Re-emergence was the overarching theme reported by Ulta Beauty executives participating in a fireside chat hosted by Jefferies on Wednesday, June 23.
Ulta Beauty’s CFO Scott Settersten; COO Kecia Steelman; and CMO Shelley Haus discussed driving future growth with Jefferies’ equity analyst Stephanie Wissink.
The trio acknowledged the re-entry of consumers into stores with pent-up demand for beauty, along with the expanding interest in omni-channel offerings. They also announced the gradual return of testers along with increased samples—a major impetus for trial and purchase.
Proactive steps Ulta Beauty enacted during COVID-19 prepared the retailer for the future. “We invested in new capabilities to drive long-term healthy growth,” said Scott. Strategies included optimization of promotional activities, improvements in profitability, negotiations for reduction in occupancy costs, and effective portfolio management including the closure of 19 stores and efficiencies in store operations.
Ulta revamped its store teams, shifting separate roles of salon and prestige managers into a new position called service managers, who were tasked with events, services in-store and experiential shopping. A former part-time position of operational manager was elevated to full time for greater efficiencies in freight, freight flow and stock replenishment. “We are always looking for efficiencies in our labor model that takes tasks out and converts to consumer facing hours,” said Kecia of the change.
Guests are returning to stores ready to spend, the executives reported. “We are very happy with our store fleet; it looks great and generates strong earnings and cash flow. Brick and mortar will play a very critical role in the beauty space,” forecasted Scott.
Stimulus checks and efforts Ulta has taken in preparation for the return to physical doors is resulting in higher average transactions. Comp sales increased 7% in the first quarter of 2021. The consolidation of shopping trips resulting in bigger baskets also boosted average rings, Ulta executives said. Pulling back strategically on promotional levels as part of an umbrella strategy, called Efficiencies for Growth (EFT), also boosted gross margins.
Although consumer confidence, the lifting of mask requirements and vaccinations are starting to drive greater store traffic, the levels are still about 20% lower than 2019. “It will take a while to get back to pre-COVID-19 traffic numbers,” said Kecia, noting that stores are still operating on fewer hours (salons are at 50% occupancy; stores are at 75%). “But we are encouraged by the momentum we see through Q 1 and into Q2.”
Omnichannel efforts are paying off at Ulta Beauty. Online, Ulta stepped up tools such as its virtual try on GLAMlab, which clocked more than 100 million shades tried over the year through 11 million usages, as well as its Beauty School Live where consumers could interface with brand experts. Ulta also benefitted from its skin analysis app using AR and AI to help shoppers find the right products, said Shelley.
The retailer was quick to bring curbside delivery and buy online and buy online, pickup in store offerings. Not only do both offer greater profitability, but the digital efforts yield rich data on customers that can be used for personalized offers and recommendations. “We can pull back on blanket offers and target hyper-segmented guests. Right now, we are focusing on re-engagement,” Shelley explained.
Ulta executives are optimistic about a revival in makeup, a category that had been trending down even before the pandemic. That was exacerbated as brands took time expanding shade assortments that removed the focus on innovation. Now the floodgates are opening with newness from companies such as M.A.C, NYX, e.l.f. and Maybelline. “We are encouraged with the pipeline we see and expect a back to school like no other, as well as sales from our back half 21 Days of Beauty and what’s to come for holiday,” said Shelley. “We are excited about the intersection of restrictions lifting, people returning to stores and the newness. This holiday will be a re-emergence of life.”
The return of testers, under wraps in stores now, are coming back along with an increase in samples. “We are going to start edging back into tester usage going forward,” said Kecia, adding that GLAMlab is a good augment to in-store sampling.
Skin and hair, the standout categories during quarantine, are expecting to stay strong. Ulta doubled down in the categories with the addition of The Ordinary, Tula, Keys Soulcare and Sunday Riley in skin, a category getting more emphasis to help offset makeup’s declines. “We are continuing to take market share and there is more upside potential,” Kecia said. In hair, the new brands include Briogeo and additional lines for natural hair.
Ulta looks forward to greater opportunities in its salons which nurture greater interaction with customers and stylists while building sales across the entire store.
Updates on the impending Ulta Beauty and Target partnership include specifics that Target owns the inventory while Ulta negotiates the brand relationships. “This is two powerhouse brands coming together. We are looking forward to accelerated growth with a long-term play,” said Kecia.
That partnership along with Ulta’s roadmap to stretch profitability through actions such as store unit economics, managing fixed store costs, personalization efforts and capabilities like BOPUS and shipping from stores help optimize Ulta’s cost structure. “This gives us a lot of optimism for the future of Ulta Beauty,” Scott concluded.