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The beauty industry thrives in a brick-and-mortar setting. Prior to COVID-19, 85% of beauty products in the United States were purchased in-store. Significantly, even millennials and members of Gen Z make 60% of their beauty purchases in-store, so it was a sector that experienced an initial shock during the early days of lockdown. While traffic switched to online channels, this was not enough to offset the decline of in-store purchases and analysts became concerned that the inability to shop in-person would permanently change consumer behavior within the sector. However, that doesn't seem to be the case.
While beauty spending continued to strengthen throughout the pandemic, the kinds of products consumers were purchasing were vastly different. Spending is typically concentrated in cosmetics, but during the days of zoom calls and working-from-home consumers have instead opted for skin-care, hair-care, and pampering products. This would appear to be a temporary replacement for the treatments most would seek at salons or spas, which have been forced to close or restrict services. Throughout 2020, Amazon saw a 172% increase in the sale of hair coloring products.
As we emerge from lockdown and rebuild our social scene, cosmetic spending should begin to return, which is good news for in-person retailers. Better still, even if the pandemic has changed consumer tastes towards wellness and skin-care, surveyors from McKinsey found that most consumers prefer to browse and purchase skin-care products in-store, regardless of age. And if economic conditions deteriorate, the industry should still remain steady. During the 2008 Financial Crisis, beauty spending only fell slightly and easily bounced back by 2010.
This is great news for Ulta Beauty, which struggled in 2020. The brand is synonymous with its salon experience and in-person shopping but this was quickly lost in a socially-distant world. The company expanded its digital makeup trialing service GLAMlab and increased its digital infrastructure but this wasn't enough to compensate for lost sales. However, the brand did make moves to hasten its recovery. It signed a partnership agreement with Target to place Ulta products in Target stores nationwide and levied its considerable membership program to migrate consumers to its website. With lockdown nearing an end, the company should continue to recover and return to healthy growth once its stores can increase capacity and available services.
Also important to the Ulta story is its CEO, Mary Dillon. Dillon was an essential part of the company's growth, more than doubling its store count and tripling its market cap. However, it was announced last week that she will be stepping down as CEO and, like Jeff Bezos, transitioning to executive chair of the board. She will be replaced by current president Dave Kimbell but will continue to have an influence on the company, stating that she expects to advise Kimbell on strategy, external relationships, and organizational development. While her loss will be felt, she has set-up Ulta for success and the company should continue to do well once it levies the pandemic storm.
We have updated our comment about Ulta. Click on the stock symbol below to view them.