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Ulta Beauty: Macy's and Sephora Better Watch Out For This Fast-Growing Beauty Retailer

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Since opening its doors 25 years ago, Ulta Beauty has grown to become one of the top national retailers of cosmetics, fragrances, skin care and hair care products, and salon services. The stores carry over 20,000 products from over 500 brands. The merchandise offering includes well-established brands, emerging brands, and the private label Ulta brand. The stores are large - about 10,000 square feet in size.

Macy’s is a key competitor with their large beauty departments and the recently acquired bluemercury beauty concept as is Sephora with their freestanding stores and shop-in-shops inside J.C.Penney.

Ulta plans to expand rapidly. In 2015 it increased square footage 9.5%, opening 77 stores to end the year with 874 units.  In fiscal 2016 it will open 100 new stores. The company also enjoys a robust on-line business. Sales for fiscal 2015 were $3.9 Billion, up 21% over 2014. Comparable sales rose an impressive 11.8%.

By comparison, Sephora has over 332 freestanding stores, each about 5,000 square feet, plus more than 500 1,500 square foot shops inside J.C.Penney stores.  In North America Sephora has 389 units and about 2,000 stores worldwide. Sephora also operates a strong ecommerce business. While Sephora’s expansion is under wraps since the company belongs to LVMH, I expect a fast rollout in J.C.Penney stores plus a sizable number of additional freestanding units

At year-end, Macy’s had 77 freestanding bluemercury specialty stores plus 6 bluemercury shops inside Macy’s stores. Within 730 full line department stores, Macy’s has huge cosmetic and fragrances departments, making the retailer a dominant distributor of these products.  Macy’s expansion plans include an additional 24 bluemercury stores in 2016 plus 18 bluemercury shops within Macy’s stores.

The New York area is an interesting market to observe the competitive dynamic unfolding in the beauty business. Ulta has 13 units in the greater New York area, but none in Manhattan. On the other hand, Sephora has 33 units in the greater New York area, including 15 in Manhattan. Sitting atop the Manhattan market, with a sizable market share in beauty products, is Macy’s with its high profile, powerful, and spacious headquarter store at Herald Square. Macy’s Inc. also owns the Bloomingdale’s headquarter store at 59th Street, a destination for beauty shoppers in New York City. bluemercury operates a noticeable number of stores on strategic street corners throughout Manhattan and the greater NY metro area.  No doubt there will be many more specialty beauty stores from all three specialty operators opening in Manhattan, and elsewhere in the NY metro area, in the years ahead--all attempting to take market share from Macy’s and Bloomingdale’s flagship stores.

Demonstrating its ability to attract new wanted vendors to its franchise, this week Ulta launched Drybar in 400 of its stores. Bringing Drybar into its stores introduces new styling tools such as buttercup blow dryers, styling and curling irons, as well as Mai Tai Spritzer Salt Spray to the Ulta assortment.

In January 2016, Mary Dillon, CEO of Ulta Beauty was recognized as a Power Player by the National Retail Federation Foundation.  Previously she was CEO of U.S.Cellular.  Ms. Dillon is committed to strengthening Ulta’s brand awareness by utilizing digital, social and broad scale advertising to drive brand engagement and to increase the emotional connection with customers.  As part of the strategy, Ulta revamped its loyalty program, which now has over 12 million members. Offering consumers a great experience to discover beauty is a central tenant of the Ulta branding strategy.

Opening 100 stores per year is a very competitive tool to gain market share from established leaders like Macy’s and Sephora. Offering salon services ensures foot traffic to the stores and is something the others do not have. I think Ulta will be a powerful force in the fragrance and beauty field for years to come, adding to the relentless pressure already bearing down on the department store retailers.