In an age where e-commerce thrives, how should the role of physical retail stores be redefined? Ulta Beauty, the prominent American cosmetics retailer, is attempting to answer this question. As consumer habits shift rapidly amid the pandemic, the company has announced a strategic pivot to omnichannel operations, reevaluating its store network and using these insights to guide future expansions.
Store Reinvention: Strategic Planning Through an Omnichannel Lens
Ulta Beauty CEO Mary Dillon emphasized during a recent earnings call that the company is scrutinizing its store footprint through an omnichannel perspective. The goal is to strategically optimize market share and profitability in every region. This means future store locations and existing store renovations will prioritize seamless integration between online and offline shopping experiences.
Ulta Beauty’s omnichannel approach incorporates multiple service models, including buy-online-pickup-in-store (BOPIS), ship-from-store, and contactless curbside pickup. These services demand specific physical adaptations: curbside pickup requires ample parking and efficient traffic flow; BOPIS necessitates designated staging areas; and ship-from-store operations need dedicated packing zones and proximity to e-commerce customers to minimize logistics costs.
E-Commerce Acceleration: Dual Approaches with Fulfillment Centers and Store Shipping
To accommodate surging online demand, Ulta Beauty initially paused construction on its second fast-fulfillment center in December 2019 but resumed the project last quarter due to sustained e-commerce growth. The Jacksonville, Florida, facility is expected to launch by year-end, aiming to reduce delivery times to two days.
Simultaneously, Ulta Beauty is expanding its ship-from-store program, now operational in 100 locations. This initiative enhances shipping capacity, shortens delivery windows, and leverages in-store inventory and staff. Second-quarter e-commerce orders skyrocketed 200% year-over-year. Although growth moderated as stores reopened, triple-digit increases persist, underscoring robust consumer demand for online shopping.
Pandemic Catalyst: Omnichannel Growth and Cost Management Challenges
The pandemic accelerated Ulta Beauty’s omnichannel evolution. While all stores reopened by mid-July, the company aims to sustain online shopping habits adopted during lockdowns. However, rapid omnichannel adoption has introduced new challenges, particularly in cost control.
Ulta Beauty encourages BOPIS and curbside pickup to avoid reliance on parcel carriers, significantly reducing fulfillment expenses. Yet the swift shift in fulfillment channels compressed gross margins from 36% in Q2 2019 to 27% in Q2 2020. Rising carrier rates compound these pressures: UPS and FedEx plan holiday surcharges, while USPS implemented temporary price hikes. CFO Scott Settersten acknowledged these hurdles but noted their full impact remains uncertain.
Store Network Optimization: Adapting for the Future
Ulta Beauty is refining its store portfolio to align with omnichannel demands. Last month, it announced plans to close 19 underperforming locations while opening 30 new stores—a reduction from the original 2020 target of 75 openings due to pandemic disruptions. These adjustments aim to create a network better suited for integrated services.
The company’s omnichannel transformation will profoundly influence its trajectory. By reimagining store roles, enhancing digital capabilities, and addressing cost challenges, Ulta Beauty seeks to maintain its competitive edge.
The Road Ahead: Deep Integration of Omnichannel Retail
Ulta Beauty’s strategy offers a blueprint for retailers navigating digital transformation. Physical stores must evolve beyond transactional spaces into omnichannel hubs. Blending online efficiency with in-store experiences will be critical to meeting diverse consumer expectations.
The future of retail lies in erasing boundaries between digital and physical channels. Ulta Beauty’s experimentation paints a compelling vision—one where technological innovation and evolving preferences continually reshape the retail landscape.