It’s no secret that Ulta Beauty dominates the specialty retail market for beauty. Founded in 1990, Ulta currently operates 1,163 stores in 50 states, with a full-service salon in every shop. Ninety percent are off-mall locations, and its products range in price points, from affordable drugstore staples to high-end luxury offerings, appealing to consumers of all ages–a comprehensive variety that also helps Ulta differentiate itself from its biggest competitor, LVMH-owned Sephora. Under the leadership of CEO Mary Dillon, Ulta’s 2017 fiscal year sales were $5.9 billion (up 21.2 percent from the previous year), with $569 million in e-commerce sales. Forbes predicts 2018 sales to be roughly $6.6 billion, with earnings per share hovering at $4.25 (up from $3.40 last year).
What's Ulta's secret for success? For such a large company with with so many moving parts, the answer is complex. However, one area is certainly Ulta's in-store offerings and salon services, which allow the retail giant to live up to its slogan: “All Things Beauty. All in One Place.”
We spoke to three Ulta Beauty executives responsible for these areas. Here, they share strategy, plans for future growth and their individual “crystal ball” beauty industry predictions for 2019!
THE SECRETS TO PRODUCT SELECTION
Penny Coy, vice president of merchandising, prestige skincare and fragrance, has more than 30 years of retail industry experience, including a five-year stint as a planner for Claire’s. “I have an amazing merchant team [with nine people] that really knows two things to look for,” she says. “They’re looking for trailblazing ingredients and they’re looking for products that have proven results–especially those that have really strong clinical claims.” Coy adds that it’s also critical for her team to discover emerging indie brands that amass large followings by resonating with consumers online. Her team is constantly combing product reviews and comments on Instagram to try to find the next hot brand. She cites coconut oil-based skincare line Kopari and Tula, a probiotic skincare line, as two recent examples.
“Our guests want newness, they want innovation, they want technology and efficacy—and we want brands that bring that to the table.”
—Sandy Ovington, VP of merchandise
Sandy Ovington, vice president of merchandise, has a career spanning decades in retail as a corporate buyer and division vice president for Kmart Footwear prior to joining Ulta Beauty in 2010. She partially credits the retailer’s success to its “unmatched assortment” of more than 25,000 products from 500 brands. “Our guests want newness, they want innovation, they want technology and efficacy–and we want brands that bring that to the table. And we want brands that are willing to work really hard with Ulta,” she says.
While Ovington admits that selecting a winning product “is not really an exact science,” she stays ahead of the curve by relying on facts, data and research and depending on tools that yield quantifiable results, including consumer analytics, market trends, customer surveys and sales data history. But that’s not all. She and her team of 18 merchants do competitive shopping–analyzing what direct competitors are doing–and diligently attend key industry trade shows throughout the year, including Cosmoprof North America and Bologna, to discover new products.
Data reveals specific qualities that make a product worthy of strong consideration for Ovington–and Ulta buyers in general. “One of the stats we have from consumer analytics is that seven out of 10 guests are open to trying something new. Some of the things we think of as strengths for a brand are if they provide a solution to the guest, showcase a point of difference, have authenticity, bring newness to the table and have a strong brand identity,” Ovington reveals. But sometimes the best tips for selecting winning products come from the customers themselves. Ulta’s merchandising teams work closely with the stores’ own roughly 40,000 sales associates and brand partners to find out what shoppers are requesting and suggesting in-store and online.
Another important factor in product selection, Coy notes, is inclusivity–a value the company holds dear. “We look to have a continuum of products that appeal and are inclusive across all ages, all ethnicities and gender in all its forms. ... We’re also being very cognizant to really appeal to the 40 and over guest with our marketing and who we are using for our photo shoots," she says. Of course, it pays to be inclusive, casting a wider net to bring in customers of all kinds. According to Nielsen, multicultural consumer spending power is valued at $3.2 trillion, while Euromonitor predicts that baby boomers’ spending power will reach $15 trillion by the end of 2019.
Ovington compares Ulta’s product selection to what’s in the average woman’s purse. “If you look at the way people shop, it mirrors their beauty bag; they have a mix of prestige and mass all in their closet or handbag. We approach our products the same way.”
Smart, in-store merchandising further supports sales. Ulta entices customers as they meander the aisles with Travel and Trial end caps featuring on-the-go beauty and its curated sections such as New and Notable. At the close of the shopping experience, impulse-buy fixtures at checkout inspire last-minute additions to consumers’ hauls.
With Ulta's loyalty program, Ultamate Rewards, generating roughly 90 percent of its overall sales, the company understands its nearly 30 million active members are one of its greatest assets. As such, they provide great value to its participants who accrue points for their spending, with 100 points equal to $3 off a purchase. The program also features two tiers for big spenders: Platinum, for those who spend $450 or more annually, and Diamond, for those who drop $1,200 a year. There’s even an Ulta Beauty credit card–which incentivizes shoppers with two points per every dollar spent. The loyalty program is a win-win; customers rake in discounts and Ulta Beauty collects crucial data.
“The opportunity it provides us is that we can personalize communication to our guests. We can sample based on their preferences and their past purchases, and we can give them exciting newness or hero items,” Ovington says. This approach is vastly more effective than offering a simple coupon. For example, Ulta recently did a “smart sampling” of Pureology products specifically for those who had purchased from that brand in the past. True to its data-driven approach, the retailer monitored repurchase rates.
Coy adds that guests who shop in-store or online can also choose samples at checkout. “Our brands love to sample to our guests. They’re very generous when it comes to doing so,” she says. These personalized gifts strengthen the emotional connection members have with the Ulta Beauty brand.
Multiple unique sales events throughout the year provide another way for Ulta to serve all of their beauty enthusiasts and to stay competitive. The events are well thought-out and timed to boost sales during slower periods. Examples include the 21 Days of Beauty, three weeks in September when shoppers receive new discounts on various items each day, as well as the Spring Haul, Fall Haul, Cut for a Cause, the Gorgeous Hair Event and the Love Your Skin Event–and Diamond and Platinum Appreciation Days for loyalty members. “These value events really encourage shoppers to try new brands, products or services,” Ovington says.
WHAT’S ON THE MENU?
Ulta Beauty differentiates itself by infusing each location with the vibrant energy and activity of its in-store beauty services, including The Salon at Ulta Beauty, the Dermalogica Skin Bar, the Benefit Brow Bar and MAC Cosmetics makeup applications and lessons. Guests can experience an array of services varying from 10 to 90 minutes in length at a wide range of price points–covering all their haircare, skincare, brow, makeup and face-waxing needs.
“We look to have a continuum of products that appeal and are inclusive across all ages, all ethnicities, and gender in all its forms.”
—Penny Coy, VP of merchandising, prestige skincare and fragrance
Nick Stenson, vice president of salon services and trend, has spent his career building a clientele at salons. He owned Caviar Salon in Chicago, served as an artistic director for JCPenney Salons and Matrix, and most recently helped Ulta Beauty revamp its salon by forming the Ulta Beauty Pro Hair Team when he joined as chief artistic director in 2016. The team consists of six hairstylists, each supported by a different brand such as Matrix, L’anza or Redken. Stenson also oversees 57 employees on his corporate team and 230 on his salon services field team. “It’s all about coming together to support each other–and to support our over 8,000 stylists,” he says.
Stenson’s goal for Ulta Beauty is to eliminate anxiety for customers who feel overwhelmed by thousands of products they don't know how to use. He says, “We have experts from hairstylists, beauty skin experts and brow specialists to makeup artists who can really help people on their retail journey, bring it to life by using products on them or by giving them a completely different look in The Salon.”
Of course, to offer these services and keep customers coming back, Ulta must be attractive to top talent. So, Stenson revamped Ulta’s educational program for stylists. Different educational programs serve different skill sets, whether hair- dressers need to learn more of the basics or have decades of experience under their belt. Stenson also instituted a new program called services optimization. A new stylist can start as an entry-level designer stylist, pass an educational program and then advance to master stylist. To become an elite stylist requires yet another level of education. “No matter where you are in your journey in the beauty business, we can help support your career,” Stenson says. Brand partners also help educate stylists through programs such as Empower You, which provides select master stylists with immersive brand and product training over several days.
The salon services help to move product, too. Of all the in-store services, The Salon gets the most traffic, with hair color being the most-used service overall. “We have our pro hair products placed right next to our salon,” Ovington says. “We’ve done that so that it makes it easy for our experts to walk someone over and provide customized recommendations.”
Guests who use Ulta’s various hair, skin and makeup services end up spending more than casual shoppers–a lot more. “Our guest that gets any type of service done spends, on average, three times more and shops twice as much as a guest who just comes in for retail. They are definitely, needless to say, our most valued guests,” Stenson affirms.
The Skin Bar, added to stores in 2018, features everything from 10-minute express facials to 20- and 30-minute options like microdermabrasion or skin resurfacing. With two chairs placed on the floor, the spa helps attract curious onlookers. In select locations, there are Dermalogica pods and back rooms where full-time, licensed estheticians perform services up to 90 minutes in length. Ulta’s sales associates and estheticians are crucial for drawing in new customers. When they’re not performing a service, estheticians walk the floor, answer questions, recommend products and provide free skincare consultations.
Stenson says the sale of pro products and haircare services go hand in hand. Surprisingly, 54 percent of people who come in for a hair service end up purchasing a pro hair product that same day. “The statistics in the industry are sitting at around 7 percent for an average salon, so our penetration into retail is huge,” he adds. “It’s because we have these beauty enthusiasts that live for product, they love being beautiful, they love discovering ways they can play with beauty–and they make beauty a hobby as well as an accessory for them.”
NEW OPPORTUNITIES FOR GROWTH
Despite Ulta Beauty’s unprecedented success, several categories offer opportunities for growth. With the demand for natural products rising, Coy is continuing efforts to appeal to clean-beauty consumers–whether they’re seeking 100 percent organic items, vegan beauty, gluten-free skin care, cruelty-free products or all of the above. Ulta also aims to be more transparent by spotlighting brands that don’t use certain harmful components such as sulfates. “We’re working with our brand partners to be very transparent about what their brand provides in that space and giving our guest full disclosure,” Coy says.
Ovington believes that the textured-hair category will grow in 2019. She has witnessed several of Ulta’s core textured- hair brands demonstrate double-digit growth, as well as many new launches for curly haired consumers. “Color care has always been strong for us too, but we see it continuing to grow, especially with the new color depositing shampoos and conditioners,” she adds. Prestige hair brands such as Living Proof and Bumble and Bumble are driving growth in this sector.
Stenson's main focus is ensuring that shoppers know about all the services Ulta offers. Part of making this idea happen is to shine a light on talented employees and partners. “We haven’t gotten this far without really fostering the relationships with the people who work inside our stores every single day. We realize they’re on the front lines, and the only way we can be successful is by having the right people in our stores and investing in them.” The company will roll out revised educational plans for stylists (currently available in only two of its seven markets) nationwide and industry-leading compensation plans for sales associates.
Stenson also plans to streamline the salon services Ulta currently offers. He says, “We have new menus coming out that simplify all the different types of services that we do and all the different categories we offer. It will really target the needs of all the male and female guests that come into our stores. That's No. 1.” Once that is done, new services may be added. “We’ll continue to look at different service assortments and what categories we do not have that maybe we should, so something like eyelash extensions–maybe that’s an area we need to focus more on and add to the service portfolio,” Stenson adds.
“Our guest that gets any type of service done spends, on average, three times more and shops twice as much as a guest who just comes in for retail.”
—Nick Stenson, VP of salon services and trend
A third Ulta Beauty location recently opened in Hawaii, and more stores are in the works, with an estimated 70-80 new shops planned each year for the next three years.
As of the time of publication, Coy revealed that the team was in early talks for holiday 2019 exclusives and leads. (Ulta recently started carrying Kylie Cosmetics and KKW Fragrance for the 2018 holiday season.) “What you see on our floor today for prestige skin care will certainly be evolving in 2019,” she says. “We’re always looking at how we can make that skincare menu more impactful for her. Right now we’ve got a minimum of seven protocols on the Skin Bar menu, and we’re always looking at how we can further fine-tune and make them more multibranded in select stores.”
Ultimately (pun intended), the Ulta Beauty team relies on collaboration among its internal network of experts to deliver the best in-store experience possible. “It’s great to have great partners on the retail and merchandising sides of the business like Penny and Sandy because they’re looking at it through the lens of product innovation and what our guest needs and wants,” Stenson says. “They’re digging into those analytics and I’m digging into what she or he needs, to really make sure that customers feel their best and look their best.”
Ovington agrees, adding, “Nick and I feel that it’s important for us to be partners both to give us a competitive advantage and so that our teams work together to win.”
Penny says, “Nick’s team members are truly authorities regarding skincare services and haircare services ... and my amazing merchant team really hits it out of the park in understanding what’s important in the category. That allows Nick’s team to really help sell it to the guest.”
One thing is clear: Ulta excels at recruiting skilled talent to implement every competitive edge possible in the specialty retail beauty space–whether that's with product selection, salon services, employee development or a loyalty program that fosters an emotional connection with customers. They truly can meet every beauty need in one place. With so many avenues for consumers to buy beauty products today, Ulta is successfully delivering a rich and varied in-store experience that keeps beauty enthusiasts of all ages coming back.
TREND WATCH 2019
Ulta Beauty executives provide their predictions for the coming year.
Penny Coy, Vice President of Merchandising, Prestige Skincare and Fragrance
“‘Natural’ is pretty broadly defined. We’re looking for products that offer both inner and outer well-being. Customers are definitely interested in K-beauty from Korea and, even moreso than ever, J-beauty from Japan. Chemical, cellular-driven solutions too—we have several brands that say their products are ‘where nature meets science.’ And then there are certain ingredients that are just a must-have: for instance, SPF in your moisturizer; I always recommend a vitamin C in the morning and a retinol at night regimen for anyone that’s a millennial or older.”
Sandy Ovington, Vice President of Merchandise
“We do see scalp care as an emerging trend, with detox shampoos and conditioners. There’s potential for a lot more growth in that. Natural and/or clean products we’re seeing as a trend, and that’s going across all categories, including hair care. Dry shampoo is still gaining momentum in 2019, but I think it’s going to evolve in the way that people use it. I think they’re using it for texture as well as a direct, pure dry shampoo. And, we also see that guests are embracing their natural texture. So, you’re seeing guests have curly hair one day, straight hair the next day—she wants to change up her hair.”
Nick Stenson, Vice President, Salon Services and Trend
“We are going to have a huge focus on embracing natural texture for this year. Styling in general has gone to a lived-in, natural kind of realm. And its really about all the new product innovation out there that’s helping guests understand how to use things like a texture spray or how to use a dry shampoo as a styling product because the products have changed. … It’s really about building a foundation—whether it’s in hair, skin or in makeup—so that people understand that there’s tons of options out there, but what’s the right one for you?”
[Photography by Scott Bell; Store images courtesy of Ulta Beauty]