Home Beauty Products Ulta Beauty Is Poised To Survive The Impact Of Coronavirus – Forbes

Ulta Beauty Is Poised To Survive The Impact Of Coronavirus – Forbes

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The Q1 financial results including sales down 33% for Ulta Beauty

ULTA
were no surprise based on its stores being closed for more than half of the first quarter. A highlight of the earnings call was the success of the curbside pickup rolled out in late April for beauty products, spurring increased sales of make-up products for the first time since the pandemic started. Cosmetics (make-up) accounted for 53% of sales last year but customer demand has dropped and so far this year it accounts for only 49% of sales. Skin care is 24% of the total sales compared to 21% last year. As the period of home confinement has grown longer, consumer sentiment has shifted more toward self-care and the need for beauty products has increased. Other key take-aways from the earnings call were the 2% increase in loyal customers and more cross-shopping for customers who previously only shopped in the stores.

Cross shopping will build loyalty

E-commerce sales, which the company calls direct to consumer, were up over 100% and contribute about 20% to total sales for Ulta Beauty. Mary Dillon, CEO of Ulta Beauty, stated in the call that many customers that have never tried shopping online or using curbside are now using these methods to shop and will likely continue this shopping behavior post-pandemic. The shift in customers from shopping in-store to online or curbside will change their future behavior and build the digital business, making it a larger percent of total sales.

Although e-commerce was strong, margins took a hit

The gross margin for Q1 was 26% compared to last year at 37%, primarily attributed to the shift in online sales which is a more costly business to run. As the pandemic restrictions continued throughout the quarter, product purchases changed. In the first phase, consumers were purchasing mostly soaps and sanitizers, then came a shift into hair and nail care, and finally, after several weeks of being home-bound, purchases shifted to DYI initiatives like at-home color, at-home-spa, and other self-care products.

The future of the beauty business

Although not recession-proof, the future of the beauty industry is more positive than other segments of retail. Based on historical data, consumers spend money in beauty during difficult economic times. Beauty enthusiasts, which are Ulta’s core customers, are deeply connected to the products and regiments that they use daily and are not quick to stop these routines. Beauty also makes people feel better, allows for stress-release and provides the opportunity for people to take part in self-care and self-expression.

Andrew Lipsman, principal analyst of eMarketer, said in a statement, “Overall, the beauty category should see a strong bounce back from the reopening as people look to begin socializing again. U.S. consumers also tend to seek the joy and comfort of small luxuries amid more recessionary landscapes.”

Self-care, wellness and skincare products on an upward trend

Skincare products have experienced an increase in demand. Casey Taylor, vice-president client development of CivicScience, stated, “We are seeing skincare get a bit of an uptick, most commonly with people having been affected by income loss. Skincare products help to reduce stress in ways similar to other segments which have recently increased in interest, like fitness and self-care categories.” While there has been more interest in beauty, considered a non-essential, in the past few weeks, Taylor believes that consumers are re-defining what is essential and non-essential. Stress-relief, health and well-being are critical during difficult economic conditions, so perhaps beauty categories are moving toward being more essential in the minds of consumers.

Reimagining the future of beauty

The Ulta Beauty future relies on five focused areas to reimagine beauty which Dillon discussed on the call.

  1. Expanding the different ways to shop (online, in-store, curbside) will help drive customer loyalty and is proven to create more profitable customers who shop and spend more with the beauty retailer.
  2. Allowing customers to shop through discovery and trial. Store safety measures such as social distancing, one-way aisles, reduced occupancy and plexiglass checkout screens have introduced cumbersome restrictions, but in turn will spark future innovations. For example, GLAMlab and the Ulta Beauty app allow virtual make-up trials.
  3. Focusing on the shifts in customer purchasing and keeping relevant products in key categories stocked. For example, a shift in skincare buying has provided customers the ability to take care of themselves during these difficult times and the company has done a great job keeping up with these demands.
  4. Using the Ultamate Rewards Program to provide customers with a more personalized experience through the use of AI and analytics.
  5. Driving efficiency for growth (EFG) through nimble and responsive supply chains and keeping cost structures in line.

Beauty is a high-touch environment

Although beauty stores may be challenged as they reopen because of their traditionally high-touch environments, Taylor stated, “We are seeing less discomfort with touching and more discomfort over large numbers of people.” For example, consumers are more comfortable returning to the hair dresser, small outdoor gatherings, and smaller settings than to places where crowds are the norm. This sentiment may bode well for Ulta Beauty which has smaller stores.

Location of stores may impact reopening efforts

Many U.S. beauty retailers are located in malls, a location strategy that Ulta Beauty has never played into for their stores. Lipsman notes, “The biggest challenge for re-opening will be for heavily mall dependent retailers like Sephora, as many consumers will look to limit time in-store and in closed environments.” Lipsman discussed how retailers with more exposure to open air environments and strip malls, like Ulta, are better positioned for these dynamics.

While malls have demonstrated great willingness to follow safety guidelines and mandates, some customers are not ready for large enclosed environments with lots of people. Ethan Chernofsky, vice-president of marketing, Placer.ai, says, “The biggest challenge for beauty retailers is the heavy orientation towards malls – a segment that has been taking very significant steps to protect customers and employees with continued restrictions and a staged return.”

Diversification helps retailers to be more nimble in uncertain times

Ulta Beauty’s diversified business model of many brands, salon services, and locations within local communities will position it to come out ahead post-pandemic. The leadership team is very strong and makes decisions based on the impact on customers and employees. Since Ulta carries many brands, it is nimble in product assortments and can adapt to changing customer demands. Chernofsky states, “While certain aspects of retail in the beauty sector will likely evolve because of this pandemic, the decline of certain brands and the rise of others will create powerful opportunities.”

Lipsman thinks that many people are using the lockdown to “cocoon” with the hopes of emerging as a butterfly—a new and improved version of themselves. He continues, “Beauty is a big part of that aspiration, so there is a lot of demand creation occurring at the moment even if near-term sales are sluggish. This suggests there could be a lot of pent-up demand that gets realized as shoppers get back out to the stores.”

Positioned to survive

Although Ulta Beauty did not share sales information for the stores that have reopened thus far, it stated that it is seeing positive initial results. With the focus on increasing the digital footprint and providing customers with multiple ways to shop, it is building deeper loyalty with customers and adding more reward customers. Dillon is leading a strong team that will prevail in the new normal store environment with the five-step plan focused on reimagining the future of beauty shopping.

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