Ulta 2010 Annual Report Download - page 8

We were founded in 1990 as a discount beauty retailer at a time when prestige, mass and salon products were
sold through distinct channels — department stores for prestige products, drug stores and mass merchandisers
for mass products, and salons and authorized retail outlets for professional hair care products. After extensive
research, we recognized an opportunity to better satisfy how a woman wanted to shop for beauty products.
This led to what we believe to be a unique retail approach that focuses on all aspects of how women prefer to
shop for beauty products by combining the fundamental elements of a beauty superstore, including one-stop
shopping, a compelling value proposition and convenient locations, together with an uplifting specialty retail
experience. While we are currently executing on the core elements of our business strategy, we plan to
continually refine our approach in order to further enhance the shopping experience for our customers.
Our competitive strengths
We believe the following competitive strengths differentiate us from our competitors and are critical to our
continuing success:
Differentiated merchandising strategy with broad appeal. We believe our broad selection of merchandise
across categories, price points and brands offers a unique shopping experience for our customers. While the
products we sell can be found in department stores, specialty stores, salons, drug stores and mass merchandis-
ers, we offer all of these products in one retail format so that our customer can find everything she needs in
one shopping trip. We appeal to a wide range of customers by offering over 500 brands, such as Bare
Escentuals cosmetics, Chanel and Estée Lauder fragrances, L’Oréal haircare and cosmetics and Paul Mitchell
haircare. We also have private label Ulta offerings in key categories. Because our offerings span a broad array
of product categories in prestige, mass and salon, we appeal to a wide range of customers including women of
all ages, demographics, and lifestyles.
Our unique customer experience. We combine the value and convenience of a beauty superstore with the
distinctive environment and experience of a specialty retailer. We cater to the woman who loves to indulge in
shopping for beauty products as well as the woman who is time constrained and comes to the store knowing
exactly what she wants. Our distribution infrastructure consistently delivers a greater than 95% in-stock rate,
so our customers know they will find the products they are looking for. Our well-trained beauty consultants
are not commission-based or brand-dedicated and therefore can provide unbiased and customized advice
tailored to our customers’ needs. Together with our customer service strategy, our store locations, layout and
design help create our unique retail shopping experience, which we believe increases both the frequency and
length of our customers’ visits.
Retail format poised to benefit from shifting channel dynamics. Over the past several years, the approxi-
mately $96 billion beauty products and salon services industry has experienced significant changes, including
a shift in how manufacturers distribute and customers purchase beauty products. This has enabled the specialty
retail channel in which we operate to grow at a greater rate than the industry overall since at least 2000. We
are capitalizing on these trends by offering a primarily off-mall, service-oriented specialty retail concept with
a comprehensive product mix across categories and price points.
Loyal and active customer base. We have almost 8 million customer loyalty program members. We utilize
this valuable proprietary database to drive traffic, better understand our customers’ purchasing patterns and
support new store site selection. We regularly distribute catalogs and newspaper inserts to entertain and
educate our customers and, most importantly, to drive traffic to our stores.
Strong vendor relationships across product categories. We have strong, active relationships with over 300
vendors, including Estée Lauder, Bare Escentuals, Coty, L’Oréal and Procter & Gamble. We believe the scope
and extent of these relationships, which span the three distinct beauty categories of prestige, mass and salon
and have taken years to develop, create a significant impediment for other retailers to replicate our model.
These relationships also frequently afford us the opportunity to work closely with our vendors to market both
new and existing brands in a collaborative manner.
Experienced management team. We have an experienced senior management team with extensive retail
experience that brings a creative merchandising approach and a disciplined operating philosophy to our
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