- Amazon unveiled a new online store for beauty products marketed toward professionals on Monday.
- Shares of Ulta and Sally Beauty dropped shortly after the announcement, but analysts say Ulta shouldn’t worry.
- Ulta’s customer loyalty and reliance on sales to non-professional stylists are two assets that should keep the beauty brand safe from Amazon’s encroachment, they argue.
- Sally Beauty and other brands might have a harder time.
- Visit the Business Insider homepage for more stories.
Amazon’s announcement of a new online storefront for beauty products had a swift impact on competitors.
But investors may have acted prematurely on the news, with analysts saying Amazon’s encroachment into the beauty sector will likely have a limited impact on Ulta. That’s because the beauty retailer relies on customer loyalty and has a different customer base than Amazon.
Amazon’s Professional Beauty Store will primarily cater to professional stylists and aesthetician by offering a wide selection of top-notch brands, including Wella Colour Charm, RUSK, and OPI Professional. The selection is meant for professional use and customers must possess a state-issued cosmetology, barber, or aesthetician licence to make a purchase.
“Stylists can find more of what they need at great prices with convenient delivery options, freeing up their time to focus on what’s important: their customers,” Steve Kann, director of customer driven experience at Amazon Business, wrote in a blog post.
But with the threat of Amazon looming over beauty, analysts say there are a few reasons Ulta should be in the clear for now.
Analysts at UBS estimate in a report to investors that less than 10% of Ulta’s sales are from professional stylists, so a significant impact on Ulta’s sales from Amazon’s professional store is therefore unlikely.
Instinet analyst Simeon Siegel noted Ulta’s favourable position could also stem from the unique experience that Ulta offers its customers. “Amazon has shown the ability to move units very effectively rather than to help people find something they didn’t know they wanted. That is what Ulta and Sephora do very well.”
The UBS report also notes Ulta’s devoted customer base and rewards program, which gives customers the chance to rack up points and earn discounts. Customer loyalty programs like this help Ulta’s position in the face of a competing retailer, analysts say.
Finally, analysts note that there is only minimal crossover in the brands that Amazon and Ulta both carry. Ulta currently has about 30% of the brands in Amazon’s inventory. This small overlap, analysts suggest, will further help keep Amazon and Ulta away from each other’s necks.
Ulta got a sales boost last March when it started selling merchandise from Kylie Jenner’s makeup brand, Kylie Cosmetics. The Kylie Cosmetics lip kits were largely responsible for strong sales and store traffic.
“While today’s news may temporarily reignite the debate on online-only competition in the beauty market, we believe Ulta is well positioned to sustain its recent momentum,” reads the UBS report.
However, experts estimate a larger toll on Sally Beauty’s sales. Its stock already was hit harder than Ulta’s on Monday, and analysts estimate that 30% of Sally Beauty’s sales come from beauty professionals.
For now, the long-term effects of Amazon’s announcement remain undefined.
“Amazon has seen a tougher time at tackling the beauty industry,” said Siegel. “And the question remains whether this will end up simply being another attempt, or whether this will be the beginning of the end for brick-and-mortar beauty.”
“Companies might be put on notice, but it doesn’t mean they are dead,” he added.
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