Mary Dillon, Chief Executive Officer, Ulta Beauty; Chairperson, Retail Industry Leaders Association
Interviewer: Phil Wahba, Senior Writer, FORTUNE

MPW Summit 2020: Bricks and Clicks

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Ulta Beauty CEO Mary Dillon discusses trends since the height of the pandemic, recovery efforts, and how the industry could be changed forever.


Joining me now is mary Dillon Ceo of Ulta Beauty and she is also the chairperson of the retail Industry Leaders Association mary, Thank you for being with us today. Bill, thank you. It's wonderful to be here. Wonderful to see you even from a distance. So why don't we get jump right in? Um Covid has upended retail and your company has been no exception. Um Your company relies on people wanting to go to stores, trying on products, getting their hair, did, getting their nails done. And then Covid comes and spends so many of the things that make shopping at all to fund. So can you tell us a little bit about what's it been like to run a major beauty retailer when so many of your major levers are not available right now? Well, we're not available. Right, well Bill for everybody in retail, it's been an incredible time. Right? I'm really proud about the fact that first of all we're back open, we have all of our stores open. Are we doing here again? And all of our salons, which is all of our stores were also doing browse and what we've seen is that people are coming back to shop for beauty. Beauty being on the channel sort of where at that? So certainly R E commerce has been up 200%. We opened up curbside pickup, which has been really popular. But folks are coming back to our stores as well. And like all of the retailers that I work with in real, uh, everybody worked very hard to figure out how do you do this in a way that's safe for employees and safe for our guests? And I would say it's an industry. I think we've done, we've done a really good job with that. Um, and certainly the way that people are participating in beauty is a little bit different. We see a lot more self care, a lot more fragrance, a lot more best type items, right? And makeup, still a lot of popularity of things like, great, I've looks maybe a little less, let's say, because we're worrying basque, but we're seeing people start to come back, but I'm proud about how Ulta beauty associates in really frankly, the retail industry navigated this because we had some retailers that were open the whole time, some like ultra beauty, that had a closed doors for several weeks, but seeing demand come back, although it's going to take a while to get back to where we were. It's it's a very encouraging sign. So one of the hallmarks of your manager Ribalta has been to grow e commerce, but also continued to open stores fairly aggressively um in your most recent quarter, I think it was comparable sales sell almost 27% but e commerce tripled. Um Of course, the sales declines, the source uh started to diminish, but nonetheless, it was a pretty sharp uh drop in in store sales. Is this making you rethink the role of stores and maybe the cadence of store openings for all to going forward? What's the role of the store? Sure, absolutely. I mean, listen, we've always been thinking about kind of the role of the store, of the future, the digital experiences, etcetera. Going back to the results. I was really proud of our earnings all to be able to talk about the fact that certainly are comp sales were right now because our stores were closed. And if you look at our little demand across all channels, we were down only men single digits, which I never thought being down at all would sound good, but that was actually pretty encouraging. Um And so if you think about it, the vast majority of our sales happen in sports and we expect that to continue to be the case. And when our guests also become e commerce shoppers, they just get that much more engaged frankly the folks that are shopping across multiple channels than three times as much as somebody who shot fully in sports. And so for us about You? Re invent the experience in the future in the store knowing that things will look a little bit different. But we're seeing folks come back even now not being able to use the textures and all most of the categories. We've launched a great app called Lamb Lab which is on our app and it's augmented reality, very realistic virtual triumph that we see guests engaging in like 200% more than prior to. But we're doing a lot of innovation around new ways to sample certainly services like hair and makeup. Those are done skin and browse. Those are done by human hands, physical place that's always going to be important. But at the end of the day, our guests have to just come in and see the plethora of brands and products and promotions And then interact with our associates as well. So, you know, we have about 1250 stores in the US. right now, we we reaffirmed our guidance that we believe we've got a runaway to about 15-1700 stores in the US. Over time. But we're going to continue to be a leading on the channel retailer and continue to reinvent that experiences for I think many in the audience who love to buy beauty, understand what I mean about the relevance for shopping. Really fun. Yeah, so that's 17, Ultimately, do you think you might take a little bit more time to get to that number than you might have planned? Yeah, I mean, as it is, you know, we have been slowing the rate of new store openings were at a peak of about 125 new stores a year for a couple of years, several years ago. We pulled back and did 30 this year, given what the disruptions with Covid. But we're planning at least that many for next year. So I'd say it's a pretty moderate pace, but again, we see that runway because the more that we open our stores again, we get more loyalty members, they become on the channel members. You know, it's an interesting time for us. You know, our our real estate is largely off mall. It's really not so much in urban center, so we think we're well positioned in terms of grow our real estate space. Yeah, so before I ask the next question, just want to remind people listening and that they can submit a question of via chat. Uh so let's switch gears a little bit uh some uh uh providers of beauty products uh received a bit of criticism earlier this year for product that I say cater um you know, sort of favor uh white beauty standards over those of of of women of color. What's your take on what the beauty industry can do better in terms of serving customers of color and making them feel inclusive and and you agree that that more can be done for them? Oh, I think it's absolutely critical issue for the beauty industry for beauty retailers. You know, I started running Ulta beauty seven years ago and frankly I was shocked. I had not been in the beauty industry my whole career. I just started then in beauty. And I was I was surprised to see that I felt like as an industry we weren't really representing that current diversity and the trajectory of diversity of the of the country as it stood even seven years ago. So I've been on a mission at Ulta Beauty, frankly, our mission is really about bringing the possibilities of beauty to life for everybody. And so from day one, I was insistent that every single shoot that we did, every single piece of content and social media really reflected the beautiful diversity of our country, whether it's age or race or gender identity, male, female, everybody participates in beauty. And so but we're not perfect. I mean we've been on a mission here, but I would say that, you know, as an industry, it's gotten stronger and stronger the range of, say, for example, foundation shades that are appropriate for women of all different colors. That was too late in coming to the industry, frankly. But it's here now, I'd say another big trend that we're participating in really well is in textured hair. And so in fact, we just launched a brand that Tracy, Ellis Ross invented herself called pattern and it's really for curly texture, coyly hair, really celebrating that, you know, the ways that that type of their needs special care and we're really trying to lead in that arena as well. So whether it's services for everybody or products for everybody, I still think it's an opportunity, but I'm proud. Listen, I'll never forget the first time, one of my general manager said she came into the store, we gotta reset and the photos that were up on the wall for the new salon season. She said that's the person myself, that people look like me. So thank you. So that was too long in coming. But I think that as an industry, if we can't be inclusive and diverse, you know, this is about human beings and human emotions, I don't know who can be. So I'm proud of the progress, but there's more, right. And as, as one of the biggest sellers of beauty products in the country, you have a lot of clout with vendors. So I imagine that Jeff conversations regularly with them, right? Um, yes, but again, I feel like there's there's great progress that's happened and we're going to continue to be a champion for diversity and beauty. It's, it's really exciting. And listen in my career, I've been at this now for a while, over 35 years in business and I haven't worked as hard to get to this place and not really be a champion for what's right? And I think it's beauty. Inclusion is absolutely one of the top top values that we ought to be modeling. Mhm. One of the big challenges that uh people in your position faced, of course, was you dealt with this crisis was a lot of retailers have to furlough staff temporarily. Uh you know, there's there's chain supply supply chain disruptions. How did you make sure that your troops didn't get freaked out by furloughs? Or, you know, maybe lose some of them or worried by Covid? I mean, how uh this is a leadership question. How do you make sure the troops, um you know, our are able to provide the company, what it needs, and and uh you know, what's the message? And you give uh your workforce? Well, well, I'm sure everybody in this meeting of leaders has encountered has really reached into their souls to be the best leaders they can possibly be during this time. So, you know, in retail, we are in the human business, right? We have most of our employees. Associates work in our stores are distribution centers, we serve guests and customers. So health and safety was paramount. And so the decision, you know, we were we close our stores and that was a very tough decision in some cases, mandated in some cases we did ourselves, but we needed to take the time to make sure that we had safe procedures in place for shopping to happen. When we made a decision to furlough associates. We brought many back. We also knew that the cares act at the time was going to help support them financially. But I would say that the main thing is, you know, your leadership approach and the reality is really shine through. For me, it's been about putting our associates at the center of everything. We do, really respected them with honesty, with transparency. And so when we did make the decision that furlough, which was very difficult. But our stores were closed right for several weeks. Each associate that was furlough ahead, a personal conversation with their manager, not an email, not a, you know, not a big phone call. It might sound small, but in the scheme of things, that was the kind of things that really matter to our associates. So I think it's about, you know, having the humility to say you don't have all the answers but the human connection and the trust that's to be as transparent as you possibly can. And lastly, I would say it's about being decisive. I mean, we are going to be judged coming out of this crisis on how we treated our people, how we treated our customers, and how we set our business up for long term success. And so making big decisions. I think that's what it's all about right now as well. So, um, of course there's uh, turmoil also always creates opportunities. And we've seen some, you know, some of your competitors, namely department stores, really take it on the, on the chin much harder, uh, before we go to Q. And A one last question for you, for me is, uh, What market share opportunities do you see coming out of this whole crisis? And as retail emerges from this? Hopefully. Yeah, I mean, I think a big part of my job is to set us up for future success, right? So, you know, we already have, I'd say a pretty small share of the beauty business in the us worried about 7% share. So there's lots of share gain we think for ultra beauty that to achieve out there and we compete with everybody sells beauty and there's a lot of places because you know we sell all things beauty all in one place, so from massive prestige in every category. So we're going to continue to play our offense I think is the best way to put this and continue to our loyalty program to drive the love that our guests have for Ulta beauty have a great array and stable of brands and we have so many great brand partners and we think we're going to continue to be able to drive that market share growth across the industry for many years to come. Great. So my colleague Mahala Bram is has been monitoring the Q. And A. So why we uh go see whatever she starts. Hi mary. Hi girl bye guys. Um I miss everyone so much. Okay, so I've got a question from kate Goodman and um first she says congratulations mary, it's great. You're utilizing your stores in more ways and took advantage of the buy online pick up in store trend. Are you pulling demand forward going into the holiday season with earlier promotions as other retailers are doing this year especially. Yeah. Great question. I mean holiday is the biggest time of year for most every retailer, right? And we know for sure it's going to be different. I think there's great opportunities for a company for Ulta beauty. You know beauty is actually a very big gift giving um category for for holiday. We also get a lot of business out of people clamming up. So I think they'll be a little bit less of that, but the kinds of gifts that you can give through beauty which really resonate with people right now. Have to do with self care and wellness and things that just make you feel good about yourself or that smell nice, right, whatever. So we're definitely thinking about starting earlier, pulling things apart, we're not having a big, you know, people lining up outside of stores for black friday, it's just with social distance, it is not possible. So we're closing on thanksgiving. We're playing the game a little bit differently this year, but we think well set up to really have a great holiday season. Got another question um from Elena Daniel. Thanks for the question Elena can marry, spend a few minutes talking about packaging and your collaboration with brands on that front. I think the beauty industry has so much more to do in thinking about carbon footprint overall. Yeah, absolutely. I mean we just launched a platform that you'll see in markets starting next month called conscious Beauty and through this is really our desire to help our guests really navigate and solve their what the needs and interests that they have in beauty. Which is, you know, some people are looking for natural organic ingredients, some are looking for vegan or cruelty free, but the whole topic of sustainable packaging is also very important and I think we're kind of frankly we have a lot of, a lot of work to do ahead. We started one pilot with a company called Loop. That's going to help us learn about reusable packaging and being a leader and beauty where people can get a package and then send it back and get it resells. So that's just one example. But certainly the packaging discussion is one that we're having across the board um with our guests and we're making commitments to make sure that over time we have packaging that is more sustainable, more recyclable whether it's in the Ulta beauty collection and we've made commitments to that as well as what we sell in the support. So I think it's a it's a big area that we have to focus and we will mary Dillon ceo of Ulta Beauty. Thank you so much for joining us for the M. P. W. Summit this year. Great to see Mahal, my body, thank you very much with everyone.