house discount retailers like T.J.Maxx and HomeGoods which have been particularly resilient in the retail sector. Since Ulta Beauty’s stores are relatively small, spanning approximately 10,000 sq. ft it is also not burdened with the task of having to figuring out how to repurpose excess space due to overall declining customer traffic trends.

You may also like:

The Ordinary’s Strategy for Success, 4 Reasons it Has Taken Off

Rare Beauty: 6 Parts of its Strategy to Emulate

The Growth Strategy Behind Goop, a Brand Owned by Gwyneth Paltrow

Fenty Beauty’s Growth Strategy: What You Need to Know

e.l.f.’s Strategy for Staying on Top

Sources

http://fortune.com/2019/01/15/ulta-beauty-ceo-mary-dillon-leadership/

https://qz.com/1282750/ulta-beauty-is-proving-that-amazon-isnt-destroying-all-brick-and-mortar/

https://www.voguebusiness.com/beauty/beauty-sampling-business-customer-loyalty-smashbox-drunk-elephant

https://www.fool.com/investing/2019/06/03/what-ulta-beauty-wants-you-to-know.aspx

https://www.fool.com/investing/2019/06/10/3-amazon-proof-retailers.aspx