Ulta Doesn’t Want to Be Sephora

The retailer is counting on its high-low strategy and stellar rewards program to resonate with new shoppers.

When retailers want to get some attention and rebrand themselves, they’ll often open a splashy flagship store in New York City. Ulta, which built its business by opening stores mostly in suburban strip malls, took 26 years before it finally committed to putting a store in our country’s mecca of fashion and beauty. And that store, slated to open in the fall of this year, will be in a distinctly uncool stretch of the Upper East Side. (It does have stores in Staten Island, the Bronx, and Queens, but this will be its first Manhattan outpost.)

Ulta’s strategy over the last few years has been elevating without alienating. The chain’s business model is unique, selling both high-end (prestige) brands like Urban Decay and drugstore (mass) brands like L’Oreal, as well as a full line of haircare and hair tools. It also offers a full hair salon in every single store, Benefit brow services, and Dermalogica facials. Ulta really is trying to be everything to every beauty shopper in the most inclusive way possible. But up until recently the store really didn’t have its own identity, instead functioning more as a clearinghouse for all the brands it carried.

The team at Ulta, led by CEO Mary Dillon, who was hired in 2013, knew it had some work to do. A long history of offering coupons and deals led Dillon to think that the brand was on a “race to the bottom,” according to an interview in Fortune. The perception among shoppers was that the chain was a bit down-market and maybe not as inclusive of different types of women in its visuals as it could be. It’s now doing something right apparently, because in 2015 Ulta surpassed Sephora as the country’s biggest beauty retailer, snagging a whopping 27 percent of market share, according to Bloomberg.

Shelley Haus, Ulta’s vice president of brand marketing, says that when she started there a few years ago her first priority was to build awareness that Ulta, you know, exists. At the time, around 70 percent of people polled knew what Ulta was; it’s now 84 percent. “[People] would say, we don’t know what it is but we think it’s a beauty supply company,” Haus said, while giving me a tour of a newly remodeled store in downtown Chicago.

Ulta’s fortunes have clearly improved, and it’s taken on a cheery new face. Newly designed stores, which are bright and airy while also feeling like frenetic hives of activity at times, feature two new branded Ulta colors, “Orange Pop” and “Mad for Magenta.” A bubbly font seen throughout the store, on printed materials, and on the website is called “Fun Side Font,” a nod to Ulta’s internal mantra that it focuses on the “fun side of beauty.” Its unofficial tagline is, “Fresh, fun, and real;” it’s official one is “All things beauty. All in one place.” Customers have been dubbed Beauty Enthusiasts.

It’s hard not to compare Ulta to Sephora, and the two are really yin and yang to each other. One Ulta executive I spoke to jokingly referred to Sephora as “our dark and moody sister competitor.” Haus says, “[Customers] feel like our store layout and our associates are super approachable,” maybe more so than at Sephora, whose parent company, LVMH, is based in Paris and is known for its luxury brands. Ulta is all about embracing the high-low mix.

Part of Ulta’s vibe is attributable to the fact that it is a Midwestern company through and through. It was founded in 1990 by two former executives from Osco, a regional drugstore chain. The two men, Dick George and Terry Hanson, avoided malls and metro areas, building stores primarily in strip malls in suburban areas, which ended up being pretty visionary in light of the turmoil that malls are now in. The brand’s headquarters, which also just got a facelift to reflect its updated identity, is in a nondescript corporate park in the Chicago suburb of Bolingbrook, IL.

“There probably is a Midwestern sensibility, especially if you think how the store has grown up and its approachability,” Haus told me. “It starts here in Chicago and emanates throughout the rest of the company as we’ve grown and hired.” People from Chicago are known to be a pretty no-BS kind of bunch. That’s true of Ulta, too, except what you’re seeing now is a little shinier than it used to be.

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There are now 974 Ulta stores in the US, and the brand has plans to open 100 a year over the next several years, focusing more on metro areas than it has in the past. Older stores have been getting facelifts at a breakneck pace. Ulta can remodel a store, which is usually about 10,000 square feet, in about three weeks.

That high-low assortment is presented diametrically in store layouts. When you walk into Ulta, you’re confronted with either a fragrance display or the Benefit brow bar in the center. Prestige products are on one side of the center display and mass products are on the other. Urban Decay and NYX, two of Ulta’s biggest and most popular collections in each of those respective categories, tend to be the brands in a colorful face-off at the entrance to the store.

The chain now carries about 500 different beauty brands. If you’ve been a long-term Ulta shopper, you’ve probably noticed the increase in the amount of upscale brands there, which has been key to its growth and prosperity. In 2016 alone, it added Estée Lauder, Origins, Nars, Shiseido, Tarte, Honest Beauty, Anastasia Beverly Hills, and Julep. Urban Decay and Benefit have been at Ulta for years, and Benefit’s brow bars, where you can get brow services done, are are getting front-and-center billing in new Ulta stores because they’re so popular.

According to a Citibank equities research report shared with me, Ulta’s share in the prestige market has grown from less than eight percent in 2013 to over 13 percent in 2016. Prestige brands are a focus of the company because it’s where the biggest growth has been in the beauty industry in general. Customers want brands like Urban Decay and Nars. However, prestige brands haven’t always wanted to be a part of Ulta.

Prestige brands haven’t always wanted to be a part of Ulta.

Tara Simon, the senior vice president for merchandising in prestige beauty, calls the relationship she has with prestige brands a “dance.” She says Clinique, which now holds a place of honor in many Ulta windows, took years to build up to the presence it has now. “Nars was another obvious void. It’s clearly a brand that beauty enthusiasts love, and Orgasm is the number one selling blush in America. There’s nobody even close to it and so that was one that I really wasn’t sure that we would ever get,” Simon told me. (Nars declined to comment for this story.) It launched right around Thanksgiving last year and you can currently buy 16 Nars products online and a smaller assortment – yes, including Orgasm – in all Ulta stores.

Diorshow mascara is another example of a dance with some complicated choreography. Tammy, 45, an occasional Ulta shopper, noticed it in her local store in suburban Chicago last year and was surprised to see it. “It was in one of those freestanding cardboard things like you’d see at Wal-mart maybe. I had to do a double take.” Upon a visit to an Ulta in Norwalk, CT recently, I noticed the Diorshow displayed on a freestanding tower away from the prestige side but close to the checkout. It was backed up to a Nars display on its own separate tower.

Landing Diorshow mascara, the only non-fragrance Dior item that Ulta carries, was tricky. Ulta saw a trend of customers searching for it on the website. “[Our customer] was pretty darn sure she wanted some Diorshow mascara,” Simon says. “We have an established relationship [at Dior] and people we do business with like us. But it’s a time commitment, trust me.” Currently you can only buy it in stores, not online. Simon was coy about other Dior cosmetics being added, and Dior did not respond to requests for comment.

Brands like Proactiv and Estée Lauder, however, were more eager to partner with Ulta. Ulta is the first brick-and-mortar location where you can buy Proactiv’s products, and you don’t need to subscribe or buy kits the way you do on the brand’s website – you can purchase products separately. And Ulta so far seems to be a good fit for Estée Lauder, which has been looking to find new, younger fans. It launched in 30 stores with a fancy display area as a trial as well as online.

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In an email, Lisa Sequino, senior vice president and general manager for Estée Lauder North America, called Ulta "a natural retail partner" for the brand. "It has been a successful relationship," she wrote, "We are excited to continue to grow with Ulta.” The Double Wear foundation, which has a following among YouTube and Instagram beauty aficionados, has been a hit, as has its classic Advanced Night Repair.

One key to convincing more upscale brands to sell their products at Ulta was showing them how customers buy Ulta’s mass brands. Ulta executives refer to it as “mass migration,” with more inexpensive brands acting as a sort of gateway drug to the tempting $50 Urban Decay eyeshadow palettes that sit across the aisle.

According to Ulta statistics, a new customer who starts out buying 100% mass in her first year as an Ulta customer spends about 40% in mass and 60% in prestige by her fifth year. Seventy-seven percent of Ulta’s Beauty Enthusiasts buy both mass and prestige.

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are full of posts of women bemoaning the fact that they went into Ulta to pick up one quick thing and ended up spending $100.

But even if you really don’t have the budget or inclination to buy $30 mascara and you possess some self-control, Ulta has a huge collection of inexpensive brands, from drugstore staples like L’Oréal and Maybelline, to cool social media-savvy brands like e.l.f. and the UK brand Makeup Revolution. Ulta also has the largest selection of NYX outside of NYX’s own stores, and it’s been experimenting with testers in stores, a concept that is still unheard of for mass brands. You can often see young women sitting on the floor playing with NYX products in front of the inviting and semi-futuristic NYX display, which looks like it should be over on the prestige side of the store.

Ulta’s biggest secret weapon now, however, and the thing that is most beloved by its shoppers, is the Ultamate Rewards Program. Twenty million people are members, and Ulta says 90 percent of its shoppers use the program. This means that the company has an insane amount of data on shoppers.

For example, typical Ulta shoppers own an average of two flat irons, 11 lipsticks, and five makeup brushes. They’re overwhelmingly female and they range from age 13 up to the 70s. Mom and daughter duos abound, and of the five Chicagoland Ulta stores I popped into over the holiday season, I saw these pairs shopping (and arguing) in Ulta over and over again. The system also knows whether you favor skincare or eye liner, and the system will flag employees to have samples waiting for you at checkout based on your shopping preferences. It’s Big Brother Beauty.

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Based on very unscientific scrolls through blogs and Reddit, people seem to prefer Ulta’s program to Sephora’s version. Sephora limits what you can “purchase” with your earned points to just a few items that it makes available, although it also offers early access to sales and special promotions, and things like free shipping.

Ulta’s old rewards program was similar, in that it allowed you to earn certificates that you could redeem for specific products. The retailer has since done away with that in favor of a points program. For every dollar you spend, you earn one point. Ulta ups the ante during special shopping promotions where specific brands will offer multiples of points when you purchase its products or double points during your birthday month, for example. Points can then be redeemed as cash on any products you choose, rather than just a small assortment of things you might not be interested in.. One hundred points is worth $3, 250 is worth $8, on up to 2,000 points worth $125 off. There’s even an Ulta credit card that grants double points when you use it.

A whole community has popped up online to game the system, which has some pretty elaborate tiers and rules. Eric Messerschmid, Ulta’s senior vice president of marketing, loves it. “I want customers to be engaged with our brand,” he says. Some shoppers, like this Redditor who broke it all down in a plot graph, share their best practices for getting the most mileage out of the program. Messerschmid says that customers prefer the new points system to the old one by a huge margin, based on polling the company did.

There are areas where Ulta is still hoping for more growth. The Ulta Beauty Collection, which has been totally overhauled in the last two years and earned some prime wall space in stores, is growing and improving. This collection is relatively inexpensive and features trendy products like contour kits for $18 and classics like foundation for $14.

“Instagram-famous” is clearly also an area that Ulta is starting to focus on. BH Cosmetics won a spot for a few of its products, thanks to the Carli Bybel palette, which sold robustly because of the Instagrammer’s mega-popularity and 4 million followers. Ulta had initiated talks with Colourpop, but that brand wasn’t ready to give up its current online-only model. But expect to see more of these indie brands.

Ulta is also unique when it comes to its haircare offerings. While the brand is still figuring out how to get more of its customers to take advantage of the in-store salons, having these salons is what allows Ulta to carry salon-only brands like Redken and Matrix. (Salon brands loyally sell only to salons due to a longstanding tradition in the industry.) You can also try 50 different blowdryers, from a $30 Conair to the $400 Dyson, and an array of futuristic heat tools.

The breadth of the collection begs the question of whether it might be cannibalizing any of Ulta’s other brands. Executives talked a lot to me about “white space” where certain products or categories were missing in the stores and choosing brands that don’t duplicate what others are already doing. But it gets tough with 500 brands. Julie Tomasi, the senior vice president of merchandising in charge of mass and the Ulta Beauty Collection has this to say to brands that may be concerned: “Then you need to step up your game. We are always going to strive to continue to raise the bar. We want there to be a little bit of friendly competitive pressure there.”

Speaking of competition, Ulta will be up against some as it blazes new trails into metro areas with customers who are used to being marketed to with aspirational brands sheathed in pale pink and oh-so-chic packaging. Ulta stores don’t look luxurious, but who cares when you can get a haircut, a facial, try out 50 blow dryers, grab some shampoo, and pick up a $7 mascara and a $100 fragrance all in one place?

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