Ulta Beauty (ULTA)
Ulta Beauty (ULTA) was founded in 1990 by Richard E. George and Terry Hanson with the goal of revolutionizing the beauty retail market. Together they raised $11.5 million to create a place where customers could find everything from luxury products to more affordable items. The idea was to democratize the beauty industry in the US and create a new concept that combined a wide variety of products with affordability. ULTA sought to create a new sales channel to compete with high-end department stores, mass merchandisers, beauty salons and other authorized retail outlets for professional products. Its stores became a place where customers could explore and discover new products that were formerly inaccessible and receive beauty advice and services, all in one place. The typical ULTA store has more than 23,000 products and 600 different brands spread across 10,000 square feet, and the average customer is between 16 and 25 years old. The younger generations are more enthusiastic about personal care than their parents and grandparents were when they were their age, and have a greater interest in experimenting and discovering new products to express and define themselves. ULTA focuses on the US, the largest beauty and personal care market in the world, which accounts for 100% of the company’s sales, at least so far (more on that later). With more than 1,350 stores of its own and more than 500 Ulta Beauty at Target shop-in-shops, ULTA offers a full range of hair, makeup, brow and skin products and services.
The beauty and personal care category is emotional and non-discretionary, as customers may opt for more affordable products but choose not to radically switch their personal care routines in adverse macroeconomic periods. According to internal data from the company, 65% of customers surveyed consider beauty to be significantly connected to wellness. Throughout the centuries, people have used different beauty products, but their interest has always remained the same: improving their appearance. According to L’Oréal, the global beauty market has only recorded a single year of negative growth since the beginning of the century – and that was because people could not leave their homes.
The pandemic has reinforced that connection between beauty and people’s most emotional side, their willingness to experiment with new products and – why not – to spend more money on personal care. The industry in the US, which had a historical growth rate of 2 to 5% year after year, enjoyed unprecedented growth between 2022 and 2023, and ULTA’s sales grew by 40% and almost 20% respectively, all while the business remained virtually the same, without any sort of magic formula.
We are now facing the post-pandemic hangover or normalization, one of the reasons why I think it is worth discussing whether ULTA is a good opportunity or a value trap.