Source: Ulta via Bloomberg
Beauty

Can America’s Biggest Beauty Retailer Take On Sephora?

Ask any woman what Ulta is. Chances are she doesn’t know.

Ulta peppers suburban America with its beauty emporiums, offering a wide array of cosmetics and fragrances, from Urban Decay eye palettes to tiny bottles of Versace perfume. It’s the country’s biggest specialty beauty retailer by sales. Despite its aggressive national expansion in recent years, though, many women still have no idea what Ulta is.

And Ulta knows it.

“There are still a lot of women across the country, even in our oldest market of Chicago, who haven’t heard of Ulta,” said Dave Kimbell, chief merchandising and marketing officer at Ulta Beauty. “Or, if they have, they don’t really understand what we’re all about.”

For the first time in its 25-year history, Ulta is trying to change that. Executives led by CEO Mary Dillon sat down last year for a wide-ranging strategic planning session. To keep up growth, they needed to get the name out there. This month, Ulta will stick ads into prime-time shows such as The Voice, Dancing With the Stars, and Scandal, promoting itself as a one-stop shop for all things beauty, selling both prestigious brand names and mass-market essentials. Ulta declined to say how much it’s spending on the new campaigns. Kimbell called it a “meaningful amount.”

The retailer is positioning itself as the fun alternative to competitors like longtime rival Sephora. Where Sephora, which is owned by French luxury conglomorate LVMH, is sleek and chic, Ulta is bubbly and bright. That means lots of vivacious colors and retro graphics. Ulta and Sephora have long coexisted by being just different enough. Ulta rules suburbia, while Sephora’s got that big-city glam and is much larger globally. Step into a bustling Sephora, and you’ll find a lively but small store that can get a bit hectic. Ulta’s locations are big and bright, with an open plan, for the shopper with time to explore the bazaar.

From Ulta's first ever national ad campaign, which is dominated by fun, bright colors.
From Ulta's first ever national ad campaign, which is dominated by fun, bright colors.
Source: Ulta via Bloomberg

Founded in 1990, Ulta took the concept of a specialized beauty store and supersized it. Although not as seasoned or well-known as Sephora, Ulta has more than twice as many U.S. locations. Unlike Sephora’s, its shops are typically standalone, drive-up locations rather than elements of malls.

Both chains found success siphoning beauty shoppers away from their department-store counterparts. Beauty floors at stores like Macy’s and Dillard’s were once the dominant venues for the purchase of fancy makeup and perfume, while the cheaper, mass-market wares were hawked from the discounted aisles of Target, Walmart, and Walgreens.

Ulta has been on a tear. For the fiscal year that ended Jan. 31 it hauled in $3.2 billion in sales, more than doubling its business from five years earlier. And it posted $257 million in net income, up from $71 million, with profit margins steadily widening each year. Shares have risen more than 500 percent in the past five years, to $170. Over that time, Ulta has opened hundreds of new stores. It will boast a fleet of nearly 900 by the end of the year, up from fewer than 400, and is now looking at expanding in the New York metropolitan area and New England.

Who is the Ulta shopper? The retailer calls her a “beauty enthusiast,” a woman who’s into makeup and wants more than the few shelves of essentials stocked at convenience stores. “She takes pride in her savvy mix of products,” Kimbell said. Rather than target a certain set of ages, Ulta wants to draw in women with the promise it can fulfill their entire beauty regimen.

But there’s intense competition for those shoppers. Although struggling, department stores aren’t letting their beauty shoppers go easily. In February, Macy’s acquired Bluemercury, a spa and beauty boutique, for $210 million in an effort to bolster its cosmetics business. Last year, Kohl’s began rolling out revamped beauty shops in its stores. J. C. Penney continues to expand its partnership with Sephora, adding dozens of branded shops within its stores. Meanwhile, upstarts such as Birchbox and Ipsy have entered the fold with new subscription concepts and millions in venture capital funding.

Ulta remains in good shape even though lots of women don’t know the name, said Simeon Siegel, an analyst at Nomura Securities. And more marketing will likely help, he said, as long as the retailer’s got the goods to back it up.

“The reality is national marketing can be very powerful,” Siegel said. “The best thing a company can have is an undertapped audience and a strong product.”

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