Ulta's online sales soared in the latest quarter (ULTA)
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Beauty retail chain Ulta experienced significant growth during Q2 2016, with its e-commerce business experiencing the biggest bump in sales.
Ulta has focused its online efforts on providing speedy fulfillment and expanding its product selection, in order to create loyal shoppers who will return for future purchases. The company has significant advantages over its competitors, but there are still digital tools it has yet to explore, which could further drive sales growth.
Ulta's sales — both online and offline — experienced stellar growth during Q2:
- Total sales crossed the $1B mark for the third consecutive quarter: Total sales for Ulta during Q2 2016 advanced nearly 22% year-over-year (YoY) to total over $1 billion. The beauty retailer usually crosses this line during Q4, thanks to the busy holiday shopping season — but it's posted over $1 billion in sales each quarter so far this year.
- The second quarter's growth was largely spurred by e-commerce: Online sales for Ulta during Q2 reached nearly $56 million, marking 55% YoY growth. Ulta's online sales have been steadily growing since 2014.
Ulta credits its new distribution center with helping to grow its digital business. The company opened a new distribution center designed to easily fulfill online orders in Dallas in early July. This center is now handling about 30% of the company's total e-commerce volume, as well as that of 90 physical Ulta locations, noted CEO Mary Dillon on the earnings call. It is expected that the distribution center will be processing 25,000 e-commerce orders per day by the end of the holiday season. Speedy fulfillment is vital for any online retailer, but Ulta's focus on shipping is especially pertinent.
The retailer prides itself on carrying inventory that ranges from high-end, higher-priced cosmetics to products that shoppers can get in a local drugstore. By stocking generic products that could easily be picked up elsewhere, Ulta is more vulnerable than its competitors to the pressures of speedy fulfillment. That said, if Ulta continues to ramp up its efforts when it comes to fast delivery, it will likely become a stronger competitor in the online beauty market.
Adding new product lines is helping to attract new shoppers and drive up sales. Ulta added numerous brands to its inventory recently — with many launching online exclusives unavailable elsewhere or even in Ulta brick-and-mortars — including Shiseido, e.l.f., Gillette, and Estée Lauder.
Expanding inventory allows Ulta to remain ahead of the beauty retail pack by equipping it with items that span product categories and price ranges, which cater to a variety of shoppers. This provides the company with a significant advantage over competitors like Sephora or branded stores like MAC. Dillon also noted on the call that "very little of the business is one-for-one replenishment," meaning that shoppers usually choose variety over one single-brand product.
Ulta should look to online tools that drive up consumer confidence. The biggest disadvantage to buying any product online is the inability to try it beforehand — and that's particularly true when it comes to cosmetics. Some consumers are likely nervous to buy these products via digital channels because they're unable to see what the items look like or test them on their skin.
To pull more shoppers online, many beauty retailers are turning to augmented reality (AR) to let shoppers virtually try on items like lipstick and eyeshadow at home. Competitors like Sephora and L'Oreal both operate their own mobile apps that use AR technology. In order to continue its digital success, Ulta should look to AR and other digital tools that build up confidence in shoppers.
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