This week, Ulta Beauty held an investor day where the company outlined plans to drive profitable growth over the medium-term. Those plans include: (1) investing in key differentiators, including its best-in-class store associates and stylists, distinct service offerings, and signature events; (2) establishing a leadership position in wellness (which we have hinted at this past year); and (3) opening 200 net new stores over the next three years. The 200 was three times investor expectations, where many viewed the brand as too mature and the category too saturated with competition.
On the expansion prospects, President & Chief Operating Officer Kecia Steelman noted, “We are very confident that there are great locations for Ulta Beauty to continue to grow whether it's in a small market format size or a traditional location. It's great because we've got really good 3 prototypes that we're leaning towards the 5,000, 7,500 square foot and a 10,000 square foot prototype. So the flexibility to have that in our portfolio, we're going to go where our market data says that we should be...It's not going to be just a focus on one of those categories. It's going to be where the guest wants an Ulta Beauty.”
However, since 2022, new store productivity based upon sales is running around 75% vs. the pre-pandemic level of under 50%, which is encouraging. What does Placer show in terms of Ulta’s recent openings? The map below shows the 21 new locations from February through August of last year.
The 2023 cohort closely tracks the national average, with visits per location have held steady at 75% of the average for the year.
The chart below shows how the first-half of 2022 cohort is behaving relative to the national average, holding steady at 85% the national average. And so, both the sales and traffic figures for Ulta’s new stores justify the expansion.
On wellness, CEO David Kimbell said, “The definition of traditional beauty is expanding as wellness and beauty are converging, and it is an exciting growth opportunity. Consumers now consider beauty very much part of their self-care and wellness routines. The connection between how someone chooses to express themselves to the world is now deeply connected to overall self-care and wellness. And with that they are using new products to take care of themselves and becoming even more immersed and engaged in the category. For example, guests have told us that they think of skincare and haircare, not just as part of their beauty routines, but very much part of their daily self-care routines. We've also seen fragrance evolve as consumers increasingly are using these products for themselves as simple acts of self-care and joy. And the definition of beauty has expanded into other wellness product categories for expanded self-care. These insights demonstrate an increased personal and emotional connection to beauty that will continue to expand over time. And importantly, we believe the trusted relationship we have with our guests makes us well positioned to support their wellness journey, and we have been expanding our assortment to best meet their needs."
On wellness, Chief Merchandising Officer Monica Arnaudo noted, “Wellness is an important growth lever, and the market is large and growing quickly, reaching almost $400 billion by 2023 and posting 12% year-over-year growth. The market is also incredibly fragmented with no retailer established as a true leader. Ulta Beauty has a right to win in wellness. Per a recent study, consumers ranked Ulta Beauty first as a retailer for trust and carrying wellness products and services above any other retailer in the market. Since launching in 2021, our wellness shop has demonstrated growth and progress. Today, nearly all Ulta Beauty stores have dedicated wellness space. Our assortment is brought to life across seven subcategories spanning nutrition, to sleep, to intimate care, bringing brands that our guests love through our stores and online…So we're committed to building and driving wellness as we know this is a high-growth opportunity for Ulta Beauty. And our focus includes expanding our merchandising footprint in stores, strategically broadening our assortment across our category framework, and building a larger online presence and assortment."
