Ulta Marks Gains With Chicago Store

Indeed, since 1999, when Lyn Kirby joined Ulta Salon, Cosmetics & Fragrance Inc. as CEO, the beauty retailer has been working on keeping competitive.

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The next floor is the mezzanine, a 2,000-square-foot area called the Color Library, that features mass market brands, including Revlon, Neutrogena, L’Oréal, Maybelline, as well as Ulta’s private label brand. Here, Ulta is merchandising products by usage (i.e., lip, eye, nail, face) rather than by brand, complete with testers. The mezzanine looks over the entire first floor. This new merchandising system is now in about six Ulta stores.

“Mass is self service,” said Ulta’s Kirby in a recent interview. “This will be a more fun experience.” She said the aim was to reinvent mass with the four “E’s”: esthetics, education, entertainment and escape.

The second floor is dedicated to professional hair care and appliances, such as Redken, Paul Mitchell, Matrix, Tigi, PureOlogy, T-3, Hot Tools and Conair. What Ulta refers to as “hair artistry” brands are also here and include Frédéric Fekkai and Warren-Tricomi. Styling tools are displayed as testers so guests can touch and feel them, and feel “the force of a blow-dryer,” said Buhler-Brandon.

The third, and top floor, is where the salon is located compete with 12 chairs and a spa. It is reached by a spiral staircase that allows a brief glimpse of the salon.

“We believe that if she can’t see what’s up the stairs, she won’t go,” said Kirby.

All types of treatments are available at the salon, including cut, color, facials and waxing.

Kirby is not arrogant to believe Ulta will not be up against a challenging holiday period. “Gas prices are playing into the shopping trip,” she said.

For the second quarter ended Aug. 2, Ulta’s sales grew 24.3 percent to $249.1 million. Operating income grew 46.2 percent to $7.2 million, which includes incremental preopening expenses of $1.2 million. Net income increased 67.2 percent to $3.7 million. Income per diluted share was 6 cents, compared with a loss per diluted share of 23 cents in the second quarter of fiscal 2007. Ulta opened 18 new stores during the quarter.

Jason Gere, a senior analyst at Wachovia, views Ulta’s new South State Street store as a way for the chain to test out its successful merchandising strategy in a bigger box and to not be limited to its current 10,000-square-foot store average. It seems Ulta may need more real estate options as it embarks on opening 81 new stores next year and another 100 units in 2010.

“This is a way to see if they can make the model work with any size,” he said. “It also may represent more real estate opportunities. I really think the success of the format has been what is in the store not the 10,000 square feet. It gives them more options to pick more real estate sites and to do more demographics research in their due diligence.”

Kirby admitted that she “wants to learn with this one,” referring to the store, which she will not refer to as a flagship since they “usually are expensive but don’t produce.”

Gere said that Ulta is not exempt from what the economy can do to a business, but it is well poised to tackle hardship: “They are not recession proof but they are recession resilient, like the beauty category. Having the one-stop shopping concept has been a help and also being away from the malls — the outlets that are closer to home as opposed to making separate trips help.”

Gere is also impressed by Ulta’s comps and he believes the chain’s promotions are helping to drive sales.

In a recent proprietary survey of 25 retail locations (10 Ulta, 10 Sephora, and five freestanding boutiques), Gere learned that the distribution of Bare Escentuals Getting Started kits “could modestly benefit sales at Ulta locations more immediately” since most consultants there indicated that the sampling initiative has been very popular to date, with consumers rarely leaving the store “empty handed.”
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