Founded: 1990
NAIC: 446120 Cosmetics, Beauty Supplies, and Perfume Stores
Before Ulta Salon, Cosmetics & Fragrance, Inc., entered the beauty retail scene, shoppers had to visit multiple stores to find cosmetics and fragrance items. They would make one stop at the department store to buy such prestige brands as Elizabeth Arden and Estée Lauder, another stop at a drugstore for mass products including Revlon and Neutrogena, and yet another stop at the hair salon to find specialty shampoos and other haircare products. According to consumer researcher Datamonitor, women use at least 12 personal care products every day; building a niche to simplify and enhance women's shopping experiences, then, was both a logical and potentially profitable idea. Ironically, after following retail trends in the 1990s, it was not a woman who came up with the idea for Ulta, but a man. Dick George had a plan to provide convenience for busy middle- to upper-income American women by creating the ultimate one-stop beauty shop.
Pampered Beginnings
Ulta was established with a $12 million venture capital investment in the cosmetics industry, at a time when the market was valued at nearly $1 billion. The idea started in 1990 with Dick George, former president of Osco Drug, who had studied the shopping trends of moderate- to higher-income female shoppers. After realizing many of these women were looking for an escape from the worries of work, families, and busy lives, George persuaded 12 of his Osco executive colleagues to join him in a new retail venture. Their eventual prototype became "Ulta3." The "ulta" was an abbreviation for "ultimate beauty store" and the superscript number "3" represented the store's three main features: fragrances, cosmetics, and salon products.
The first store, built in 1990, indulged women with 6,000 square feet of all the products that made them look good and feel better. Ulta3 stocked over 25,000 beauty items and featured a 2,500-square-foot full-service hair and nail salon in the center of the store. Per George's instructions, interior designers paid close attention to such feminine details as elegant étagères for displaying products and widened aisles for unrestricted, comfortable browsing. For an added pleasure, the prices of most products were discounted 10 to 50 percent below suggested retail prices. To top it off, store management promised to match prices from competing stores, even such deep discounters as Kmart and Wal-Mart.
By 1995, five years after its inception, Ulta3 was growing rapidly and changes were underway. Terry Hanson, one of the initial Osco investors, took over as chief executive when Dick George left to become president and chief executive officer of Handy Andy, a discount home improvement store chain. By the end of 1995, there were 50 Ulta3 stores in Illinois, Minnesota, Georgia, Texas, Arizona, and Colorado, and the discount concept had caught on. The meaning of the raised 3 in the store's name had come to mean "selection, savings, and service." To keep up with the chain's expansion plans, new managers and marketing professionals were hired, and the company's workforce had mushroomed from 20 to 800.
Ulta3's success continued for the remainder of the decade. Although the store faced fierce competition from the Cosmetic Center, another discount cosmetics retailer, Ulta's sales volume doubled between 1994 and 1995 and was predicted to double again in 1996 according to an article in the December 10, 1995, issue of the Chicago Tribune. The Tribune followed Ulta's success closely, since the chain had its base in suburban Chicago, headquartered about 30 miles southwest of the city in Romeoville. Rival Cosmetic Center, however, had been in business for over 35 years and was based near Washington, D.C. Its Mid-Atlantic location did not stop the chain from encroaching on the midwestern cosmetics and beauty care market with almost three dozen stores in the Chicago area (the first had opened in 1987).
Another competitor, Sephora, a European beauty retailer launched in France in 1969 and bought by luxury retail powerhouse LVMH (Moët Hennessy Louis Vuitton) in 1997, had also invaded the market with its first U.S. store in 1998 and plans for rapid growth. By the time the decade drew to a close, Sephora had proved itself as a major threat: it had the financial backing of a billion-dollar conglomerate and an aggressive expansion plan to open stores in the finest U.S. malls at a breakneck pace. Not only did Sephora carve itself a healthy slice of the cosmetics and beauty care market, but at the expense of former stalwart Cosmetic Center, which had fallen on hard times and dissolved. It was soon very clear Ulta3 needed a change to survive at the very least, let alone thrive in the coming years. In December 1999 came a welcome breath of fresh air: Lyn Kirby was hired as Ulta3's new president and chief executive.
A Corporate Facelift, 2000-04
Lyn Kirby's presence and foresight helped Ulta find its way in the increasingly crowded and often cutthroat cosmetics marketplace. In the late 1970s direct-sales beauty care company Avon had enticed Kirby to move to the United States from her native Australia. For nearly 20 years Kirby rose through the corporate ranks before ending her tenure at Avon in 1995 as a corporate vice-president with expertise in product development, marketing, and advertising. From Avon, Kirby moved to the vice-president and general manager position at Limited Brands, Inc., where she stayed for three years. In March 1998, she became president of Circle of Beauty, a subsidiary of Sears, until she was offered the top slot at Ulta in December 1999.
From the start, Kirby's vision was to move the company away from its discount position to a retailer that encompassed mass beauty products, prestige brands, and a full-service salon. One of the first steps in the company's transformation was to drop the "3" from its name to become simply "Ulta." Kirby told MMR (Mass Market Retailers) magazine in a July 23, 2001, article, "Ulta today is positioned as a retailer offering affordable indulgence rather than discount prices."
Kirby immediately got to work sprucing up the stores, the merchandise, the locations, the service, and targeting a specific market. Pursuing college-educated women in their mid-30s with an annual income of over $70,000, Ulta moved away from the drugstore image to create an experience more akin to a spa. Floor and ceiling designs were made to look more elegant and low-profile gondolas held prestige brands shoppers usually found in high-end department stores. The in-store salon provided any service an upscale department store would offer, and sales personnel were trained to provide knowledgeable assistance to their customers while allowing them to browse leisurely on their own. In contrast to Sephora stores, mostly located within shopping malls, the 10,000-square-foot Ulta stores were positioned in strip centers or what Kirby called "lifestyle centers."
The new Ulta experience apparently gave women what they wanted: sales for 2003 surpassed $360 million and a year later had increased nearly 20 percent to $434 million. By 2004, the company operated 150 stores in 19 states and had plans for consistent growth, projecting as many as 500 stores by 2012 and 1,000 by 2017.
Private to Public, 2005-07
Ulta had wooed its customers, but attracting some prestige brands had presented a challenge. Many prestige companies needed to be convinced shoppers would abandon department stores for an off-mall retailer. After relentless pursuit, Ulta managed to gain access to a variety of prestige fragrances and upscale cosmetics by 2005 such as Elizabeth Arden, Estée Lauder, Lancôme, Clinique, and Bare Escentuals. As Kirby's vision for Ulta was finally becoming reality, the company experienced a steady rise in sales. For fiscal 2006 sales had climbed to $579.1 million, up from $491.2 million in 2005.
In a position of fiscal stability and with plans for continued growth, Ulta decided to go public. In October 2007 Ulta shares began trading on the NASDAQ at $18. Share prices soared to a high of $35.43 within five days. The initial public offering sold about 8.54 million shares, raising $123.9 million, which the company allocated to reduce debt and pay dividends.
While the initial offering had provided Ulta's management with optimistic enthusiasm, the 2007 economy was at near-recession levels and competition had steadily increased. Ulta share prices dropped to nearly $15 by the end of 2007, and European competitor Sephora had become a top rival with more than 126 American (and 500-plus worldwide) stores. Additionally, other competitors such as Bare Escentuals and Bluemercury had plans of opening their own branded boutiques, cutting into Ulta's market.
Despite the soft economy and volatile marketplace, Kirby's outlook remained positive. She maintained the belief that women considered beauty a necessity, not a luxury, and would forgo expenditures on other items before giving up their favorite shampoo or lipstick. Ulta's goal was to increase its store base to 1,000 locations by 2017 in the nearly $8 billion cosmetics and beauty care industry. The company ended 2007 with $755.1 million in sales, a 30 percent increase from the previous year, and more than doubled its workforce from 3,000 in 2006 to 7,100 for 2007.
Principal Competitors
Bath & Body Works, Inc.; The Body Shop International Plc; Macy's, Inc.; Nordstrom, Inc.; Sephora USA, Inc.; Target Corporation.
Further Reading
"Beauty Experts Give Upscale Image," Drug Store News, May 2, 2005, p. 129.
Brookman, Faye, "Ulta Cracks Beauty's Class System," WWD (Women's Wear Daily), November 9, 2007.
Evans, Matthew W., "Ulta Profits Increase 16 Percent," WWD, December 12, 2007, p. 3.
Fields-White, Monee, "Extreme Makeover; Post IP Euphoria Fading, Cosmetics Retailer Ulta Tries to Catch Investor Eyes with Ambitious Expansion Plans," Crain's Chicago Business, November 19, 2007, p. 4.
Kukec, Anna Marie, "More Than Just Cosmetic Changes in 5 Years, Ulta3 Has Made Its Imprint on the Discount Market," Chicago Tribune, December 10, 1995, p. 1.
Nagel, Andrea, "Ulta Brightens Up Beauty Image," WWD, February 25, 2005, p. 12.
Pinto, David, "Kirby Has Found Ulta's Niche," MMR (Mass Market Retailers), July 23, 2001, p. 19.
— Jodi Essey-Stapleton
