Ulta Beauty Business Analysis 2016

History

• Established in1990 by Richard E. George.
• They credit their success to the established and fostered 300 vendor relationships which are still active today
• Largest beauty retailers in the United States and has branded itself as a destination for premier cosmetics, fragrance, skin, hair care products and salon services.

Vision:

“To be the most loved beauty destination of our guests and the most admired retailer by Ulta Beauty associates, communities, partners, and investors.”

Mission:

“We’re on a quest to bring the fun of beauty to all —constantly delighting our guests with all things beauty all in one place, while offering rewarding careers for our passionate, beauty-                                         loving associates.”

Values:

“The foundation of our business is our talented team of associates who drive our guest-centric, values-based, high performance culture.

Our values represent how we do business and what we believe. As a team we lead through these values every day.”

External Analysis

PESTEL framework:

• Political Factors:

• Cosmetic products and ingredients do not require FDA approval before they go on the market. The exception is color additives (other than those used in most hair dyes). The two most important laws pertaining to cosmetics marketed in the United States are the Federal Food, Drug, and Cosmetic Act (FD&C Act) and the Fair Packaging and Labeling Act (FPLA). FDA regulates cosmetics under the authority of these laws.
• Additional Regulations constantly proposed at all levels of government related to; chemicals & heavy metals used in manufacturing of products, environmental impact of plants manufacturing the products, where products are manufactured, how products are tested for safety (are animals used?), and what types of materials are used in packaging (is packaging compostable?).

• Economic Factors:

• Growth Rate - The Beauty Industry is rapidly growing.
• Levels of employment - Skincare specialists: 55,000 in 2014 with a 12% expected growth by 2024. Specific growth expected for businesses serving men.
• According to one report, “Retail sales of beauty products reached $56.2 billion in the United States.  2019 sales are expected to reach a whopping $42.5 billion.”

• Sociocultural Factors:

• Throughout the years, beauty for mostly women is like “macaroni and cheese”, they go together.
• The buying and employment trend in the cosmetic industry is booming.
• According to one report, “Retail sales of beauty products reached $56.2 billion in the United States. y 2019, sales are expected to reach a whopping $42.5 billion”, Krom, K. (2016, February 11).
• Strong Brand Loyalty over the competition. - Cultural norms in the case for Ulta Beauty in this external analysis, is a benefit allowing for expansion of locations, more partnerships with existing and new beauty supply vendors and brands giving them a competitive advantage over their competition, (Target, Wal-Mart and Nordstrom, to name a few) by offering more top of the line choices and salon services.
• Risk

• A change in the economy and spending could also pose a risk for Ulta Beauty.  This change could mean Ulta Beauty having large supplies while consumer spending is low.  The demand for products at a lower price is always a threat that all businesses have.

• There has been incredible growth in “time-saving” and” long lasting” products (2013, Lopaciuk).
• Rapid growth of cosmetic sales over the internet (2013, Lopaciuk).
• Organic beauty products are becoming increasingly popular,” natural cosmetics, manufactured in accordance to the fair-trade philosophy” have gone from a niche market to mainstream (2013, Lopaciuk).
• Sustainability is another trend.  Products that are not manufactured in a way that is harmful to the environment are being demanded by the public (2013, Lopaciuk).
• Growing Hispanic and Spanish speaking population in the United States.
• There is a growing trend amongst young men to grow facial hair and longer hair and utilize various grooming/beauty products.  

• Technological Factors:

• New technology that allows more consumers to purchase items of their choosing
• E-Commerce - Ulta.com grew 47.5% ($221.1M)
• 82% of women now believe that social media drives these trends. It’s a constant flow of information and opinion from not just trendsetters or celebrities, but from friends and friends of friends and an entire universe of strangers.
• Risk

• With changes in technology and the unstable technological platforms that are used throughout the globe, Ulta Beauty faces risk to operate a stable internet presence in places where the infrastructure is not clearly defined in other countries.  The result of long lag time or dropped services altogether opens the door for lost revenue and consumers looking to purchase products thereby sending them to competitors.  

• Ecological Factors:

• In the world of cosmetics, I would say it is safe to say that not much thought goes into what happens to the natural landscape around us when applying products to Ulta bodies, i.e. makeup, lotions, body scrubs, and hair products.  Many large scale companies have come under the lime light for needing to minimize their ecological footprint.
• Top of the Class - Ulta has done a great job in building a company and a brand that has put them in the top of their class
• Products - Many companies spend the extra effort to find a few ingredients that allow them to place the word “natural” on their labeling.  But what might the cost be to do so? This could cause a disruption in the ecosystem if Ulta simply overreaches its efforts to mine for minerals and other natural ingredients such as oil for petroleum based products.
• Packaging - Many food and beverage companies already use a more condensed packaging that is easier to dispose of, but cosmetics use chemicals that are much harsher and need a thicker heavier duty packaging in order to maintain the contents in which it sells.  This in turn can cause upset in society that Ulta is still polluting the environment.

• Legal Factors:

• FTC - As of April of 2016, the FTC settled charges against four large cosmetic companies for advertising “all natural” and “100% natural” on the labeling.  These products contained synthetic ingredients.
• Honesty - Ulta can continue its growth by being honest in its claims.
• The Company is also involved in various legal proceedings that are incidental to the conduct of Ulta business.
• Legal requirements are frequently changed such as health insurance requirements.

• Porter’s Five Competitive Forces:

• Threat of New Entrants:  {Medium} Rapid growth allows new companies to enter and serve niche markets, although startup costs, regulations, and the need to compete with other incumbents makes it challenging for small businesses.
• Threat of Substitute Products:  {High} Cosmetics are available for purchase at most department stores, grocery stores, pharmacies, and online.  
• Bargaining Power of Suppliers: {High} Due to the overall size of the market, the bargaining power of both suppliers and buyers is high.
• Bargaining Power of Buyers: {High} Due to the overall size of the market, the bargaining power or both suppliers and buyers is high.
• Rivalry among Existing Competitors: {High} Due to the type of industry, companies must be able to maintain and attract consumers and the market share – pricing is vital.

Internal Analysis

• Core Competencies:

• Focus on providing affordable indulgence to Ulta guests by combining unmatched product breadth, value and convenience with the distinctive environment and experience of a specialty retailer.
• The ability to offer guests a unique combination of more than 20,000 beauty products across the categories of prestige and mass cosmetics, fragrance, haircare, skincare, bath and body products and salon styling tools.
• Offers a full service salon and a wide range of salon haircare products in all of the stores.
• Focus on delivering a compelling value proposition to Ulta guests across all product categories driving customer loyalty.
• Stores are predominantly located in convenient, high-traffic locations such as power centers.
• As of August 1, 2015, Ulta operated 817 stores across 48 states.
• Continued growth of business and any future increases in net sales, net income and cash flows is dependent on Ulta’s ability to execute six strategic imperatives:

• Acquire new quests and deepen loyalty with existing guests
• Differentiate by delivering a distinctive and personalized guest experience across all channels
• Offer relevant, innovative and often exclusive products that excite guests
• Deliver exceptional services in three core areas: hair, skin health and brows
• Grow stores and e-commerce to reach and serve more guest
• Invest in infrastructure to support guest experience and growth, and capture scale efficiencies
• Ulta believes that expanding U.S beauty products from department stores to specialty retail stores, coupled with Ulta’s competitive strengths, positions them to capture additional market share in the industry.

• VIRO Framework:

• Valuable: helps a firm exploit an external opportunity or offset an external threat. Ulta’s multiple vendor relationships allow them to carry a diverse array of products comparable to no one. To compete, other firms will need to change their business model and build the same vendor relationships that already exist at Ulta.  
• Rare: the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition. No other firms have vendor relationships comparable to Ulta.
• Imitate: firms that do not possess the resource or are unable to buy the resource at a comparable cost. Switching to Ulta’s business model would be very costly and time consuming for existing or new firms.
• Organized to capture value:  having in place an effective organizational structure, processes and systems to fully exploit the competitive potential of the firm’s resources, capabilities and competencies. Ulta has been doing this since inception.

• Sustaining a Competitive Advantage:

• Isolating mechanisms:  barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy. Time and money required to change business strategy.
• Path dependence:  a situation in which the options one faces in the current situation are limited by decisions made in the past.
• Casual ambiguity:  a situation in which the cause and effect of a phenomenon are not readily apparent.
• Social Complexity:  a situation in which different social and business systems interact with one another.
• Intellectual property protection:  a critical intangible resource that can provide a strong isolating mechanism and thus help to sustain a competitive advantage.

• Dynamic Capabilities:

• Advantages:

• New product development > a wide array of products that appeal to all demographics
• Marketing innovation > ability to adapt and market products in a verity of platforms (twitter, tv, Facebook, etc.)  to reach all demographics.
• Reputation for quality > allows leeway as market changes to bring new and innovative products
• Customer good will > adding customer loyalty programs
• Culture > good rating in reviews,
• Patents/ Trademarks > being able to set and retain new and old

• Risks:

• Employee retention > {High} Depending on position. Need to innovate new ways to retain key personal.
• Suppliers > {High} A lot of specific suppliers no ability to adapt to changes in suppliers due to changing conditions.
• Know-how > {High) If retention is low having to constantly retrain to build this back up is costly.

• Value Chain:

• Primary Activities

• These activities add value directly from the firm inputs used to create outputs for the consumer.

• Supply Chain Management

• Partnered with over 300 product vendors including Bare Minerals, Coty, Estée Lauder, L’Oréal and Procter & Gamble. Maintaining a historically strong relationship with these suppliers differentiates Ulta from its competitors making it difficult to imitate their business model.

• Operations

• Centrally manages product replenishment for all of their locations to control inventory for their merchandising strategy.

• Distribution

• Offers over 20,000 products in each store offering a one-stop shopping experience. Ulta has 874 stores in 48 states, and plan to expand up to 1,200. Ulta also has an online presence with their Ulta website. In 2015, sales grew 47.5% to $222.1 Million.

• Marketing and Sales

• Continues to leverage print marketing such as direct mail advertising, catalogs and newspaper inserts to communicate with customers. Ulta is expanding reach into other marketing channels, including digital marketing, social media and e-mail marketing. In addition, Ulta will continue to enhance in-store marketing and special events to educate customers and drive traffic.

• After-Sales Service

• Ulta values the customer. Ulta’s goal is to provide an enjoyable, informative, and convenient shopping experience for cosmetic and beauty products. Ulta offers a 60 day return policy for full refund if unsatisfied. Gift wrapping and beauty consultations are available.

• Support Activities

• These activities add value indirectly.

• Research and Development

• Ulta depends upon independent third-party vendors for the manufacture of all products manufactured uniquely for Ulta, including Ulta branded products and gift-with-purchase and other promotional products. Ulta has registered 30 trademarks in the United States and other countries.

• Information Systems

• Ulta depends on a variety of information systems for all areas of business, including supply chain, merchandising, POS, e-commerce, finance, accounting and human resources. These systems includes a company-wide network that connects all corporate users, stores, and their distribution infrastructure and provides communications for credit card and daily polling of sales and merchandise movement at the store level.

• Human Resources

• Experienced senior management team that brings a creative merchandising approach and a disciplined operating philosophy. Well-trained, non-commissioned beauty advisors provide unbiased and customized advice tailored to customers’ needs.

• Accounting and Finance

• Adequate financial and management essential to maintain and report financial performance.

• Firm Infrastructure including processes, policies, and procedures.

• Adequate to above

Ulta Beauty-SWOT Analysis

Competitive Advantage

Accounting Profitability

ROE

2.2%

ROA

23.9%

COGS

64.7%

SG&A

37%

OP INCOME

12.9%

DEBT RATIO

Total Assets-2,230,918

Total Liabilities- 788,032

Stockholder Equity-1,442,886

Total Liabilities & Stockholder Equity- $2,230,918

Working capital $978,946

(Couldn’t find r&d)

Merchandise inventory-                  Cost of Goods sold   $2,539,783