How Ulta Is Harnessing Digital Innovation to Modernize the Customer Experience

Ulta Beauty is aiming to accelerate its innovation by investing in technology, including artificial intelligence and augmented reality. The beauty retailer made its first-ever acquisitions last month—both in the technology field— and has invested in a multi-year strategic partnership with Iterate, a technology solutions company and workflow platform, all to support its plan to build a “digital innovation ecosystem.”

Iterate helps large companies harness digital innovations and will allow Ulta to tap into technology talents by curating technology partnership opportunities. The company will enable Ulta rapid prototyping and gives the retailer access to the startups most suited to Ulta’s needs.

Ulta is also building internal capabilities to accelerate its innovation, acquiring two small tech startups, GlamStreet and QM Scientific, to support its digital experience roadmap and develop an innovation pipeline.

“We welcome these entrepreneurial founders and their teams to Ulta Beauty family,” said CEO Mary Dillon. “We’re excited to work together with this team to unlock personalization in a differentiated way.”

GlamStreet has been an Ulta partner for the past two years and is behind the development of GLAMLab, Ulta’s virtual try-on experience in the mobile app.

“Bringing these capabilities in-house will allow us to move faster in developing our augmented reality offerings,” noted Dillon.

QM Scientific’s capabilities include artificial intelligence, recommendations, computer vision, natural language processing and visual search.

“This is first and foremost about personalization, leveraging their capabilities to understand our guest in a better way and manage our connection to them,” noted chief merchandising and marketing officer David Kimbell.

Kimbell revealed the retailer has spent the last month getting QM Scientific’s staff fully up to speed and connected to the Ulta business and that they’re going to play a key role in strengthening Ulta’s foundational capabilities, as well as aiming to move the company in a “bigger way” around elements like recommendations, dynamic content, personalized webpages, and product and image recognition.

“We’ll be looking across kind of our personalization platform, our data foundation and making sure that that’s as strong as it can be,” he said.

“Both GlamStreet and QM Scientific bring technology leadership, guest experience focus, capabilities and the right cultural fit with Ulta Beauty,” said Dillon.

Dillon noted Ulta sees the investments in these companies as ways to drive a personalized experience across all touch points, and develop an underpinning of technology for everything it does.

Ulta is also in the testing stage of a new salon appointment booking tool. The enhanced tool for booking appointments for all services, including hair, skin, brows and makeup, is faster and easier to use. Ulta expects to roll the booking tool out through 2019, with further enhancements to the platform planned.

“In the future, we would imagine not surprisingly that there’s less and less friction in the transaction happening in store…less time tasking and checking out, a lot more time spent consulting and just having fun with beauty,” said Dillon.

What You Need to Know About Ulta's Q3 2018:

• Net income increased 25.3% to $131.2 million in the quarter. Earnings per share increased 28.2% to $2.18, just beating analysts’ estimates of $2.16 per share. Net sales increased 16.2%, in line with estimates. Total same-store sales increased 7.8%.
• E-commerce sales spiked 42.5%, representing nearly 11% of total company revenue. Total traffic growth rose close to 36%, with mobile traffic up 44%.
• The Ultamate Rewards loyalty program grew to $30.6 million active members at the end of the third quarter, a 15.3% year-over-year increase. Loyalty member sales now represent more than 95% of total revenues.
• Ulta continues to roll out its skin bar format and plans to have 188 stores include the skin bar by year-end. The retailer said early results are promising for increased product sales, as well as guest satisfaction.
• Ulta opened 42 stores in the third quarter, compared to 48 in 2017, and closed three ending the quarter with 1,163 stores. Ulta plans to open 80 stores in 2019, 75 stores in 2020 and 70 stores in 2021.
• Ulta is testing buy online, pickup in store (BOPIS) in 47 locations.
• Capital expenditures were $115 million for the quarter, driven by new stores, investments and systems, prestige brand rollouts, merchandise fixtures and supply chain investments.