Ulta Salon, Cosmetics & Fragrance wants to be every woman's ultimate beauty stop. The company operates more than 700 stores nationwide. About a third of its locations are in Illinois, Texas, Florida, and California. Ulta stocks more than 20,000 prestige and mass-market products, including cosmetics, fragrances, skin and hair care products, salon styling tools, and accessories. Stores offer hair salon services, as well as manicures, pedicures, massages, waxing, and other beauty treatments. In addition to its brick-and-mortar presence, the company markets more than 20,000 products and more than 500 brand names through its e-commerce site. Ulta was founded in 1990 by Terry Hanson and Dick George.
Ulta operates about 715 stores across 47 states. Illinois, Texas, Florida, and California make up more than a third of its stores network.
The retailer operates its business through one reportable segment. Ulta combined its three operating segments -- retail stores, salon services, and e-commerce -- into one reportable segment, because it determined that each previous segment boasts a similar consumer, economic characteristics, nature of products, and distribution methods.
Ulta's operations are supported by three distribution facilities located in Illinois, Arizona, and Pennsylvania. (A fourth is slated to open in the Dallas area in late 2015.) The retailer carries more than 20,000 products and replenishes its stores with less-than-case quantities to allow it to ship less than an entire case when only one or two of a particular product is required. Its distribution facilities use warehouse management and warehouse control software systems, which has been upgraded or installed during the past three years.
The beauty products chain has strung together a decade of steady revenue and profit growth, uninterrupted by the Great Recession and downturn in consumer spending. Indeed, its revenue has quintupled from about $491 million in fiscal 2005 (ended January) to nearly $2.7 billion in fiscal 2014.
In the latest annual comparison, Ulta's sales increased 20% -- to $2.7 billion in fiscal 2014 from $2.2 billion the prior year -- while its profits rose 18% during the same reporting period. The company attributes the revenue boost to several successes, including a salon service sales increase of 20%, the opening of 125 new stores, same-store sales growth of 8%, and a 74% increase in online sales. Its continued profit growth was driven by the double-digit sales increase, together with an increase in interest income.
Ulta's ultimate goal is to grow its US stores network to approximately 1,200 locations. It aims to continue opening stores in markets where it currently operates and in new markets as it tracks its long-term target of 15% to 20% new store growth rates. It has found success opening new locations in diverse markets nationwide. To this end, the retailer opened 127 new stores in fiscal 2014, marking a 22% increase in square footage growth. Meanwhile, Ulta remodeled seven stores and relocated four others over the same period. During the past two years, the company has focused on opening new stores in existing centers. It anticipates following this store growth strategy for several more years. To support its growing business, Ulta will break ground on a new $18-million, 670,000-square-foot distribution center near Dallas that's expected to be completed in late 2015. Ulta is projecting that the new facility will generate almost $14 million in sales from e-commerce transactions in its first year of operation.
Ulta's strategy is to benefit from a change in where women -- especially younger generations -- purchase their beauty products. As department store operators have consolidated and slumped in recent years, specialty stores (such as rival Sephora) have been looking to capture a bigger share of the market for prestige beauty products. To that end, Ulta is focused on expanding its range of higher-priced "prestige" products, such as Estée Lauder fragrances, Frédéric Fekkai hair care products, and Smashbox cosmetics. The prestige category is the beauty industry's highest growth category. As part of this push, Ulta added popular fragrance brands Coach, Dolce and Gabbana, Cartier, Fendi, Chloe, Marc Jacobs, Oscar de la Renta, and Thierry Mugler. New cosmetics brands include Dermalogica, Philosophy, Dr. Brandt, Juice Beauty, Vichy and La Roche-Posay, Benefit, Butter London, CK One, and Laura Geller. It hair care additions include DermOrganic, Living Proof, Ouidad, and Carol's Daughter.
It is also working to drive more customers to its revenue-generating salon areas for hair, nail, and facial treatments. A cornerstone of the Ulta business is its work to build customer loyalty. The beauty retailer maintains an ULTAmate Rewards program (for purchase-based points) and a nationwide program that offers certificates for free beauty products.
Since its IPO in 2007, which raised more than $150 million, Ulta has aggressively expanded its retail footprint, opening hundreds of stores. With a goal of growing its stores network to 1,000 locations, Ulta's expanding its distribution capacity. The company operates two distribution facilities -- located in Illinois and Arizona -- that support both its retail and e-commerce businesses. To keep pace with its expansion plans, Ulta's building a third 370,000-sq.-ft. distribution facility in Pennsylvania in 2012.
Sales and Marketing
Ulta's advertising expenses consist of paper, print, and distribution costs related to its advertising circulars. Total advertising costs, excluding incentives from vendors and start-up advertising expenses, came to $140,774 in fiscal 2014 (ended January) compared with $118,365 in 2013.
Through a multi-faceted marketing strategy, Ulta looks to increase brand awareness, drive traffic to its stores and e-commerce website, acquire new customers, improve customer retention, and increase the frequency of shopping. It communicates with customers and prospective customers through direct mail catalogs and free-standing newspaper inserts, which aim to highlight the breadth of its selection of prestige, mass, and salon beauty products, new products and services, and special offers.
Its online marketing strategy includes search engine optimization (SEO), paid search, mobile advertising, affiliate relationships, social media, display advertising, and other digital marketing channels. Ulta’s email marketing programs are effective in communicating with and driving sales from online and retail store customers.
Ulta offers private label products in key categories, such as cosmetics, skin care, and bath. Because its products portfolio includes items targeted to the prestige, mass, and salon markets, Ulta appeals to a wide range of customers, including women of all ages, demographics, and lifestyles.
The retailer fills its stores with help from some 300 product vendors, which altogether offer more than 500 brands. Its top 10 vendors include the likes of Bare Escentuals, Farouk Systems, Procter & Gamble, Coty, and L'Oréal. The group represents about 53% of Ulta's total annual sales.