Ulta Solves the Loyalty Puzzle

While many retailers are struggling to build long-term shopper devotion, Ulta’s loyalty program is enjoying double-digit growth, helping to swell both in-store and digital sales.

In just released Q1 2018 financial results, Ulta reports that it increased revenue by more than 17% year-over-year, with comp sales increasing 8.1%.

While sales are on the rise, the retailer is not resting on its laurels, instead opting to invest back into the business in technology and its store footprint to maintain its positive momentum. In the quarter, Ulta invested $74 million back into the business in new store openings, systems investments, merchandise fixtures and supply chain investments.

The retailer opened 34 new stores in the quarter, bringing its total store count to 1,107 locations. The retailer’s long-range plan is to continue to increase its physical presence and invest in the customer experience both in-store and out to build on its impressive growth in customer loyalty.

“[In 2018] we plan to open approximately 100 new stores,” CEO Mary Dillon said on a recent earnings call with analysts. “All are 10,000 square foot prototypes. We will complete 15 remodel and relocation projects. We expect to grow e-commerce approximately 40%. We anticipate topline growth in the low-teens.”

Below is a quick look at the retailer’s thriving loyalty program as well as its ongoing investment in both the physical and digital customer experience.

Commitment to Shopper Loyalty

Ulta’s Ultamate Rewards loyalty program continues to grow in lockstep with sales. In fact, at the end of Q1 the program had 28.6 million active members, signifying a 17% user increase year-over-year.

“The loyalty program continues to grow rapidly as we add benefits and enhance our CRM capabilities to make it even more relevant and personalized,” says Dillon. “I feel very good about our team's ability to leverage insights and data to get that much more personalized and relevant. That's what it's all about.”

With over 28 million active users, Ulta has a massive opportunity to track, analyze, and gain actionable insight from its loyalty program. The retailer is investing in its AI capabilities in this key area to further personalize the experience for its shoppers.

Ulta is doing a great job converting casual shoppers into loyal brand fans, fueled in part by its exploding gift card business ― gift card sales increased 45% in Q1. In 2018, the retailer plans to add another 15,000 partner locations to sell its gift cards, a key initiative since the sale of the cards is “driving significant incremental sales and margin dollars,” Dillon says.

“The great aspect of our gift card business is not only the redemption of the card value itself, but typically we see her spend more than that in our store,” says chief merchandising and marketing officer David Kimbell. “Not only do those sales today translate, the gift card sales translate into a future sales, it tends to get her more engaged.”

The Store Experience

While increased gift card sales are helping drive traffic online and in-store, the brand likely only has one shot to turn a casual shopper into a long-term fan of the brand.

In the store environment, Ulta continues to tweak story layouts and merchandising mixes to connect with ever-changing shopper demand and to match evolving cosmetic trends. The brand’s in-store salon business is thriving, growing by more than 10% in the quarter. A key component of building a loyal salon user base is attracting and maintaining well-trained and personable associates.

 “During the [first] quarter, we rolled out our services optimization model to our central region,” says Dillion. “This initiative is designed to transform our services business by attracting and retaining high-quality talent and delivering guest satisfaction better than ever before. We plan to introduce the new model to additional regions in August and complete the rollout to the entire chain in 2019.’

This service optimization model includes updates to the salon menu, pricing, career development, associate compensation and continued education. The new program is paying dividends with increases in sales, customer satisfaction, return rates, as well as associate satisfaction resulting in reduced turnover.  

Skyrocketing E-commerce Growth

While cosmetic sales remains a primarily in-store phenomenon, digital sales are growing at an astronomical rate for Ulta. Ulta.com sales grew by nearly 50% in Q1 compared to 2017 levels, and now represents 10% of the retailer’s total sales. Mobile continues to be a major driver of traffic for Ulta’s e-commerce platform, increasing by 52% year-over-year, while overall digital traffic increased 38%.

While interest in and revenue from digital shopping continues to rise, Ulta is investing in its fulfillment infrastructure to capitalize on mounting demand. Currently, shoppers are able to make a purchase from Ulta.com while in-store and have it delivered to their home. In addition to its store to door initiative, the retailer is preparing to test buy online, pick-up in store later this year as it looks to further build out its omnichannel capabilities.