As Amazon looms, Ulta plans to ramp up its assortment of mass beauty brands

January 3, 2018

After successfully gaining share in the prestige category last year, Ulta is planning a reset and expansion of its mass offering in 2018.

Alongside brand introductions in each of it major categories, including makeup, skin care and hair care, Ulta will kick off “a significant refill in our mass cosmetics area to make room for brand additions and expansion,” said CEO Mary Dillon, on Ulta’s third-quarter earnings call in November.

“While we’re not announcing all of the specifics yet, we see that as a growth driver of our business and important element of bringing new guests in,” added Ulta’s chief merchandising and marketing officer, Dave Kimbell.

Though the details of the expansion are vague, the decision to increase its mass brands demonstrates Ulta’s intention to better compete with Amazon, continue to differentiate itself from Sephora and drive more impulse purchasing around cheaper, trendy products.

The move may also pose a greater threat to the already shaky drugstore beauty channel, which has seen continued sales declines due to the rise of online and specialty-multi store popularity. But, while a greater investment in the category may affect mass competitors like CVS and Walgreens, and help keep Sephora at bay, it’s Amazon that Ulta will most likely end up going toe-to-toe with in the space, as cosmetics sales for the retailer surge.

Amazon’s total beauty sales in the U.S. increased 40 percent year-over-year as of the second quarter of 2017, according to One Click Retail, and its fastest growing category was mass cosmetics, which increased by 60 percent.

“Amazon is starting to eat that market, too, so Ulta may be going head-to-head with them, reputation-wise, as well,” said Paula Rosenblum, a retail analyst at RSR Research.

While discussing the juggernaut’s beauty strategy in December, Ian Baer, the chief strategy officer of the marketing agency Rauxa, told Glossy: “Anyone who doesn’t take Amazon seriously as a competitor is not paying attention.”

To compete, Ulta is focusing on on-boarding new brands. Most recently, mass beauty brand Wet ‘n’ Wild has announced that it will enter two-thirds of Ulta’s 1,025 doors in February, after a trial-run selling the brand’s limited-edition Unicorn Glow collection in May, which sold out within a few days.

“Ulta is looking to us to be a leader in this whole idea of fast beauty, and bringing trends in with nimbleness and speed at an affordable price,” Evelyn Wang, Wet ‘n’ Wild’s senior vice president of marketing, told WWD. “They have a higher-end reputation, so we fill that space for them of being affordable and having the [trendy products].”

Previously, Ulta introduced lower-end, trend-driven brands Morphe, Milani and Makeup Revolution to its in-store and online channels last year, while investing more in others. The social-media born Dose of Colors, for instance, which was formerly sold only on Ulta.com, saw select products enter 300 of Ulta’s doors at the end of 2017. In addition, one of its buzziest mass brands, E.l.f. Cosmetics, which sells many items under $5, will expand into all Ulta stores early this year.

Still, Ulta’s top sellers — brands like Benefit, Clinique, MAC and Lancôme — are staunchly in the prestige category. What’s more, half of Ulta’s new store on Manhattan’s Upper East Side, which opened in November, has been dedicated to prestige cosmetics. Sephora, however, has long mastered that category, so doubling down on its mass offering could help Ulta continue to stand out, according to  Jane Hali, the CEO of the Jane Hali & Associates investment research firm.

“The fact that Ulta sells both categories in one location is a differentiator in the marketplace — it’s how we shop today,” she said.

Sephora itself seems to be catching on to the appeal of a broader assortment: It launched its first mass-priced cosmetics brand, Colourpop, in November, with most products retailing for under $10.

Overall, the effort makes sense to Rosenblum, though she believes Ulta should exercise caution and keep an eye on its prestige sales.

“You don’t want to damage the prestige business because it starts to look like a drugstore,” she said.