Ulta 2011 Annual Report Download - page 10

print marketing while expanding our reach into other marketing channels including various broadcast formats,
digital, social media and e-mail marketing. We plan to continue to focus on our in-store marketing and eventing
as an additional means of educating our customers and increasing the frequency of their visits to our stores.
Enhancing and expanding our digital business. Our website serves two roles: to generate direct channel sales
and profits and as a vehicle to communicate with our customers in an interactive, enjoyable way to reinforce the
Ulta brand and drive traffic to our stores. We continue to aggressively develop and add new website features and
functionality, marketing programs, product assortment and new brands, and multi-channel integration points. We
intend to establish ourselves over time as a leading online beauty resource by providing our customers with a rich
online experience for information on key trends and products, editorial content, expanded assortments, leading
website features and functionality, and social media content. Through our continued enhancements and multi-
channel marketing initiatives, we believe we are well positioned to capitalize on the growth of Internet sales of
beauty products. We believe our website and retail stores provide our customers with an integrated multi-channel
shopping experience and increased flexibility for their beauty buying needs.
Improving our operating margin. We plan to continue to improve our operating results by leveraging our
infrastructure and continually optimizing the efficiency of our operations. We will continue to make investments
in our information systems to enable us to enhance our efficiency in areas such as merchandise planning and
allocation, inventory management, distribution and point of sale (POS) functions. We believe we will continue to
improve our profitability by reducing our operating expenses as a percentage of net sales, in particular supply
chain, general corporate overhead and fixed store expenses.
Our market
We operate within the large and steadily growing U.S. beauty products and salon services industry. This market
represents approximately $93 billion in retail sales, according to Euromonitor International and IBIS World Inc.
The approximately $53 billion beauty products industry includes color cosmetics, haircare, fragrance, bath and
body, skincare, salon styling tools and other toiletries. Within this market, we compete across all major
categories as well as a range of price points by offering prestige, mass and salon products. The approximately
$40 billion salon services industry consists of hair, face and nail services.
Distribution for beauty products is varied. Prestige products are typically purchased in department or specialty
stores, while mass products and staple items are generally purchased at drug stores, food retail stores and mass
merchandisers. In addition, salon haircare products are sold in salons and authorized professional retail outlets.
Competition
Our major competitors for prestige and mass products include traditional department stores such as Macy’s and
Nordstrom, specialty stores such as Sephora and Bath & Body Works, drug stores such as CVS/pharmacy and
Walgreens and mass merchandisers such as Target and Wal-Mart. We believe the principal bases upon which we
compete are the quality and assortment of merchandise, our value proposition, the quality of our customers’
shopping experience and the convenience of our stores as one-stop destinations for beauty products and salon
services.
The market for salon services and products is highly fragmented. Our competitors for salon services and products
include Regis Corp., Sally Beauty, JCPenney salons and independent salons.
Key trends
We believe an important shift is occurring in the distribution of beauty products. Department stores, which have
traditionally been the primary distribution channel for prestige beauty products, have been meaningfully affected
by changing consumer preferences and industry consolidation over the past decade. We believe women,
particularly younger generations, tend to find department stores intimidating, high-pressured and hinder a multi-
brand shopping experience and, as such, are choosing to shop elsewhere for their beauty care needs. According to
industry sources, 55% of women aged 18 to 24 shop in specialty stores, compared to 40% of women aged 18 to
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