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Ulta Beauty is a thing of beauty. Both the company and the stock are exceeding everyone’s expectations. But like all beautiful things, they can wither from old age and neglect. Ulta Beauty’s strategy is on the edge of doing just that. Yes this sounds crazy, but read on.
It is management’s job to look forward and around the corner in order to set and adjust strategy. Let’s look around the proverbial corner.
Since their 1990 launch, Ulta maintains their force fields of differentiation:
- The combination of high/low merchandise price points.
- Full-service salons are in the back of every store.
NO COMPETITOR HAS BEEN ABLE TO COPY THESE DIFFERENTIATORS
Their financial position is equally astonishing. On October 25, 2007, Ulta Beauty (NASDAQ: ULTA) went public and opened at $18. Right now, the stock is about $350. If you are counting, that is over 18x your money. They are also completely debt free.
“The Ulta Beauty team delivered excellent results in the fourth quarter,” said CEO Mary Dillon. “This performance reflects an acceleration in comparable sales in our retail stores, primarily driven by traffic.”
Ulta highlights their execution in (3) segments:
Press releases reveal the reality of these (3) initiatives. Brick and Mortar Retail product sales dominate at 83% of revenue. Ecommerce is only 11% and only recently have they signed on with cutting edge digital partners. The Salon segment of their revenue is a mere 5% of their massive $6.2B in revenue, and they project the salon growth at only 3%. Remember the salon is a sustainable competitive advantage. At only 3% growth, it functions more as a cost center than a profit center.
Further analysis reveals more. The bulk of their spend and focus on execution is actually on building new stores. They plan about 80 new locations this year. That’s it-this is the grand total of their execution.
Is this enough???
To recap- Ulta is a $6.2B company, debt free and the largest retailer of its kind-and their biggest growth driver is new stores in strip malls across suburban America.
Again, the question can be asked- is this enough? Is it enough to maintain the #1 status they have enjoyed for so long? Or does doing the same thing they have always done threaten their competitive advantage? Are they doing enough for shareholders, consumers and for the brands they sell?
To their credit, there has been a recent sizable coup and significant activity by signing Kylie Jenner and launching Cannuka, a CBD skincare brand.
Yet,it can be argued that despite their incredible stock performance, Ulta may not be delivering enough value to shareholders. Seems they have much more capacity to comfortably do more- much, much more.
Ulta has only 1 strategic comfort zone. Building new stores.
They basically have only 1 revenue and profit source. Selling product.
Compare this to the competition: Sephora is a part of luxury behemoth LVMH and they benefit from an internal capital market. Department stores also sell fashion goods. Digital only players are proving to not even need a brick and mortar environment.
Ulta’s very narrow growth strategy of opening new US stores is very capital intensive. Their narrow revenue model makes them very vulnerable. The competition is outspending them on digitization. Unless they become more expansionist, Ulta’s competitive edges will be dulled. They will find themselves in a financial cul-de-sac with a lot of physical stores, but no liquidity for new investment opportunities.
What are Ulta’s strategic options? What more could they be doing?
Create additional revenue and profit streams
- Form an internal business acquisition team- “The A Team”.
- Hire a leading global consultant firm to work with The A Team.
- Ready corporate culture for global expansion.
- Generate meaningful ROI from The Salon assets.
- Enter into additional exclusive brand distribution agreements.
- Invest heavily into enterprise IoT.
Compared to their formidable capacity, Ulta can do so much more for their stakeholders. The 3 Levers described here just scratch the surface. What do you think? What else could Ulta do?
“As the new Chief Marketing Officer of this amazing new brand,
I am so pleased with the opportunity to be able to share a
truly gender inclusive and effective skin care product.”
ROOT OF Skin
Jimi Hendrix was on the right track in many ways when he asked “Are You Experienced?”
So what exactly is H2H? No, it is not the latest Asian flu. Neither is it water—that is H2O. And its definitely not the latest networking app!
H2H is “Human to Human”
H2H is About Brands & Delivering on Their Digital Promise
Your digital promise is the full delivery of your brand’s experience to your consumer. Sure, its easy to produce slick graphics and fabulous copy on a webpage and in social media. But brands have to really ask themselves if they are also providing the human experience vis-a-vie their digital presentation.
At first this seems a bit crazy and if nothing else completely contradictory. Isn’t the whole point of digital is that it’s exactly just that-digital? Not exactly. What customers are demanding is the full range of a robust experience that a brand has to offer. What seems to be new here really isn’t. But with digital in the mix, the rules of execution have been forever altered. Marketers know that consumers do not want to simply buy something, they want to fully experience it. This means that brands now have to understand how to seamlessly deliver online and offline–with great humanness.
The rules of brand delivery and execution are forever changed.
Missing the H2H portion of the brand delivery equates to treating your customer like a piece of digital meat!
This is nothing new because as far back as 1998, Joseph Pine and James Gilmore published “Welcome to the Experience Economy” and the phrase was then forever coined. They plotted The Progression of Economic Value graph.
Even then in 1998, customers were demanding experiential immersion with a brand. With digital marketing, they are demanding it even more. Its sort of a paradox. The more brands deliver remotely, the more customers expect to be treated like a human.
“Its sort of a paradox.
The more brands deliver remotely, the more customers expect to be treated like a human.”
Farfetch, the digital platform featuring hundreds of impossible to find boutiques and merchandise, recently announced their “Store of the Future”. Check out this short video from Bloomberg.
Farfetch is setting the standard for digital delivery and human experience.
“The next stage in the evolution of the fashion industry is the connected store, which uses technology to enhance the luxury retail experience to become even more customer centric,” he said. “Farfetch is at the crossroads of luxury and technology and is well placed to understand its needs and deliver a tailored solution.”
In their new retail store concept, Farfetch customers will experience the full immersion of humanity wrapped in a digital brand delivery. Farfetch has executed an admirable business benchmark for H2H.
Is your brand ready for H2H? Are you experienced?