By Craig Patterson
Popular US-based beauty retailer Ulta Beauty has halted plans to expand into Canada after announcing plans to open stores last year. The beauty behemoth would have competed with retailers such as Sephora and Shoppers Drug Mart as well as department stores and other retailers carrying beauty products.
In April of this year, Ulta Beauty said that it had planned to delay the Canadian expansion by about six months — plans were originally in place to open the first storefronts this year. Last year, former Globe & Mail journalist Marina Strauss first reported that sources had confirmed that Ulta Beauty was looking to open its first Canadian stores in late 2020 or early 2021.
Dozens of Ulta Beauty stores were expected to open across the country in major markets, including a mix of suburban units as well as some urban storefronts. In the United States, where Ulta Beauty operates more than 1,200 stores, some locations are in big-box centres to keep costs down.
Last year, Ulta Beauty retained broker Sam Winberg of Retail CND to find space for the retailer’s first Canadian locations. Inside sources informed us that the retailer was looking for space in Canada and was speaking to some prominent landlords about opening in malls and other high-traffic areas.
In an SEC filing on Wednesday September 23, Ulta Beauty said that its Canadian expansion was put on hold. “Ulta Beauty continues to believe international markets provide a long-term growth opportunity for the Company. However, given the current operating environment, the Company has decided at this time to prioritize growth of its U.S. operations and is suspending its planned expansion to Canada.”
As a result of breaking leases, Ulta Beauty will incur tens of millions of dollars in costs. The company said that it was in the process of a “limited to early-stage infrastructure buildout,” which included securing several smaller retail storefronts for the retailer. “In conjunction with this decision, the Company expects to incur costs in the range of $55 million to $65 million, the majority of which will be recognized in fiscal 2020,” according to the filing document.
COVID-19 affected sales at Ulta Beauty. For the quarter ended August 1 2020, the retailer’s net sales fell 26.3% to USD$1.2 billion, down from USD$1.7 billion in the year prior. Net income was USD$8.1 million, down from a whopping USD$161.3 million in the same quarter of last year.
The news will come as a shock to Canadians who were anticipating Ulta Beauty’s entry into the Canadian market. Prior Retail Insider reports about the retailer saw thousands of readers, indicating a strong brand awareness for Ulta Beauty in Canada.
There’s a possibility that Ulta Beauty will eventually expand into Canada. A representative at the company provided a statement to Retail Insider saying, “We continue to believe international growth is a longer-term opportunity for Ulta Beauty and we’ve learned a great deal throughout this process. When the time is right to reengage international opportunities within our growth strategy, we will certainly apply these learnings.”
Ulta Beauty has been referred to as the ‘Home Depot of beauty retailers’ with an expansive offering of brands in experiential stores. The retailer was founded in Bolingbrook, Illinois, in 1990 by Terry Hanson and Richard E. George, and it has become the largest beauty retailer in the United States. Ulta Beauty is said to be a one-stop shop that offers mass and prestige beauty, skincare, and haircare products in addition to unique services all under one roof; the company’s motto is “All Things Beauty, All in One Place”. Ulta Beauty’s loyalty program boasts more than 32 million members — that’s twice as many as Starbucks as a comparison.
Retailers with beauty products in Canada may breathe a sigh of relief, at least for now. LVMH-owned Sephora operates more than 100 stores in Canada and has seen remarkable success here by gaining a significant share of the market. Shoppers Drug Mart, which continues to expand its BeautyBoutique concepts both within its stores as well as with standalone beauty storefronts, will retain a market share that it was sure to lose with Ulta Beauty’s Canadian entry. Other retailers that would have been hit by Ulta Beauty’s Canadian entry include department stores such as Hudson’s Bay and Nordstrom and even discounters such as Walmart.
One beauty category that has been hit hard in particular is lipstick, as face masks have been mandated in public indoor spaces in many parts of Canada. The work-from-home trend as well as limited social gatherings has also resulted in reduced sales for other beauty products as well.
COVID-19 has hit retailers hard globally, including in Canada. Some international brands that planned to expand into Canada have put plans on hold and are waiting to see how the situation plays out. Travel restrictions have resulted in less international tourist dollars, which is hitting markets such as Vancouver and other destinations in a big way. A vaccine, which is not guaranteed to come to fruition, is a hoped for saviour to get things back on track. Given that we appear to be entering a second wave of the COVID-19 pandemic, the future of retail in Canada is again uncertain as we approach 2021.