Beauty products continued to be sought-after amid a return to in-person activities and inflation.
Photo by Flickr user Mike Mozart, used under a Creative Commons license.
Ulta Beauty surpassed $10 billion in revenue for the first time in 2022, underscoring the category strength of beauty in the face of significant economic headwinds.
Key Ulta results for 2022 include:
“Achieving such meaningful milestones reflects healthy consumer engagement with the beauty category, the power of Ulta Beauty's highly differentiated model, and the impact of our winning culture and outstanding teams,” CEO Dave Kimbell told analysts.
In the fourth quarter, Ulta achieved similar net sales growth of 18.2%, as strong holiday sales created momentum that continued into January. The company increased market share in prestige beauty, according to NPD data cited by the retailer. Skincare proved to be the strongest gainer on a category level with double-digit growth across mass and prestige.
The retailer’s approach to digital commerce includes in-store fulfillment through BOPIS, same-day delivery and ship from store. Same-day delivery expanded to six new markets. In all, 31% of digital orders were fulfilled by stores, up from 28% in 2021. Ulta is also completing a phased refresh of its digital store and expanding virtual try-on capabilities for skincare and hairstyle.
In 2022, Ulta also launched its retail media network, called UB Media, and has plans to expand in 2023.
“Building on the foundation established in 2022, we will offer new opportunities on Ulta-owned properties and enhanced existing products with advanced reporting and optimized audience selection,” KImbell said.
From a market perspective, Ulta is aiming to expand in luxury with an elevated experience both in stores and online. It recently introduced skincare and makeup products from Dior that will serve as an anchor alongside Chanel.
The decision to expand in luxury comes as a result of customer insights, and the retailer also plans to stay focused on using data to power digital commerce across the business.
“We plan to expand the power of our loyalty program by enhancing our media mix to acquire new members and elevate the loyalty program throughout our digital shopping experience,” said Kimbell. “We plan to leverage our analytics and data insights further to reactivate lapsed guests, increased retention, and shift share of wallet. And we intend to leverage our digital and physical assets to drive greater omnichannel member penetration.”
Ulta’s growth comes as beauty as a whole is proving to be resilient, even as consumers pull back on discretionary spending in other areas. Beauty benefitted from reopening following the pandemic, as consumers bought new products to return to the office and social events.
This trend carried through to the holiday season, when there was a notable uptick in beauty demand as people got together with family and attended social events, said GlobalData Managing Director Neil Saunders. Ulta’s mix of convenience and range of products was in place to make it a destination for these shoppers.
While consumers pull back in some areas as a result of inflation, the current economy is reviving the lipstick index, in which people see beauty products as an affordable luxury that can make them feel good despite tough times. This trend has only strengthened as beauty has become more “scientific and solutions-oriented,” Saunders said.
“Beauty is no longer a category that is just about adding a bit of color to a complexion,” Saunders said. “It is now concerned with health, vitality and wellbeing and with helping consumers remedy problems with skin, hair and other things. This not only helps to push up the amount people are willing to spend but also makes that spending extremely sticky.”
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.
