Ulta turns to supply chain to boost margins
- Ulta is on a "multi-year path" where "inventory optimization is going to be a significant driver of operating margin improvement in 2019 and beyond," said CFO Scott Setterston on a recent earnings call.
- Though overall inventory was up 6.5%, per-store inventory was down for the second quarter in a row, which CEO Mary Dillon credited to improvements in inventory management from Swift — Ulta's Store and Warehouse Inventory Forecasting Tool, which automates demand forecasting and reorders — and a clearance event.
- The company also opened a new omnichannel distribution center (DC) in Fresno, California, in July that serves nearly 100 stores and 20% of the company's e-commerce orders. By the end of the year, Ulta aims to ship to 95% of customers in three days or less.
In a heavily trend-dependent, highly competitive business like beauty, Ulta has found that beyond rewards programs and sales events, winners have to optimize their supply chains to bolster margins and avoid out of stocks.
"Our in-stock position throughout the second quarter was consistently strong, particularly for our top selling items," said CEO Mary Dillon on the August call.
Though the company is still posting positive comparable sales growth, that growth has slowed from 8.8% to 8.1% to 6.5% over the last three quarters. Meanwhile, foot traffic at its closest competitor, Sephora is more than double Ulta's, despite Sephora's fewer locations.
In terms of stoking online sales, the company is still working toward buy online, pick up in store (BOPIS) — Dillon said Ulta has implemented an omnichannel order management system that would enable the capability but has not announced a start date. In addition, the company said it is fast-tracking plans to get its new Fresno DC fully operational.
Investors were disappointed by Ulta's third-quarter projections, but all could be redeemed in Q4 when the cult product line founded by model and reality TV star Kylie Jenner makes its brick and mortar debut at Ulta for this holiday season —though they'll need to keep it in stock to do so.
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