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Ulta Beauty Idea Proposal (ULTA)

Ulta Beauty Idea Proposal (ULTA)
 

How much longer can Ulta hold off Amazon?

Report Available: February 27, 2019

 

Blueshift’s initial research found ULTA’s sales growing in stores and online as the company maintains its dedicated customers with new product launches, promotions, and the perks of its loyalty program. ULTA continues to open stores at a brisk pace, successfully fending off the looming threat of online competition to this point. But AMZN is becoming more aggressive in its attempt to disrupt the beauty products market, introducing its private label cosmetics line, experiencing a substantial increase in beauty product sales year to year, and easing the approval process for beauty brands to join AMZN while still protecting their products from being sold by third parties.

 

Observations

  1. ULTA’s Q3 beat expectations while its revenue growth of 16% year to year was in line with expectations. Comp sales climbed 7.8%, matching consensus. Retail comp sales were up 4.4% and e-commerce sales jumped 43% to reach 11% of company revenue. Transactions rose 5.3% and average ticket was 2.5% higher year to year. Sales of gift cards grew 35%. Q4 sales guidance was just below estimates and comp sales are expected in the 7% to 8% range compared to an 8.8% growth a year ago. ULTA announced it expects to open 11 new stores in Q4, on track to increase its number of stores by 100 this year.
  2. ULTA’s loyalty program reached 30 million members at the end of Q3, up 15% year to year, and now accounts for more than 95% of total revenue. Those at the higher tiers of the loyalty program spend more, are three times more likely to be omni-channel shoppers, and have extremely high retention. ULTA’s focus is to continue driving higher sales per member and increase its personalization efforts aimed at these loyal customers.
  3. One area keeping ULTA relevant and customers focused on its retail stores instead of online competitors is an emphasis on emerging brands, new product launches, and the inclusion of influencer and celebrity-driven brands. For instance, Kylie Cosmetics launched 28 SKUs in stores and online in November, backed by the brand’s heavy Instagram presence.
  4. AMZN recently debuted its private label cosmetics collection, Find, available only in the UK, priced under $20, and centered on the basics, for now. AMZN is already the most popular destination for online shoppers looking for cosmetics, providing three category options: luxury/prestige, professional, and independent, which sells brands not typically found in ULTA or others stores. AMZN’s sales of health and personal care items reached $1.9 billion in Q2 2018, up 23% year to year. Its sales of beauty products hit $950 million, a 26% increase, according to One Click Retail, now Edge by Ascential.
  5. AMZN has also made it easier for beauty brands to sell on Amazon, easing its approval process yet still protecting brands’ products from being sold by third parties and unauthorized sellers. This has led more beauty products companies to open themselves up to selling on AMZN, including Sexy Hair’s full product line launching on AMZN’s professional beauty platform Feb. 8. AMZN is also attracting shoppers with its best beauty deals, marking down beauty products of all kinds.
  6. ULTA must also focus on its brick-and-mortar rival, LVMH’s Sephora. LVMH’s Selective Retailing segment, of which Sephora is a part, grew 6% in 2018, up 12% excluding the Hong Kong airport concession closure. LVMH said Sephora experienced another year of growth and market share gains with online sales growing rapidly in North America and Asia.
  7. Blueshift’s May 30 report update said AMZN is not a significant threat to ULTA, according to all but one source. ULTA offers promotions, a popular loyalty program, better prices without shipping charges, the ability to test products, a more generous return policy, in-store consultants, and salon services. The online channel lacks stores’ quality control as customers’ fears of counterfeit makeup abound. Year-to-year sales are up for four sources, on par with expectations for one, flat for one, and down for the remaining source who blamed the rise of AMZN as a destination for makeup purchases. Additionally, sources said store sales have not been hurt by the allegations in January about ULTA reselling used makeup. All of these findings were consistent with Blueshift Research’s Feb. 27 report.

 

How much longer can ULTA hold off AMZN? What is it going to take for AMZN to make a dent in ULTA’s share? What must AMZN do to get shoppers to switch from ULTA’s website to its own? What does ULTA have to do to keep AMZN at bay? Are current beauty trends more likely to have a positive or negative effect on ULTA? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Beauty products manufacturers, Prestige cosmetics retailers, Mass cosmetics retailers, and Industry specialists.

 

Companies: Ulta Beauty (ULTA), Amazon.com (AMZN), LVMH Moët Hennessy Louis Vuitton SE’s (LVMUY)

 

Research Begins: February 11, 2019

 

 

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