Ulta opens its 999th store on Chicago's 'Mag Mile'

Dive Brief:

As part of its assertive brick-and-mortar play, Ulta is opening its 999th store on Chicago’s Magnificent Mile, or North Michigan Avenue, the Chicago Tribune reports.
The store is designed to compliment Ulta’s other locations and isn’t meant to be a “flagship,” according to the report. But it will contain the chain’s first MAC Cosmetics boutique as well as more salon space than a typical store, CEO Mary Dillon told the Tribune. Ulta plans to open approximately 100 net new stores this year — same as last year — on its way to its plans for what Dillon told the Tribune will eventually total some 1,400 to 1,700 stores.
In addition to the Michigan Avenue store, the retailer is planning its first store in Manhattan for October and a store in the Mall of America, also in the fall, Dillon told analysts last month. As a result of such higher rent locations and a higher percentage of stores on the West and East Coast where costs are higher, the company expects some modest pressure on rent per square foot, according to a transcript from Seeking Alpha.

Dive Insight:

While Ulta's e-commerce sales are surging, brick-and-mortar expansion continues. The company opened 18 net new stores in the first quarter, closing just two, compared to 13 net new stores in the year-ago period, ending up with 990 stores and a 12% increase in square footage year over year. Ulta plans to open 100 new stores this year, as well.

This new unit is on one of the toniest shopping avenues in Chicago and across the street from a massive new Sephora unveiled earlier this year. Beauty is a bright spot in an otherwise challenged retail industry and both Ulta and Sephora have been standout performers in the sector, even as they take different approaches.

The company’s Q1 retail same-store sales rose 10.9%, including salon same-store sales growth of 9.9%. Q1 salon sales rose 16.7% from the year-ago period to $68.7 million. E-commerce sales grew 70.9% from the year-ago quarter to $104.3 million, representing 340 basis points of the overall company same-store sales growth. Q1 net sales rose 22.5% to $1.31 billion from the year-ago quarter, beating the FactSet analyst forecast cited by MarketWatch of $1.27 billion. Same-store sales, including online sales, rose 14.3%, driven by 8.7% transaction growth and 5.6% growth in average ticket. That compares to a 15.2% increase in the year-ago period

“We know that the beauty enthusiast wants to shop in person and our associates love that interaction with the guest as well,” Dillon told analysts last month. "[I] believe strongly that platform will continue to do what we do by just getting better at it all the time, is what we are focused on and why we feel confident about our ability to continue on the growth path.”

Customers appear to be flocking to the beauty retailer, posing a particular challenge for department stores which have long relied on the category to drive foot traffic and sales. “Cosmetics are the last bastion of the department stores, and Ulta is accelerating its store growth... This is the 30-year transfer of departments out of department stores,” Nick Egelanian, retail analyst and president of retail development consultants SiteWorks International, told Retail Dive earlier this year. “Department stores are under full scale assault, and this is just the beginning.”

Ulta’s membership program grew 26% in the quarter, and even as growth moderates, it expects to “see rapid growth in loyalty membership well above square footage growth,” Dillon said. “We continue to find ways to enhance the benefits with the program, particularly adding products for our most engaged platinum level customers, who spend more than $450 a year.”