US Insights

Ulta's Growth Goes Beyond Kylie Cosmetics Deal

Tiffany Hogan

Senior Analyst

Retail 09.06.2018 / 09:00

Ulta_Beauty,_Lakewood_Village

Ulta's investments across its business will set it up for long-term growth.

Ulta continued as expected in Q2 with a 6.5% increase in comp sales and a stellar 15% topline growth, driven by the opening of 19 stores and 37% growth online in the quarter. While double-digit growth is exceptional in this market, digging deeper shows how Ulta has and will continue to place its bets to grow in the fast-moving beauty market.

Improving In-Store Services

Ulta is investing in its salon business as these are some of its most lucrative shoppers. Guests who use Ulta’s beauty services spend nearly three times more than those who shop retail only. Ulta is hoping to improve upon its 1.7% salon comp in Q2 by investing in its Services Optimization program, a model that “improves and simplifies the guest and associated experiences with changes to pricing, training, and compensation.” Basically, Ulta wants to improve its services in stores and convert more of its beauty enthusiasts into high-value shoppers.

Gaining Share in Prestige Beauty

Expanding into prestige beauty has been a strong focus for years and is paying off. According to NPD data, Ulta gained 210 bp of share in this market so far in 2018. But not all brands are performing equally. Leadership noted a nameless handful of “larger” brands that were not seeing the same levels of growth that they have in the past, nor in comparison to some newer, smaller brands. This is reflective of trends we’re seeing in the wider industry: i.e., shoppers are starting to favor niche brands over bigger names in many cases. This is likely why Ulta is hedging its big brand bets with …

Investing in DTC

The big headline that sent stock prices skyward last week was the announcement that Ulta would be the exclusive initial retail partner of Kylie Jenner’s Kylie Cosmetics line. Though the landing of one of beauty’s most buzzworthy and successful direct-to-consumer (DTC) brands (the brand has 17.2 million Instagram followers and is estimated to be worth nearly $1 billion) is a triumph, it is not the first DTC brand Ulta has partnered with. It’s also brought on brands such as ColourPop and Morphe, and will sell niche digital brand Juvia’s Place, a brand that also demonstrates Ulta’s focus on diversity, as a brand inspired by the beauty of African queens.

Getting the Right Mix for Success

Landing Kylie Cosmetics will likely be a perceptible boost to the topline, especially in the near term. But it is Ulta’s long-term focus that demonstrates how it is setting up for success. In response to the trend toward smaller niche brands, CEO Mary Dillon hit the nail on the head: “[The trend toward smaller brands] is certainly going to be the dynamic going forward and our goal is to bring our guest really everything that she wants across the spectrums, but … it doesn’t mean that that any one is going to win in the long term, I think it’s the mosaic of being in all those sectors of the market.”

As larger brands shift in prominence, Ulta recognizes that these brands are still important to a large share of shoppers, and that it is constant innovation to get the mix right that will set it  up for success in the long run.

Source: Kantar Consulting

Editor's Notes

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