Do we have a winner and new champion of retail?
It sure feels like it after listening to Ulta Beauty's (ULTA) amazing conference call. It was a clinic about how to do retail, one that I think every retailer can learn from -- no must learn from, if it is going to be able to compete in the new world that's defined by Amazon (AMZN) , Costco (COST) , Walmart (WMT) and the desire to keep prices lower at all times.
At one time, I was very concerned about Ulta. After all, Ulta's got a store with a lot of brands, brands that can be bought through Amazon or through the sites of the brand makers. Plus its 1,174 stores have a worthy opponent in Sephora, which has 706 stores, with 386 in J.C. Penneys (JCP) , easily the star of that ill-starred show.
But Mary Dillon, easily among the most unsung of retail swamis, has gone on the offensive on so many fronts that it's safe to say she is crushing her opponents in every channel.
What are her quarterly bona fides?
First, she put up a 9.4% comp, one of the best of the best -- and an accelerating comp rate, too. Not much here about the weather, even as Ulta is in many of the same malls, strip or otherwise, where others who have complained about the weather reside.
Second, her rewards program is now off the charts -- with 31 million people, 14% growth year over year, a monumental number of loyal Ultamates. Compare that to Starbucks (SBUX) , a worldwide chain with 14,000 stores, more than 10x Ulta, with 16 million, a figure that most people would regard as spectacular until it is compared with Dillon's empire.
The rewards program is so progressive and so persuasive with its various tiers of value that I found myself thinking that it's a wonder that not everyone has adopted it, especially the attributes of the Diamond tier -- where if you spend $1200 a year you get a tremendous return on everything from points to birthday presents to a beauty coupon and everyday free shipping, terrific for those who want to look their Selfie-best every minute they walk outside the door.
What I liked best about what Dillon's up to, though, is how the future of retail is about personalization, something that comes up now on all of the best retailer calls, but not nearly enough to make me feel that it is understood for what it does, which is to blunt Amazon prime.
As Dillon puts it "personalization is the next frontier of loyalty," because it is a way to engage the customer so she won't stray from the flock. Personalization means everything from remembering what the customer bought to thinking for the customer using artificial intelligence and customizing your own site experience.
Then there is newness, the desire to put on a show both in the store and online. I can describe the site or just tell you to go and see it for yourself and marvel at the 21 Days of Beauty and "Don't miss the fun" prompts that make you want to scroll all over the place.
When you do, you will see all sorts of price points, everything from the below-$10 ELF to the $34 Estee Lauder (EL) products, mass-prestige to prestige, and aspirational prestige in between.
Perhaps most telling about this business is that it's got the perfect confluence of Instagram- and Twitter-driven personalities. So when Kylie Jenner launches a line of cosmetics, and becomes the youngest self-made billionaire ever, you can't invest in her -- but you can invest in Ulta, which has the best chance to replenish what was a sold-out line this quarter. Who knows how much Ulta could have made if it had enough product?
Ulta's not throwing up stores. It's going to add 80 this year. But as a great tenet, the chain is renegotiated for better leases, something that makes me ultra-weary of owning retail REITs. That's helping margin expansion, as is a fast-fulfilment system that's built to meet the demand for e-commerce.
I know it just hit an all-time high last week, but the stock will become, like Costco, a flywheel. As it goes up, it will gain more adherents, not fewer. It will take an incredible downdraft to bring this stock down. I can't chase, but I sure can't blame anyone for wanting to in this, the ultimate millennial/social-media-loyalty personalization play, which checks every box and does it as perfectly as is humanly possible.