Ulta Beauty, Influencer Marketing, and The Rise of E-Commerce

[Updated January 23, 2022]

On the latest episode of Today In Five:

Once the leading force in the beauty market, department stores have lost their footing to Ulta, the rise of e-commerce, and influencer marketing.

• It’s officially return season. According to a company press release, UPS expects to process 1.9 million returns. The predicted number reflects a 26% year over year increase. Per the release, the increase, “illustrates how e-commerce continues transforming shopping patterns.” A report from Oracle Retail stated that 77% of consumers plan to return a portion of their holiday gifts, with 65% returning in-store and 32% anticipating a return via mail.

• A new survey from communications agency, Diffusion, revealed that 40% of Americans have made a purchase from direct-to-consumer brands. Of those shoppers, 14% said they made between 1 and 19% of their purchases from direct-to-consumer companies. Notable categories for DTC purchasing over traditional retail included health and beauty products, apparel, and tech and gadgets. Shoppers reported the leading reason for choosing direct-to-consumer over traditional retailers was cost, followed by fast, free shipping.

• According to a case study from Dynamic Yield, E.l.f. Cosmetics found that revenue per user increased after adding product recommendations to item detail pages. Adding a ‘You may love’ section of recommended products garnered a lift in click-through rate of more than 23%, per the report. The beauty company also saw a 17.6% increase in mobile menu clicks after personalizing the menu based on users’ past shopping behaviors. The case study illustrates the growing importance of personalization to attract customers. A 2018 survey from Accenture and the Retail Industry Leaders Association revealed that 63% of consumers are interested in personalized recommendations. Another survey revealed that 93% of businesses with advanced personalization strategies increased their revenue in 2018.

Ulta Beauty’s rise to success is a great example of how e-commerce has shifted the beauty industry. For those who aren’t familiar, Ulta is an American cosmetics retailer founded in 1990 and headquartered in Bolingbrook, Illinois. It now operates over 1310 stores across 50 states and is an online store that ships globally. Ulta sells its own products as well as other brands such as Urban Decay makeup and Philosophy skincare. While it began with just one store in Chicago, Ulta quickly grew into a powerhouse by offering more than just retail sales; customers can also get their hair done at many locations or purchase sets from Benefit Brow Bar and Sephora inside JCPenney (another brick-and-mortar retailer). Ulta has been so successful that it has become a major competitor for Sephora and Amazon. According to the recent report from Globaldata, Ulta’s growth rate of net sales is 22% higher than Amazon’s and more than twice as fast as its nearest competitor Dillard’s.

Ulta Beauty is one of the most successful brands in the beauty industry. One key to their success has been collaboration with influencers. They have used influencer marketing tactics for years, and they are not alone in this strategy. 

There are many reasons that brands use influencers in their advertising campaigns, but there are two primary goals: collaboration and audience building. A collaboration usually includes a partnership between an individual brand or company and an influencer who agrees to create content about the brand’s products or services on social media channels like Instagram or YouTube. The goal of the collaboration is to provide customers with more information about what they are buying so that they will be more likely to purchase it through your store online.

What is Influencer Marketing?

Influencer marketing is the practice of gaining brand exposure by partnering with a person who has a certain level of influence in their social media sphere. Instagram has made it possible for anyone to become an influencer, but there are three primary types: micro, macro, and mega.

A micro-influencer typically has a small following of around 1,000-5,000 people online. Brands who work with these influencers can expect to pay between $20 and $250 per post, depending on the size of their audience. A macro-influencer has a larger following (10,000 -100,000) but also has more competition from other brands looking to partner with them for exposure. A macro-influencer can charge anywhere from $250-$7500 per post. Mega influencers have a huge reach yet may be difficult to work with because they get many offers from many different brands. Most mega influencers have at least 500,000 followers and some have over 4 million! They can get paid tens of thousands of dollars for an Instagram post or sponsorship video.

Why Do Brands Use Influencers?

Influencer marketing has the potential to increase the brand awareness of any company. According to a survey conducted by Webfluential, 71% of marketers use influencers to promote their brands and 82% say that sponsorship from an influencer is effective in building trust with buyers.

However, there are many different platforms for social media, not just Instagram. There are other considerations when choosing the platform you want your campaign on. Some things to consider are: do you have data specific to this platform? Do you know which algorithm your audience prefers? Are they active on other social media platforms? You should also consider where your potential customers are spending their time online so that you can decide if it makes sense for them to be exposed to your message through another influencer.

Learning From a Successful Influencer Marketing Strategy

Ulta’s success has been in part due to its use of an intimate approach that featured influencers who were already familiar with Ulta’s products and excited about what they had to offer. Ulta made the decision to partner with people who were their customers, rather than brands. In other words, they decided NOT to work with celebrities who may have a large following but rely on someone else for recommendations when shopping for beauty products. Influencers want you because you are the best at what you do. Celebrities may seem fake and untrustworthy because sometimes they will say anything if it helps them stay in the spotlight and maintain their popularity. 

Ulta Beauty, Department Stores, E-Commerce, and Influencers

As retailers like Ulta Beauty and Sephora have won over shoppers, the former cosmetics powerhouse – the department store – has lost its strong footing in the market. Social media and influencer marketing has helped see the rise of specialty stores and cultivated a number of billion-dollar upstart beauty brands that are going head-to-head with established players like Estee Lauder. Since 2009, U.S. beauty and personal care sales have risen 52% according to market research from Euromonitor. The global cosmetics industry is expected to hit $430 billion by 2022. 

In the past five years, department stores have seen a decline in foot traffic. In 2018, 24% of U.S. consumers browsed at a department store during their last trip to a mall, marking an 11 percentage point drop from 34% over the same period three years prior, as reported by The Wall Street Journal. Comparable data for Ulta wasn’t available. In 2018, mall visits fell to a 30-year low, with consumers spending more time on retail websites and shopping at fewer brick and mortar stores.

“What we’re seeing right now is that department stores that carry beauty brands are suffering because of the rise of eCommerce, and specialty retailers like Sephora and Ulta,” said Kelly O’Keefe, professor of brand strategy at Virginia Commonwealth University’s Brandcenter. “Department stores used to be the only place you could go for premium beauty products.”

For decades, department stores were synonymous with cosmetics as one of their core offerings alongside apparel and home goods. They carried established luxury brands such as Giorgio Armani and Estee Lauder which were sold in department stores at prices lower than cosmetics specialty stores.

Department stores still play a role in selling makeup but the rise of Instagram and social media has shifted consumer buying behaviors to specialty sites like Ulta, Sephora, and Dermstore.com. In 2017, Estee Lauder spent $1 billion on brand acquisitions as it sought to expand its online presence by acquiring buzzy brands such as Becca Cosmetics and Too Faced. The company recognized that consumers were more likely to go straight from Instagram posts to purchase rather than going first through a retailer website or store.

It’s an uphill battle for department stores as consumer trends shift. More shoppers are also opting for natural looks, and increasingly searching for clean beauty brands to use. Ulta’s strength has been its focus on becoming a one-stop destination for shoppers by offering several services in-store. Its appeal has also been assisted by celebrity brands. Sephora launched its product line, Clean by Sephora, with the chief merchandiser officer noting, “The past decade has been a time of significant growth and change for the beauty industry.” 

Department stores are also facing challenges as the rise of e-commerce eats into their normal foot traffic. Many stores are revamping their strategy to re-engage with their beauty customers. Nordstrom has shifted its beauty strategy by dedicating two of its floors in its new Manhattan flagship to the category. The store also recently partnered with Glossier to feature pop-up shops by the popular brand. Macy’s general business manager for beauty said, “Technology and experiential components will continue to be paramount to successful beauty campaigns, launches, and displays.” 

With the rise of e-commerce and social media, influencer marketing has become a preferred tactic for beauty brands. Social media marketing, coupled with the boom in e-commerce, has bred a mega-industry, with online beauty projected to be worth $38 million by the end of 2023. According to a survey, 58% of respondents admitted they purchased a product because of an influencer. “All of the power went from manufacturers and retailers to the consumers themselves…Now we have social media where makeup artists are going on there and showing people exactly what to do.”   

Nearly a third of Instagram users use the platform to discover new products. Instagram is particularly favored for beauty brands since it is easier to generate engagement there, with its visual-friendly interface and clickable links. Instagram has been a boon for Ulta, which encouraged influencers to post photos of themselves using products from store shelves. The company also launched a mobile website that features Instagram feeds from Estee Lauder, Benefit Cosmetics, and Marc Jacobs Beauty. 

The digital shift has also affected the luxury market. The shift to online shopping reduces foot traffic and influences retail labor strategies as cosmetics departments continue to shrink in mainstream retailers. Macy’s is experimenting with a strategy of combining makeup and fragrance offerings into its beauty department since they found out that many shoppers now purchase those products together.

The rise of e-commerce and social media has led to a mega-industry for beauty brands. Influencer marketing is becoming an increasingly popular tactic used by many brands online. But the question remains: how will it affect brick-and-mortar stores in the long run? Will influencer marketing be enough to keep these stores afloat when shoppers are more inclined to go straight from Instagram posts to purchase rather than going first through retailer websites or stores? The answer may not be clear yet, but we can say that with this trend towards purchasing without physically entering a store, retailers need new ways of connecting with their customers. Retailers should explore all avenues available: including traditional advertising methods like TV commercials and print ads as well as digital ad campaigns on YouTube and Facebook.