Retail Leader - May/June 2018 - 24

> COVER STORY
Perhaps more concerning about Sephora is its status as the
preferred destination for younger shoppers. In its semi-annual
spring survey called Taking Stock With Teens, Piper Jaffray research
showed Ulta was the second most popular beauty destination after
Sephora. The good news for all beauty retailers is that the survey of
6,000 teens showed beauty spending hit a new high for females at
$368 per year led by skin care, up 18% year-over-year.

TOP BEAUTY DESTINATIONS

INNOVATION AHEAD
Future generations of shoppers will have very different expectations
of a retailer like Ulta, which is why Dillon says, "We are never done
with innovation and there is a lot more to come."
The company is an early adopter of digital innovations and its
app features a functionality called Glam Lab that allows for the
virtual try on of make-up. Next up is a partnership with Spruce
Labs, makers of a digital assistant device that give employees Internet
access and simplifies checking in for and scheduling salon appointments. Ulta also works with Google Express to make sure online
orders to 95 percent of the nation are fulfilled in as little as two days.
Despite all that Ulta has going for it, 2018 is shaping up to be
Dillon's most challenging year. Same store sales are forecast to be
weak relative to Ulta's three year string of double digit gains. And
the company faces all the same headwinds as other retailers related
to cost pressures of an omnichannel business model, continuous reinvestment in stores and technology and rising wage rates.
The most positive development of 2018 is the impact of federal
tax reform, which Dillon regards as a game changer and gives the
company a unique opportunity to deploy the benefits received to
improve its long term posture.

1

Sephora

44%

2

Ulta

28%
11%

3

Target

4

CVS

3%

5

Walmart

3%

SOURCE: Piper Jaffray Companies 35th semi-annual Taking Stock
with Teens survey.

"(Tax reform) enables us to accelerate certain investments to
drive growth and innovation," Dillon said during Ulta's fourth
quarter earnings call. In addition to employee training, wages and
store experience upgrades, Ulta also plans investments in AI and
data capabilities to increase personalization for loyalty members.
"We'll increase investments in digital innovation to drive guest
experience enhancement designed to drive engagement and education, as well as increase sales through our e-commerce business,"
Dillon said. "We'll also enhance our capabilities to both identify
and incubate new brand opportunities that will further evolve our
assortment and take full advantage of the changing landscape of
brand creation, and we'll accelerate our services strategy with the
continued rollout of the new salon model and the addition of a
new skin services model."
Such investments will take time to impact sales and profits, but
don't be surprised to see Dillon and Ulta many notches higher on
the Fortune 500 list in the years to come. RL

SAME STORE SALES PRESSURE LOOMS

Ulta Beauty's same store sales are forecast to decelerate to a range of 6% to 8% in 2018 as the retailer laps an
impressive string of 12 consecutive quarters of double digit increases.
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0

16.7% 16.6%
15.2%
14.4%

11.7%

11.1% 11.4%
9.2%

8.4%
6.7%

Q1

8.7%

10.3%

10.1%

9.6% 9.5%

8.8%

6.8%

Q2 Q3
2013

Q4

SOURCE: Company Reports

24

14.3%

12.8% 12.5%

Retail Leader.com MAY/JUNE 2018

Q1

Q2 Q3
2014

Q4

Q1

Q2 Q3
2015

QUARTERS

Q4

Q1

Q2 Q3
2016

Q4

Q1

Q2 Q3
2017

Q4


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Table of Contents for the Digital Edition of Retail Leader - May/June 2018

Contents
Retail Leader - May/June 2018 - Cover1
Retail Leader - May/June 2018 - Cover2
Retail Leader - May/June 2018 - 3
Retail Leader - May/June 2018 - Contents
Retail Leader - May/June 2018 - 5
Retail Leader - May/June 2018 - 6
Retail Leader - May/June 2018 - 7
Retail Leader - May/June 2018 - 8
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Retail Leader - May/June 2018 - 18
Retail Leader - May/June 2018 - S1
Retail Leader - May/June 2018 - S2
Retail Leader - May/June 2018 - S3
Retail Leader - May/June 2018 - S4
Retail Leader - May/June 2018 - S5
Retail Leader - May/June 2018 - S6
Retail Leader - May/June 2018 - S7
Retail Leader - May/June 2018 - S8
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Retail Leader - May/June 2018 - Cover3
Retail Leader - May/June 2018 - Cover4
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