Analysis: Brick-and-mortar retail alive and well at Ulta Beauty
Mass retail is at a crossroads. Many of the iconic brands that are mainstays for our biggest and best malls are announcing layoffs and closures. The traditional brick-and-mortar store continues to see reduced foot traffic and most can’t seem to find a remedy. Amid this retail doom and gloom, however, there is one retailer that is rising above the rest: Ulta Beauty.
In the face (pun intended) of such uncertainty, Ulta announced outstanding fourth quarter results last month and an expansion of its brick-and-mortar footprint. It will open nearly 100 new stores in 2017, with 13 locations set for a remodel. It also plans to open its first-ever Manhattan location on the Upper East Side. While its peers are struggling to evolve their physical presence, Ulta is bracing for more foot traffic than ever before.
How has Ulta achieved such success in the traditionally congested beauty products market? Its beautifully blended online and offline experiences, along with a focus on unique in-store experiences and convenience are inevitably what propelled it to this position. The company’s leaders have thoughtfully pondered its holistic existence — and they’ve nailed it.
For instance, in a try-before-you-buy category, Ulta excels at accessibility and trialability. Reiterating this point, Steph Wissink, an analyst at Piper Jaffray, stated: “People like to be able to experiment with products most notably at the very high-end price range, so Ulta provides a contemporary environment for that process.” This experimental culture makes it tough for niche online players to compete.
Similarly, Ulta has echoed accessibility in its expansion efforts. You’ll typically find it situated in high-traffic, off-mall locations such as power centers. Notably, power centers have grown like weeds in the past 25 years and many include other destination retailers like Dick’s Sporting Goods, PetSmart or Whole Foods. Ulta noticed a shift away from the traditional department store and took advantage of it.
For many, the appeal of Ulta is in its one-stop shop experience. There’s no need for customers to look any further because their favorite brands are all under one roof. The recent addition of Estee Lauder’s MAC brand is further edification of this. Rolling out this spring, it will be in 100 stores by the end of the year. Ulta clearly adheres to its “All Things Beauty, All in One Place” mantra, offering over 20,000 brands from more than 500 brands.
Experience and accessibility are certainly unique to Ulta’s offering, but there may be a bigger context here. Namely, people used to buy beauty products at department stores. However, their sales are down more than 30% since 2001. This left an opening for someone to come in and grab market share in the beauty category, and Ulta is an outgrowth of this.
Ultimately, Ulta’s in-store products and services are what set it apart in the physical retail space. Understanding that salon guests spend nearly triple that of the average customer, it capitalized on the opportunity and this has only further elevated the brand. It’s clear that customers crave unique in-store experiences, but how does this play with its online presence?
It’s all about integration. Ulta’s website allows customers to shop, redeem rewards and book appointments all in one place. Its online presence is largely an extension of the physical store and provides a compelling cross-channel experience.
Additionally, its smart investments in this arena continue to yield dividends. In 2016, it opened a new distribution center in Dallas and expanded distribution capabilities at its Greenwood, Indiana, distribution center, which improved processing times and triggered a 59% increase to its e-commerce business.
Even industry giants like Amazon haven’t been able to crack the competitive beauty market yet.
“Until Amazon creates a drone that can cut your hair, there's a physical and real reason to come to the store,” said Ulta’s CEO Mary Dillon. Retailers who aim to compete in the volatile retail environment should follow Ulta’s example and figure out why customers should shop with their brand, instead of Amazon.
In a world where Amazon exists, how can the physical store be a valuable part of the customer journey? It all comes down to understanding what the biggest points of friction are for your customers. It’s not rocket science – and you certainly don’t need to out innovate your competitors. Retailers simply need to understand their customers, their shopping journeys and the pain points they face along the way.
Today’s retailers should take notes from Ulta’s example. When in-store and online shopping experiences can play well together, customers won’t think twice when choosing where to shop.