Now that the face masks have come off and life is steadily getting back to normal, women have a new relationship with the face they see in the mirror. Their old skincare and makeup routines have fallen by the wayside, replaced with a new focus on health and a desire to express one’s own most beautiful, natural self.
At the same time, inflation is crimping their spending, so some consumers are swapping out their old favorite prestige brands for more affordable alternatives.
Women are taking a new look at the beauty category, and these three macrotrends – the clean, fresh face of beauty; growing individualism in beauty; and trading down – threaten to disrupt beauty retail.
Ulta, the nation’s largest specialty beauty retailer, is ahead of the curve and prepared to serve women’s evolving beauty needs as she ditches her face mask and readies to show her new face to the world.
So far, higher-income consumers ($100k+ household incomes) haven’t felt inflation’s effects, with NPD reporting their spending increased by 14% through the first half of the year.
Yet, Estée Lauder Companies, the global leader in prestige beauty, just reported that revenues in its most recent quarter ending June 30 declined by 10%, and it expects a similar drop next quarter.
If the past is the best predictor of the future, we can expect prestige beauty to take a hit if the economy falters like it did in the 2008-2009 recession when global luxury sales declined by 8%.
Since 2020, Ulta has made clean-beauty a priority, and it continues to pick up steam. Nearly half, 290 brands of the 600+ brands it carries, are certified under one of its Conscious Beauty pillars – clean ingredients, cruelty-free, vegan and sustainable packaging. It’s what more women want, as a company survey found that 65% of consumers believe the beauty category is significantly connected to wellness.
Ulta’s clean ingredient brands are certified by ClearForMe, an independent authority on beauty product ingredients, and it maintains a “Made Without” list to assure customers it’s delivering the clean goods. To help customers find the right clean beauty products for them, Ulta just refreshed its Conscious Beauty landing page on the website and added digital badging to all product pages.
It has also partnered with specialty retailer Credo to bring a curated collection of what Credo calls its “best-in-clean” products to Ulta customers. Credo carries some 130+ brands and 2,000+ products, plus it provides beauty services in its ten stores.
While the use of terms “clean” and “natural” on beauty products are not regulated, the market size of “natural and organic beauty,” a useful proxy, is expected to grow globally from about $30 billion in 2021 to $50.5 billion by 2027, a CAGR of 9.1% over the six-year period, according to Statista Research.
Ulta is also expanding its “beauty from the inside” selection of supplements, everyday and women’s personal care products. It now carries 140+ brands and 700 SKUs in its wellness assortment, but some products are only available online.
Her most beautiful self
Poet John Keats wrote, “Beauty is truth, truth is beauty,” but there is a lot of dissembling in the beauty business. The industry’s advertising relentlessly confronts women with images of picture-perfect, balanced-featured models, whose perfection is further enhanced through Photoshop.
Beauty may be in the eye of the beholder, but throughout its history, the industry has primed women to see their imperfections rather than their beauty when they look in the mirror.
Recognizing the conflict between the insecurity that beauty advertising has imposed upon women and the confidence that beauty brands should instill in women, Ulta is launching a new program called Beauty& to “widen the lens of beauty and inspire all to reclaim beauty on their own terms.”
Beauty& is being launched this week on Ulta’s first podcast, “The Beauty of.” Planned as a bi-weekly podcast, it is promised to “push beyond traditional beauty topics and expand the lens of beauty in unexpected spaces and places.”
It will also offer three limited-edition t-shirts ($25) decorated with beauty-positivity messages by author Meena Harris, niece of the VP – “Beauty Is Timeless, Boundless, Ageless, Limitless. Here, There, You & Me” – and artists Timothy Goodman and Emmy Star Brown.
The Beauty& program is intended to celebrate beauty as a force for good. Karla Davis, Ulta vice president of marketing, explained in a statement:
“As an industry leader, we believe we have a responsibility to drive progress rooted in positivity, inclusivity and celebration. Our comprehensive campaign reflects many ways to celebrate individuality, resilience, strength, and above all else, the beautiful possibilities that live within each of us.”
On the inclusivity front, the company is expanding its assortment of BIPOC offerings (black, indigenous, and people of color) and launching the MUSE accelerator program to mentor eight early-stage BIPOC beauty entrepreneurs.
Positive beauty messaging aside, Ulta is also donating $200,000 to the Jed Foundation, a non-profit that supports mental health of teens and adults.
All of these are steps in the right direction, but it’s going to take more to offset the nearly $8 billion the industry will spend on advertising globally this year, most of which subtlely reinforces the message that she doesn’t measure up, unless she buys the advertised product.
Bringing mass and ‘class’ together
In what could be Ulta’s most far-reaching change is a plan to combine in-store displays of mass skincare and makeup brands with prestige. Since the company’s founding in 1990, mass and ‘class’ beauty have been segregated. Mass brands were on one side of the store, prestige on the other, fragrance in the middle and hair care in the back.
Coming soon to select Ulta stores will be a new layout that will merge mass and prestige offerings to “better reflect how a guest really shops with consolidated categories and intuitive adjacencies,” COO Kecia Steelman said in the earnings call. However, she stressed clear brand differentiation would be maintained.
While CEO Dave Kimball confirmed the company hasn’t yet seen customers trading-down to less expensive brands, its positive experience placing Ulta shop-in-shops in Target stores gives it confidence that discount-minded Target shoppers like having mass and prestige beauty choices in close proximity.
Now in 186 Target locations after opening 59 new stores in the second quarter, Ulta expanded its premium offerings there to include Benefit (an LVMH brand), Tula and Morphe, a sign that Target shoppers are trading up too.
That is the key advantage of collocating mass and prestige offerings together. It gives customers as many chances to trade up as it does to trade down. In these crazy times, Ulta is prepared for all contingencies.
Going full throttle
After CEO Mary Dillon left the company in March 2021 and then-president Dave Kimbell, who’d been with the company since 2004, stepped into her shoes, questions remained about whether Ulta would keep its forward momentum. Those questions have been answered, especially after the most recent earnings call covering the second quarter through July 30.
Through the first six months of the year, Ulta’s net sales increased by 18.9% to $4.6 billion and net income was up 30.3% to $627.1 million. Its footprint increased by 17 new stores, bringing the total number to 1,325 stores in operation.
And Placer.ai reports Ulta’s foot traffic has been running in excess of 20% every month this year except during March, when it rose nearly 16% compared to pre-pandemic 2019. And during April and July, visits were tracking above a 30% increase.
Kimbell also reported that growth in all major product categories as well as in-store and digital channels “exceeded our expectations” and added that NPD data found its market share of prestige beauty is on the uptick.
“Consumer engagement with beauty remains strong, reflecting a deep emotional connection with the category, as well as the continued importance of self-care and wellness. This healthy engagement paired with solid operational execution from our teams fueled our results,” he said.
On that news, the company raised its outlook for revenue growth from 6% to 9% growth to 9.5% to 10.5%. It expects sales to reach between $9.65-$9.75 billion in fiscal 2022.
Given how well its performed to date and its continuing pivots to more clean, inclusive and personalized beauty in a new shopping environment that makes it easier for customers to trade down or up as the economic winds blow, Ulta is set for a strong second half of 2022 and ready for an even better 2023.