SWOT Analysis for Ulta Beauty

Sierra Aitken Bus 310 Marketing

S.W.O.T Analysis Ulta Salon, Cosmetics & Fragrance, Inc.

Introduction Ulta Salon, Cosmetics & Fragrance, Inc. was incorporated on January 9, 1990, and is now a major beauty retailer in the United States. “Ulta Beauty operates 928 retail stores across 48 states” and a website, in which “more than 20,000 products” are distributed (Company Overview). These beauty products come “from over 500 well-established and emerging beauty brands across” all price points and categories in “cosmetics, fragrance, haircare, skincare, bath and body products and salon styling tools” (Company Overview). This is why the slogan of All Things Beauty, All in One Place is fitting. Additionally, ULTA has its own beauty label that is sold in stores at a lower price point. “The company operates through three segments: retail stores, salon services and e-commerce” where it has a strong presence in all three (ULTA Company Profile). The full-service salon features hair, skin and brow services in every store.

Sierra Aitken

ULTA Beauty

Current Performance ULTA Beauty's parent company is ULTA Salon, Cosmetics & Fragrance, Inc., which functions in the fast-moving consumer goods sector and the personal care products segment.

ULTA positions itself as a full-service salon and a complete shopping experience for all things beauty and personal care in every store. The company’s target audience group are millennials and teens which includes “professional makeup artists, models, actors and young men and women requiring cosmetic and skincare products” (Zigu). The main competitors of ULTA are Macy’s Inc., Sephora USA Inc., Regis Corporations and L’Oréal. Macy’s focuses more on variety of prestige products, being a department store, while Regis and L’Oréal focus on salon products and services. While Sephora is more closely related to ULTA by the way the store looks and the products they carry, it is only ULTA that combines the focus of all its competitors as one entity.

Market Share Today ULTA holds a “4 percent share of the $127 billion beauty market in the U.S,” according to ULTA CEO Mary Dillion (Stevenson). With plans of new store expansion, growing the e-commerce business with the website and mobile app and increasing store productivity, Dillion aims to grow this market share to 8 percent in the next few years.

These are the financial highlights from 2015. The net sales have increased by a factor of 22 percent to a figure of almost 4 billion dollars over the last 5 years. The net income did even better with a 35 percent increase to 320 million dollars over the last 5 years. The number of stores nationwide also increased by a factor of 18 percent over the past 5 years with a count of 874 and still growing.

2

Sierra Aitken

ULTA Beauty

Charts from ULTA Beauty 2015 Annual Report.

Here are the stock value trends over the past 5 years. As you can see the value has exponentially increased since mid-2014 from a value of $100 to around $250 at the end of 2016.

This increase in stock value is a healthy sign of return on investment for the shareholders of ULTA.

Chart from ULTA Beauty “Stock Chart�.

3

Sierra Aitken

ULTA Beauty

S.W.O.T Analysis Strengths The biggest strength of ULTA is its business model. Convenience is key. Usually, a shopper would go to “department stores for prestige products, drug stores and mass merchandisers for mass products, and salons and authorized retail outlets for professional haircare products” (Company Overview). The ULTA company developed a unique concept that offers a convenient shopping environment. With ULTA, shoppers get the benefits of a department store, mass merchandisers and salons all in one experience, hence the slogan, All Things Beauty, All in One Place ™. ULTA’s active relationships with over 450 vendor partners also stands the company above their competition. The strong collaboration between the company and its vendors provide access to a “diverse portfolio with 20,000 products,” and steady supply chain, keeping the ULTA stores always stocked (Zigu). Because of the broad array of products offered, ULTA appeals “to a wide range of customers including women of all ages, demographics and lifestyles” (Company Overview).

Another strength is ULTA’s unique employee-customer experience. ULTA has over 19,000 employees, or “beauty advisors,” are well-trained and work without commission to provide “unbiased and customized advice tailored to our guests’ needs” (Company Overview).

ULTA offers relevant, innovative, and often exclusive products and deals that excite our guests along with exceptional services in three core areas: hair, skin health, and brows. This customer service strategy, “attractive store design and compelling e-commerce offerings combine to create a unique shopping experience” for our customers (Company Overview).

4

Sierra Aitken

ULTA Beauty

Along with top notch employee interaction with ULTA shoppers, ULTA also thrives with an experienced management team. The senior management team “brings a creative merchandising approach and a disciplined operating philosophy to our business” (Company Overview). ULTA still continues to support growth with expanding the depth of management at all functional levels.

ULTA’s Customer Relationship Management (CRM) platform offers a loyalty program, called Ultamate Rewards. “Over 18 million Ulta Beauty guests are active members of our Ultimate Rewards loyalty program” (Company Overview). Targeted promotions are offered through the CRM, along with “promotions, coupons, in-store events and gifts with purchase” which makes the e-commerce aspect of the company very interactive and desirable to the consumer (ULTA Company Profile). ULTA uses this “database to drive traffic, better understand guests’ purchasing patterns and support new store site selection,” creating an online shopping experience tailored to what ULTA shoppers desire most (Company Overview). Not only is this CRM a universal platform for targeted promotions and data collection, but it serves as a beneficial marketing tool that gets people in the stores and buying more while they are there.

Weaknesses In contrast to ULTA’s strengths, its brand awareness is limited as compared to some global cosmetic brands. Its competitor, Sephora, although small in numbers in the US, is widely popular globally. Sephora leads in the international beauty retail race and is now operating in “30 countries and has more than 1,750 points of sale” since Louis Vuitton bought the company in 1997 (Loeb). Some of these countries include headquarter and flagship stores in France, Shanghai, Hong Kong, Russia, the Middle East and other countries in Asia and Europe. ULTA falls behind on a global scale, with no international stores.

5

Sierra Aitken

ULTA Beauty

As mentioned in the market share section, ULTA, although very successful, only holds a 4% market share in the cosmetics industry. The issue here is that the cosmetics and beauty product industry is so competitive and large that “individual companies have limited market share” (Zigu). Unfortunately, ULTA is in an industry that has limited flexibility in market domination, unlike Samsung in the mobile phone industry with a huge 22.4 percent market share. This forces ULTA to keep its competitive edge in its industry because it is easy for the largest market share to shift from ULTA to another competitor as all shares are spread vastly thin between competitors.

Opportunities ULTA has the opportunity to acquire new guests and deepen loyalty with existing guests.

The best customers are the ones ULTA already has because of their knowledge of the company and loyalty to the brand. Therefore, ULTA would benefit to focus promotions towards their current clientele. With the CRM platform, ULTA has unlimited possibility for online marketing towards people who are already engaged and ready to spend money.

ULTA can also “invest in infrastructure to support guest experience and growth, and capture scale efficiencies” (Company Profile). This means the company can create more locations, change store layout, or add stations within the store to suit the desires of ULTA’s audience or changes in beauty trends. For example, if enough shoppers at ULTA requested manicure services, the company has the opportunity in expanding one of their beauty services by creating a nail salon station in store. This constant innovation, the ability to introduce new services and expand in infrastructure helps maintain sustainable growth.

6

Sierra Aitken

ULTA Beauty

It was mentioned that ULTA struggles with brand recognition globally and it is difficult to hold the single majority in market share in the cosmetics industry. However, the company has the opportunity to grow “market share in the US, as the company is targeting to open more stores and expand e-commerce” (Zigu). CEO Mary Dillion aims to grow their market share from 4 to 8 percent in the next few years which can be done with their current business plan of expansion and a more in-depth shopping experience online.

Threats A major outside threat to the company is the fact that the fashion and beauty industry changes so rapidly and unexpectedly. In order to stay up to date in beauty consumer trends, ULTA must put out a lot of time and money in order to search for new products and establish new supplier relationships. The worst case scenario is the growing popularity of women (the major consumers of cosmetics), going “all-natural,” meaning they limit their spending on cosmetics and choose to live without beauty products. Trends like this have become more popular with body awareness campaigns supporting the “naturally beautiful woman.” Although, this is a worthy cause towards boosting the confidence of women everywhere, it can result in loss of sales for makeup retailers such as ULTA. Also, “cosmetic products might not suit people with sensitive skin” (Zigu). With increasing allergies to certain beauty products, ULTA will have to accommodate to more and more consumers with special need of specific products. If ULTA doesn’t carry the specific product the consumer is looking for, they will look elsewhere. Also, it will be easy for the consumer to blame the products they bought from ULTA for giving them an allergic reaction,

7

Sierra Aitken

ULTA Beauty

giving ULTA a bad review. Besides this, the consumer with allergies may decide to not wear makeup at all, leading to loss of sales.

Another outside threat is the wide range of substitutes available. It is difficult for ULTA to advertise a certain product and turn that into sales when there are many cheaper alternatives available elsewhere. Consumers often want a product based on price, and will sacrifice brand loyalty for a cheaper generic brand. Online shopping services such as Amazon is a huge culprit for selling a wide range of “knock off” products worldwide. The competition of demand for ULTA’s products as opposed to cheaper products that are easy to access is therefore very high.

Recommendations Based on the above S.W.O.T analysis, I have some recommendations for ULTA Salon, Cosmetics, & Fragrance Inc. First of all, I would implement an additional service of a small nail salon in the stores. So far they have a hair salon, makeup application, a brow bar and a facial station, so I think adding a service for manicures would truly make ULTA the one stop shop they aim to be.

I would also advertise and focus marketing on their ULTA Beauty line of products more heavily. If there is an issue of shoppers looking elsewhere for cheaper substitutes in product, then I would show them that the ULTA brand of cosmetics is a cheaper alternative in store.

Shoppers can still go to ULTA and find affordable, good quality products. My other recommendation would be to expand the ULTA line to hair care aswell so that shoppers can have a cheaper alternative to the more expensive salon brands of shampoo.

ULTA also needs to expand their product range for men. Although women are the big money spenders in cosmetics, ULTA only carries a small amount of fragrance, skin care and

8

Sierra Aitken

ULTA Beauty

hair care products for men. In relation to the amount of products for women there are in the store, the men side of the shelf is very small. ULTA would benefit in improving the shopping experience for men, so when they bring their female companions in to shop, they can also shop for themselves, rather than wait by the door.

My final recommendation would be to expand national TV and online advertising so that a strong fan base is established in towns and cities where ULTA plans to expand before they get there. This will help ensure the success of new stores, and push ULTA forward to their goal of doubling their market share with the next few years.

9

Sierra Aitken

ULTA Beauty

Bibliography 2015 Annual Report. Rep. ULTA Beauty, 30 Mar. 2016. Web. 15 Nov. 2016. http://ir.ulta.com/phoenix.zhtml?c=213869&p=irol-irhome "Company Overview." ULTA Beauty. ULTA Salon, Cosmetics & Fragrance, Inc., 2016. Web. 15 Nov. 2016. http://ir.ulta.com/phoenix.zhtml?c=213869&p=irol-homeProfile&t=&id=& Loeb, Walter. "Sephora: Department Stores Cannot Stop Its Global Growth." Forbes.

Forbes, 18 Apr. 2013. Web. 21 Nov. 2016. http://www.forbes.com/sites/walterloeb/2013/04/18/sephora-department-stores-cannot-stop-itsglobal-growth/#14407e0c2286 Stevenson, Abigail. "Ulta Beauty CEO Wants to Double Market Share." CNBC. CNBC, 13 Oct. 2016. Web. 17 Nov. 2016. http://www.cnbc.com/2016/10/13/ulta-beauty-ceo-wants-todouble-market-share.html “Stock Chart.” ULTA Beauty. ULTA Salon, Cosmetics & Fragrance, Inc., 2016. Web. 15 Nov. 2016. http://ir.ulta.com/phoenix.zhtml?c=213869&p=irol-stockChart "ULTA Cosmetics and Fragrance Inc. Company Profile." Reuters. Thomson Reuters, 2016.

Web. 15 Nov. 2016. http://www.reuters.com/finance/stocks/companyProfile?symbol=ULTA.O Zigu. "ULTA Salon, Cosmetics & Fragrance | SWOT Analysis | USP & Competitors." MBA Skool. DISQUS, n.d. Web. 15 Nov. 2016. http://www.mbaskool.com/brandguide/lifestyle-andretail/13796-ulta-salon-cosmetics-a-fragrance.html

10