When Ulta Beauty CEO David Kimbell took to the stage at the company’s investor day on Oct. 16, he knew he had to address the company’s recent profitability disappointments.
His solution: to expand the definition of beauty itself.
Ulta executives announced that it will begin to target men and teenagers more in its marketing efforts, as well as focus more on wellness as a segment.
“We are committed to championing and celebrating beauty in all of its forms,” said Kimbell.
The announcement comes after disappointing second quarter earnings, owing to issues ranging from consumer dissatisfaction with inflation across the board to increased competition with Sephora’s continued shop-in-shop rollout at department store Kohl’s. Tapping into new demographics beyond young adult women and the growing wellness wave could be Ulta’s first step toward improvement and safeguarding the company for the future.
“It’s always great when brands are trying to expand beyond one customer,” said Brian Yarbrough, an analyst at Edward Jones. “You back yourself into a corner when you’re just focused on one core customer.”
The new push comes amid a slowdown in discretionary spending. Consumers have been focusing their money on essential items as they continue to feel pressure from inflation. Cosmetics products like beauty and skincare, which Ulta primarily sells, are considered discretionary and are often left behind by consumers when money is tight. Overall, the beauty industry is experiencing a slowdown after years of post-pandemic growth.
“There was some very outsized growth there in 2022 and 2023 when the economy reopened,” said Yarbrough. “You’re kind of getting back to a normalized growth rate.”
These factors have taken a toll on Ulta’s financials. Comparable store sales fell 1.2% in the second quarter compared to an 8% increase in the same quarter the previous year. For the first half of the year overall, comparable sales rose a mere 0.2% versus 8.7% in the same period of 2023. Overall, Ulta is expected to earn about $1.1 billion on an average revenue estimate of around 11.16 billion for the current fiscal year, which ends in January. This is nearly 14.5% lower than the previous year.
Ulta shares have fallen around 21% year-to-date, closing at $385.26 as of Nov. 8 and underperforming the broader S&P 500 index, which is up nearly 26% in the same timeframe.
To make up for diminished revenue owing to an industry-wide slowdown and increased competition, Ulta will start to target men, younger Generation Zers and Generation Alpha.
According to researcher Mintel, 72% of men between 18 and 34 use some form of makeup. But even beyond cosmetics, tapping into the men’s grooming market could be a key factor in Ulta’s battle against beauty competitors, which include mass market retailers and large e-commerce websites like Amazon.
The market size for men’s grooming was around $46.5 billion last year, according to a report by Grand View Research. And the space continues to grow as more startups flood in to reap the benefits. Earlier this year, Papatui by celebrity Dwayne Johnson and W by online influencer Jake Paul launched. Papatui is sold in Target, while W is set to be sold in Walmart and Amazon.
Mohammed Nejad, a marketing professor at Fordham University, agrees that expanding its consumer base to include men will help Ulta increase its sales as consumers, including men, become increasingly interested in items like skincare, which he says tends to appeal to the general public.
“After seeing it a few times, then there’s not much more to gain from any form of marketing to the same group of consumers,” said Nejad. “So always thinking about a new segment of customers to reach out to, there’s more to gain from that.”
Meanwhile, younger generations like Gen Z and Gen Alpha provide Ulta with an opportunity to create lifelong brand loyalty among a massive base. McCrindle Research, who coined “Generation Alpha” as a term, expects the generation to be the largest, outnumbering Baby Boomers by 2024.
Late-Gen Zers and Gen Alpha are particularly reliant on social media. Earlier this year, influenced by videos on platforms like TikTok, pre-teens flocked to retailers to buy prestige skincare and beauty products in what became known as the “Sephora kid” phenomenon. (Ulta currently has a “middle school shopping list” on its website that features celebrity fragrances, under eye products and skincare serums.)
Their large numbers are set to make them a major spending force as they age, according to McCrindle. The organization expects this generation’s economic footprint to be $5.46 trillion by 2029.
“Younger generations are great, because you can bring them in as younger generations and keep them for a lifetime,” said Yarbrough.
Younger consumers enjoy Ulta due to its wide assortment of products at mass market and prestige price points. Paulene Ng Chee, 22, shops at both Sephora and Ulta. She said she enjoys Ulta more than Sephora due to Ulta’s fun, colorful atmosphere and product selection.
“I think the main reason I go to Ulta is not necessarily to pinch pennies, but to kind of get like that wider range of products on either side of the spectrum,” Ng Chee said.
Ng Chee is also a member of Ulta’s loyalty program, which has over 40 million members. Ulta’s rewards through the loyalty program and other promotions are another reason she continues to shop with the retailer.
“I know both retailers [Ulta and Sephora] tend to have sales around the same time,” Ng Chee said, “but I just find Ulta is more consistent when giving more rewards.”
While targeting men and pre-teens will help Ulta expand its base, the company’s new wellness focus will help expand its product offering.
Wellness is also a growing market as people become more health conscious. According to NielsonIQ’s 2024 State of the Beauty Industry report, wellness was a nearly $46 billion industry in 2023, growing 12% from the previous year.
Much of the beauty industry has already incorporated wellness into their brands through product formulation and marketing products as “healing,” said Swartz.
“There has been a blurring of the lines between beauty products and health products,” Swartz said.
How Ulta plans to tap into this market beyond these cosmetic claims remains unclear. Currently, the company offers wellness products on its website, ranging from oral supplements to sexual health items.
“They’re obviously not going to be able to go up against the entire wellness market, but there’s definitely opportunity there,” said Yarbrough. “If you can add product categories, adjacent categories that drive consumer interest and drive more people in the store, that’s great.”
Other factors, such as Ulta’s claims of a broader consumer base, also remain to be seen.
“If the market is so much bigger than you thought it was, then how come your sales aren’t bigger?” said Swartz. “That seemed a little odd to me that [Ulta] sort of came out and said, ‘Oh, we’re going to double our adjustable market size.’ That’s nice, but is that real?”