Ulta Beauty tackles retail change by embracing change
Mary Dillon encourages retailers to embrace the excitement of meeting change at retail. Image courtesy of ShopTalk.
Intimidated by all the change going on at retail? Many retailers are, acknowledges Mary Dillon, CEO of Ulta Beauty. But the way to meet the challenge is to embrace it.
Dillon, for her part, is in a position to make such a bold statement given the success Ulta Beauty has had of late: net sales for 2017 were up 22 percent at $5.885 billion, representing more than a doubling of sales since 2013.
But embracing change is just one key part. Another is the company's success being grounded on a thorough understanding for the changes taking place in retail customer expectations, she said during her keynote address at the recent ShopTalk conference in Las Vegas.
Meeting a customer need
The world continues to have a need for human connection and inspiration, Dillon said, and Ulta Beauty relishes its opportunity to meet those needs in a growing product category — beauty care — that now claims more than $130 billion in U.S. sales.
"We actually think that retail is full of exciting possibilities, particularly for Ulta Beauty," said Dillon.
"Be careful what you read in the headlines," she said, reminding listeners that 2016 was heralded as the "retail apocalypse." The very next year, retail rebounded she noted.
In fact retail is going to stay around forever, Dillon said, because of the various market forces at work.
"The changing consumer is the critical piece. Demographics are certainly evolving," she said, citing the growth of millennials and teens. In addition, in the U.S., Hispanics are the fastest growing population segment, she said, "which is great, because Latinos 'over index' in beauty."
Equally important is the fact that half of the babies born in the U.S. are now multi-cultural.
Technology brings new opportunities
Consumers today expect shopping to be convenient, personalized and more experiential. Positioning the company to meet changing consumer needs naturally segued Dillon's presentation to the conference's main theme: technology.
"It's a wonderful time to really think about how you can leverage all the technology that's existing today to your own business model," Dillon said.
Structural industry shifts are taking place, such as the growth of direct-to-consumer brands, digital marketplaces and the rise of what's known as the "sharing economy," she added.
Dillon was one of several conference speakers to note that personalization harkens back to the pre-industrial era when all services were personalized: hats, shoes and even dresses.
"Today, more than ever, people want to go back to something that is all about 'me.' [The question is] How do you leverage that insight in your business model?" she asked the audience.
Integrating physical and digital
"It's truly about the seamless intersection of the digital and the physical journey, and just knowing that that's what this guest wants for the future," she said. "It's about increasing our focus and our investment and innovation on everything we do that's surrounding experiences and personalization, and frankly decreasing the friction of commerce."
Dillon simplified her viewpoint by referencing what some would call psychology 101: She reviewed Maslow's hierarch of needs, showing the physiological level at the bottom of the pyramid all the way up through safety, belonging, esteem and self actualization.
Starbucks recognizes this hierarchy in its business model, she noted. The customer goes to Starbucks for something physiological — coffee — and ends up spending a lot of time connecting with others while they're in the store. Whole Foods has taken a similar approach to the grocery sector by creating a community out of the supermarket buying experience.
Ulta Beauty, for its part, gives guests the chance to touch, feel and smell physical products that they want and love, she explained.
"They also can have an emotional experience around interacting with our associate," she said. "It's about humans performing services on other humans." Customers in the stores have transformational experiences that lead to joy and confidence, she added.
The growth of social media and of beauty bloggers, and the fact that more pictures are being taken today than ever before all create even more opportunities for retailers.
How Ulta meets the challenges
So how is Ulta maximizing these insights?
The company is investing in increasing the experiences in the store and decreasing the amount of time associates have to spend on less value added tasks, Dillon said.
Then there's the fact the retailer's e-commerce platform offers one of the largest collection of beauty products available.
Ulta's mobile app plays an important role, as it is the center of how today's consumers shop. The app has a feature called "glam lab" that allows consumers to virtually try on makeup by uploading a selfie.
"You can try on thousands of shades of product that look very realistic on your skin tone, and then you can verbally order those products," she said.
All of Ulta's strategies are providing a strong return on investment, said the company leader.
"When our folks shop online, they become even bigger Ulta Beauty shoppers," she said.
The company's loyalty program now boasts 27.8 million members.
"They (loyalty customers) drive over 90 percent of our sales," Dillon said. "It's a very simple program," she said. "The more you spend, the more points you get."
Next phase: partnerships
Ulta's next growth phase will be based on partnerships and avoiding the scenario of re-building what's already been built.
"We don't have to figure everything out ourselves," she said.
Another big aspect is getting product to the consumer when and how and where they need it.
For example, in situations where a customer has a makeup related emergency, Ulta can get the product to the guest faster than ever before. Ulta offers two-day shipping now in 95 percent of its markets with Google Express, while allowing guests to earn loyalty points.
"It's driving basket, it's driving loyalty, and it's driving an even better guest experience," she said.
Facebook is another partner. Ulta will test social media advertising and measure conversions to in-store and online customers, she said.
Still another partner is Spruce Labs, which will make it easier for guests to make an appointment, check in, have a consultation with a stylist, all while making it easier for Ulta's specialists to manage their own schedules.
Commitment to culture and diversity
Meanwhile, the company will continue its focus on culture and diversity, Dillon said.
About 92 percent of the company's more than 37,000 associates are female. The company added 17,000 jobs in the last five years and promoted more than 6,000 women to management roles.
"We are creating a 'diversity forward' brand and workplace," she said. "Women are leading our technology business as well," she said, noting that the CIO, the senior vice president of digital and e-commerce, and the vice president of guest facing systems are all female.
The associates at all levels of the company are held accountable at three levels: functional expertise, enterprise thinking and collaboration.
Under Dillon's leadership, the company has conducted an annual associate engagement index. Engagement for 37,000 associates is now at 80 percent, putting the company in the top 10 percent of all retailers and the top 25 percent of fall companies globally.
"They're bringing solutions better and faster and smarter to our guests because they operate this way," she said.
Companies: Ulta Beauty
Elliot Maras Elliot Maras is the editor of KioskMarketplace.com and FoodTruckOperator.com.