Ulta Beauty attractive to Millennials
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Ulta Beauty attractive to Millennials

The Millennial generation might think more deeply than its forebears about big issues like climate change and business ethics, but it has a superficial side too. As anyone who has gone on Instagram, Snapchat, Facebook, Twitter, YouTube, etc., can attest. It’s no surprise, then, that Millennials are into personal grooming. According to market research firm Euromonitor, beauty speciality is the second-fastest growing industry in U.S. retail (after off-price department stores) over the last five years, with a 48% sales gain. And Ulta Beauty is capitalizing on that growth better than its competition.

Ulta’s incredible path to the top

ulta beauty millennials graph

Source: Yahoo Finance

In the past five years, Ulta’s share price has risen an impressive 235% - with 38% of that coming last year (around four times as much as the S&P 500’s gain). The company is fighting against the ‘common wisdom’ of brick-and-mortar retailers losing traction – largely because its so innovative.

Ulta Beauty sells a wide range of affordable cosmetic products in the same locations where it offers hair styling, eyebrow makeovers, and “face mapping” from professional skin therapists. This simple collapsing of functions in the beauty world has proved game changing. Brian Yarbrough, an analyst for Edward Jones & Co., describes it:

“They are changing the way people shop as they have allowed people to buy both mass and prestige, as well as get salon, brow and other services which historically would have been done at multiple locations. No other retailer offers all three in the same spot.”

Ulta’s combination of salon and retailer has brought a divergent customer base into its stores. This is partly down to choice – whether you want Revlon lipstick ($8) or Estee Lauder ($32), you’ll find it at Ulta – and it’s partly because shopping is an add-on: people go to get a treatment, and find they may as well do their shopping there too. That’s how Ulta has poached custom from even top-end retailers like Bloomingdales.

The business is now the largest beauty specialist retailer in the world with 27% market share. It’s ridden a decade-long growth story to get there, seeing its revenue quadruple to $3.9 billion. And that growth shows no sign of letting up. The company retains its innovative edge, having recently debuted ‘Glam Lab’ – an app that allows shoppers to take selfies and apply virtual makeup prior to purchase.

Sound attractive? According to the data, it does to Millennials.

Disclosure
Dominion holds Ulta Beauty in its Global Trends Luxury Fund.



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