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Jun 06, 2023

How Ulta is approaching its new store layout and the holidays

Chief Merchandising Officer Monica Arnaudo spoke with Retail Dive about store

Chief Merchandising Officer Monica Arnaudo spoke with Retail Dive about store navigation, pricing options, and bringing mass and prestige together.

Thanks to a variety of macroeconomic pressures, few large retailers have truly thrived over the past year.

Beauty company Ulta is one of those that has, despite inflation putting a strain on many consumers’ discretionary purchases.

The retailer's third-quarter earnings report this month showed sales, comps and profits were all up double digits. Net sales reached $2.3 billion, marking a 17% increase year over year. The cherry on top: The company raised its full-year guidance, expecting sales to reach up to $10 billion.

And despite doing well, Ulta isn't sticking to its script. Instead, the retailer is innovating on its strategy for reaching customers with a new store layout.

Here's a look at how the beauty retailer is experimenting with its store format and bringing holiday cheer to shoppers who might be more concerned about pricing this season.

Historically, Ulta has split its stores into two main sections: mass beauty brands on one side, and prestige on the other.

What this created was a clear differentiation between price points, but it also meant that categories such as makeup and skincare could be in multiple areas.

The company's positioning as a beauty retailer that catered to both mass and prestige shoppers was spearheaded by former CEO Mary Dillon. Dillon, who took on the chief role at Foot Locker in September, worked to normalize the idea that brands across all price ranges could be housed under the same roof.

"I think to Mary's credit she has figured out a way to establish and reinforce those relationships to reassure Estée Lauder and L’Oréal Luxe and these premium brands in beauty that it's okay to coexist in an environment with Morphe and Makeup Revolution and Elf and CoverGirl and Revlon," Stephanie Wissink, who at the time was a managing director at Jefferies, told Retail Dive in June of 2021. "It doesn't degrade the value of Estée Lauder to be in the same space as those value price brands."

That concept has grown into a new store layout, which was announced in August. The retailer hinted at consolidating categories for new stores that started rolling out this fall, which entails breaking down the stark barrier between mass and prestige.

"Today, our merchandise is organized by price point with prestige makeup and skincare on one side of the store and mass makeup and skincare on the other," Chief Operating Officer Kecia Steelman said on a call with analysts at the time. With the new layout, Steelman added, "you will be able to tell the difference between mass and prestige, but it will be organized together the way the guest shops it."

On a December earnings call, current CEO Dave Kimbell noted that Ulta opened about a dozen of the new stores during the third quarter. Although it will continue to roll out the new format, Kimbell said there are no plans to retrofit existing stores at the moment.

Ulta's Chief Merchandising Officer Monica Arnaudo, who spoke with Retail Dive about the new layout, said it's less about mixing mass with prestige, and more about improved navigation and creating spaces to discover.

"One of the things that was really important for us is to improve the navigation in the stores so that when a guest is looking for skincare, for example, they don't need to go all around the store to find it," Arnaudo said.

Arnaudo said that the store has specific fixtures and visual elements still delineating price differences, but categories such as skincare are more consolidated than in its original store layout.

"I wouldn't think of it as a blend," Arnaudo added. "I would describe it more as helping the guests navigate."

The latest stores also have a section called "Cue the New," Arnaudo said, which is a space toward the front of the store where brands new to Ulta are showcased. This is intended to help customers discover new products in a highly visible location. Featured brands are kept in the space for flexible amounts of time before being moved to their main category section.

The retailer has also created what it calls elevated gondolas for brands that have a fairly even split between makeup and skincare products, such as Clinique and Lancôme. These act to bridge the middle of the store together. Service brands such as Mac and Benefit have similarly elevated gondolas further into the store, which offer makeup and brow care services.

Another change in comparison to its traditional format is where the checkout is located, which was originally closer to the front of the store. The new layout places it toward the back with an improved display of trial and travel products.

Ulta's salon is past the checkout in this updated layout, with a more visible menu of services and a dedicated seating area.

Overall, the various changes to its new brick-and-mortar locations are intended to help customers have fun while finding products and services more easily.

"Ulta Beauty is the destination for discovery and convenience, however our guests want to shop," said Arnaudo. "And on that point, a couple of things we know for sure is that the human connection, especially in the beauty space, is vitally important, and that the customer journey is no longer linear. Therefore our focus is really on creating this seamless guest experience that blends."

For the season, Arnaudo says store entrances include new visual displays centered on a holiday and gifting theme.

"Imagine a holiday shop," Arnaudo told Retail Dive. "And we have [the displays] show top selling gifts, certain price point gifts or a particular category that we're really excited about. Fragrance obviously is front and center because that's such an important category at this time of the year. So it's an ability for us to really inspire our guests by sharing the things that we're super excited about for the holiday that we think they'll love as well."

With price being a pain point for many shoppers this season, Arnaudo says the retailer's merchandising team has been hard at work with brands to cover a variety of price options across all categories.

"We're super conscious that this year would bring the potential of inflation, perhaps prompting guests to be a little bit more focused on what they're spending," she said.

As such, the company is featuring gift options under $15 and $20 online and in stores. Ulta also started Black Friday sales in November this year, which is earlier than usual, according to Arnaudo.

But the deals did not end after Black Friday for Ulta. Shoppers looking for gifts beyond the biggest shopping day of the year will still be able to find easy, well-priced options, according to Arnaudo.

"We go into something called our Holiday Beauty Blitz, which runs almost the full month of December, where we've got great offers of up to 50% off across our categories," said Arnaudo. "For last-minute gifts, we've got what we call our beauty find sets, which are small sampler-type products with great price points. So for anybody that's coming in last minute or looking for all of those stocking stuffers at very friendly price points, we showcase all of those towards that December timeframe as well."