Case
Teaching Notes
Abstract
In the mid-century decades following World War II, a gap existed in the cosmetics retail marketplace. Consumers could obtain cheap products of questionable quality at their neighborhood drugstore or dollar store, or they could visit high-end department stores in malls to shop for upscale, exclusive cosmetic brands. However, that gap was quickly filled by specialty beauty retailers such as Ulta Beauty, which offered quality cosmetics at cheaper prices. Ulta started with five stores in Illinois in 1990 and has grown to nearly 1,200 stores across 48 states in 2019. Revenues, profits, and market valuation have consistently soared since Mary Dillon became CEO in 2013. Meanwhile, department stores have been struggling as they succumb to the “Amazon Effect.” E-commerce has become one of the fastest-growing competitive threats to department stores, as consumers opt for the convenience and wide selection of products offered online. Amazon, with its 150 million Prime customers, is directly contributing to mall closures, stores shutting down, and prominent retailers going out of business.
Specialty beauty retailers, such as Ulta and Sephora, seem to be Amazon-resistant companies, immune to the downward spiral facing department stores. Millennials are increasingly electing to purchase products from beauty stores due to the stores’ product expertise and incentivized loyalty programs. Ulta is expanding rapidly, while their traditional competitor, the department store, is facing intense pressure and feeling the pinch. In the battle for beauty shoppers, can Ulta continue to dominate the cosmetics industry?
