Carrying a variety of drug store and luxury brands, Ulta has carved a niche as a one-stop shop in a landscape rife with specialty beauty retailers. By developing a deep understanding of its customers and deploying the cutting-edge technology needed to attract them, Ulta has managed to grow sales in a competitive industry and join the Fortune 500 list.
Led by CEO Mary Dillon, who was also named to Fortune’s Most Powerful Women list, the growing retailer is entering new markets, expanding its product offerings, and opening scores of brick-and-mortar stores while competitors go dark. Meanwhile, Ulta is investing in machine learning and artificial intelligence to identify and satisfy consumer demand, a crucial component in its recent runaway growth.
The Ultimate One-Stop Shop
Traditionally, the beauty industry sharply distinguished prestige brands from mass market offerings, and sold cosmetics separately from salon services. As CEO, Dillon supported an unorthodox high-low strategy, positioning Ulta as a one-stop shop featuring a mix of mass and prestige products that range in price from $3 to more than $100. Housing a range of categories under one roof helped the beauty retailer cast a wide but precise net to capture its target customer: “the beauty enthusiast.”
Unlike Sephora and other mall-based beauty retailers, Ulta has located the bulk of its stores in suburban strip malls and urban centers. Visible and accessible from the street, the storefronts help Ulta attract the same customers no longer frequenting enclosed shopping malls, where foot traffic is in steady decline. Significantly, the retailer recently opened its first store in Manhattan, on a busy block in the Upper East Side neighborhood.
This strategy has helped Ulta draw customers from competing beauty retailers spanning department stores to drugstores to Amazon. The visibility and brand recognition helped grow Ulta’s online sales more than 60% in both the third and fourth quarters in 2017 and 56% for the year overall.
Transforming the In-Store Experience
Customers walking into an Ulta store can find close to 500 brands – nearly double Sephora’s portfolio – across every beauty category, from makeup to hair – and skincare. Featuring bright graphics and decorative shelving, the layout is configured to help shoppers navigate different departments and discover new items. Toward the back of the store is a full-service salon where customers can make appointments for skin treatments, makeup application, and services for hair, nails, and eyebrows.
Ulta meticulously tracks its customers’ purchases through its Ultamate reward program to tailor its offerings to the individual shopper. Customers provide their data in exchange for loyalty rewards and customized discounts, which allows Ulta to understand their purchasing behavior and benefit from repeat store visits. As a result of the targeted promotions and loyalty incentives, Ultamate members number more than 28 million and generate about 90% of the beauty retailer’s sales.
In the beauty business especially, building rapport with customers and serving as a trusted resource is key to generating sales and repeat visits. That’s why Ulta encourages its employees both to get to know its customers and to remain relevant by following trends, attending makeup shows and spending more time talking to shoppers, which may set it apart from other beauty retailers.
The company is continuing to bring prestige-level in-store experiences to its mass market offerings by grouping items by trend and brand and providing more visual content and how-to’s alongside displays. Employees will be assigned to the mass brand section to assist customers, who will be able to test products in-store.
Ulta’s merchandising and CRM teams work together to track purchasing behavior, find holes in its inventory, and plan product launches, all of which have helped Ulta grow sales by 60%.
Augmenting the Customer Experience with AI
Ulta has made a number of investments in artificial intelligence and augmented reality to build its digital innovation ecosystem and accelerate the pace with which it implements new technology. In November, Ulta acquired two small tech startups to develop its innovation pipeline and support its AR and AI capabilities.
QM Scientific focuses on artificial intelligence, recommendations, computer vision, natural language processing and visual search, while Glam Street is behind the development of GLAMLab, which powers the virtual try-on feature in Ulta’s mobile app. Both help personalize the customer experience.
What’s Next for Ulta
Meanwhile, Ulta continues to find ways to innovate, testing in-store pickup for online shoppers as well as a salon appointment booking tool. It plans to add more perks to its Ultamate program alongside its new “Diamond Tier” for shoppers who spend $1,200 annually, a demographic Ulta expects to grow in 2019 and beyond.
As a large retail chain with a strong online presence, Ulta is uniquely positioned to evolve alongside other beauty retailers in the industry. Building upon its loyal following will help it continue to compete against online retailers such as Amazon, whose sales in the beauty category are rising, to capture a larger share of the $56 billion industry.
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Editors note: At CB4, we’re inspired by retail industry innovations and the brands leading the way. The retailers we highlight are not necessarily CB4 partners, but simply ones we find interesting and think you will, too.