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Competitive Analysis 1

Competitive Analysis: Beauty, Cosmetics and Fragrances Stores Industry


Competitive Analysis 2

Table of Content

Executive Summary 3

Industry Overview and Description 3

Factors 4

Analysis of Top Three Competitors 8

Industry Future 11

Conclusion 12

Reference 13
Competitive Analysis 3

Executive Summary

According to a recent article from Forbes, by the end of the year 2018, the U.S. Beauty

Retail Market is estimated to be worth $56 Billion. (Danziger, 2018) With an industry that is

accelerating by the economic growth, product innovation and market expansion for the Beauty,

Cosmetics and Fragrances Stores industry will increase over the next five years. (Cohen, 2018)

Many consumers of beauty, cosmetics and fragrance products have realized the importance of

self-image and presentation and this has help increase the demands of cosmetics products across

the world. There is great innovation in this industry which has also led to the growth within this

industry. (Cave, 2017)

This paper will analyze three of the top competitor companies within the Beauty,

Cosmetics and Fragrances Stores industry. The Porter Five Forces and a SWOT analysis will be

used to help analyze the three competitors companies within the industry.

Industry Overview and Description

With more than ever, beauty, cosmetics and fragrances trends are starting to grow into

something far more mainstream. Over the last few years, the distribution of beauty and personal

care items have quadrupled and as new trends evolves it will it will increase. (The Nielsen

Company, LLC, 2018) With more people wanting to follow new trends or find products to make

them younger and look a certain way, companies are expanding and creating new products to

meet the growing demands. According to Cohen (2018) the number of industry establishment is

expected to rise at an annual rate of 3.4% over the next five years to 2018. Furthermore, the

growing economy shows that consumer’s income will increase and make them more able to buy
Competitive Analysis 4

high-end products that results in thick margins. (Cohen, 2018) This will results in revenue to

increase and is anticipated to grow an annualized 1.2% to $23.7 billion as consumers continues

to buy more cosmetic products. This industry is also increasing due to the fact that it will open

opportunities to market towards teenagers and men’s (Cohen, 2018)

Three of the top companies in the Beauty, Cosmetics and Fragrances Stores industry are

Ulta Beauty, Inc., Sephora Inc., and Sally Beauty Holdings, Inc. Each of these companies offer

consumers a variety of Beauty, Cosmetics and Fragrances options to choose from. Ulta Beauty is

the leading company in this industry with 29.8% of the market share and reported to have made

$5.9 billion in total company earnings. Sephora comes in after as one of the leading company in

the industry holding 18.4% of the market share and reported to have a $4.1 billion in revenue.

The third leading company in this industry is Sally Beauty Supply which holds 8.4% of the

market share and reported to have made $3.9 billion in total company revenue. (Cohen, 2018)

Factors

There are several factors that drive the Beauty, Cosmetics and Fragrances Stores industry

in regards to growth and innovations. This is driven and influenced by emerging social trends

and new innovations.

In the recent study from Consumer Insights, it was reported that 80% of consumers were

being more aware of the importance of cosmetic products and especially their positive impacts

on improving self-image, confidence and self-esteem. They are also aware of the importance of

first impression both at the workplace and in society in general. (Cave, 2017)
Competitive Analysis 5

Another factor is the emerging of technology which has made an impact for this industry.

In the article from Hoover’s database, it mentioned how Sephora retailers had launched a mobile

payment system that allows for easier checkout for their customers, very much like Apple stores.

(Hoovers Inc, 2003)

However, there are certain factors which affect the entry to the Beauty, Cosmetics and

Fragrances Stores industry. These factors can be analyzed using the Porter Five forces analysis.

The Porter Five forces were developed to help analyze internal and external factors and help

develop effective marketing and competitive strategies. They include the, threat of new entry

threat of substitutes, bargaining power of buyers and suppliers as well as rivalry in the industry.

(Porter, 2008) It is important to understand these factors, which plays a crucial role to generate

profits for the industry. The Porter’s five forces are as follows:

1. Threat of new entrant: This factor analyze new firms that may enter into an industry. In

order for firms to enjoy long term profitability, they should develop customer loyalty

within their industry. (Porter, 2008)

2. Threat of substitute: this factor arises when a substitute performs the same or similar

needs or functions that satisfy the market needs. (Porter, 2008)

3. Bargaining power of buyers: The bargaining power of buyers analyzes the changes in the

industry in which consumers have manipulating price changes due to shifts in demand.

(Porter, 2008) Not only can that but buyers also have the power to demand for lower

prices or higher product quality.

4. Bargaining power of suppliers: The bargaining power of suppliers analyzes the power

which suppliers have regarding making price changes for their products. (Porter, 2008)
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5. Rivalry of existing competition: This force is dependent on how competitive and

profitable the industry is. (Porter, 2008)

The threat of new entrant is low because in the three companies, Ulta Beauty, Sephora and Sally

Beauty Supply. They all have develop loyalty rewards for their customers who shops at their

stores to keep a long term relationship with their customers. Ulta Beauty have their “Ultimate

Rewards” where costumers sign up and shop and earn points on every dollar spent on products,

beauty services where they can redeem it on any products. The best part about their loyalty

rewards is that it is free. (Ulta Beauty, n.d.) Sephora “Beauty Insider” loyalty program, is similar

to Ulta’s rewards program, you shop and earn points and can use the points to redeem on certain

products that Sephora offers. Their loyalty program is also free. (Sephora, 2018) For Sally

Beauty’s rewards program is very similar to Ulta Beauty and Sephora, but costumers can earn 10

points for every $1 spent, and for every 500 points earned, customers can redeem a $5 rewards.

(Sally Beaity, n.d.) The threat of substitute is medium, because if certain stores carries the same

products and one store sells it at a lower price, consumers will rather shop there. Because

Sephora and Ulta do have brands and products that are sold in both stores, costumers might

choose to buy depending on what sort of offers can give them a better deal. The threat for rivalry

is medium, because there are so many brands and new brands coming into the industry. But

because Ulta Beauty, Sephora, and Sally Beauty have such a presence within the Beauty,

Cosmetics and Fragrances Stores industry, competition is not as high.

A SWOT Analysis is used to analyze the internal and external environment of the company. The

Strengths (S) and Weakness (W) are the internal environmental factors of the company and

Opportunities (O) and Threats (T) are the external factors of the company. The SWOT analysis

for the Beauty, Cosmetics and Fragrances Stores industry is shown in Figure 1.
Competitive Analysis 7

Figure 1 SWOT Analysis


SWOT Analysis
Ulta Beauty Inc. Sephora Inc. Sally Beauty
Strengths - Strong partnership with - Strong presence in - Largest
its vendors. the beauty and professional
- Diverse products from cosmetic industry beauty products
high-end products to - Have over 250 distributor in the
drug store products brands US
- Over 450 Brands - High value and - Presence in
- Cost and Size high end brand multiple
advantages - Has its own channels of
- Offers affordable prices private labels retailers,
- Good branding wholesale and e-
and marketing commerce
making it a strong - Offers a loyalty
player. programs for
discounts to its
members on their
products
Weakness - Brand is limited to - Expensive - Competitive
some global brands products market
- Competitive market - Competitive
market
Opportunities - Can introduce new - New innovations - Global expand
services to sustain growth ship, currently it
- New innovations to - Increase for men’s is only open to
sustain growth products North and South
- Growing demands for - Growing demands American and
beauty for beauty Europe.
- Partnerships with - Partnerships with - Marketing more
beauty bloggers/guru’s beauty on social media
- Partner with global bloggers/guru’s - Partnership with
brands - Partner with global Beauty Salons
brands
Threats - Change in consumer - Change in - Wide ranges of
preferences and trends consumer substitutes
- Wide ranges of preferences and available.
substitutes available. trends - Regulations on
- Regulations on products - Differentiation in products
Beauty cost
- Regulations on
products
- JC Penny might
not stay in
business.
Competitive Analysis 8

Analysis of Top Three Competitors

Three major companies within the Beauty, Cosmetics & Fragrance Store in the US that

provides consumers beauty, cosmetics and fragrance products are Ulta Beauty, Inc., Sephora

Inc., and Sally Beauty Holdings, Inc. See Figure 2 for Key information about the company.

Company Overview

Terry Hanson and Dick George founded Ulta Beauty Inc., in 1990 but currently the chair

of Ulta is Charles Philippin. The company is supported by five distribution facilities in Illinois,

Indiana, Arizona, Texas and Pennsylvania but the main headquarter is located in Bolingbrook,

IL. (Hoover's Inc , 2018) In terms of products, cosmetics make up makes up for more than half

of the sales while 20% comes from Skincare, Bath & Fragrance and Haircare Products & Styling

tools. The salon services with Ulta stores makes up for 5% of the sales and 10% goes to the

company’s e-commerce business. (Hoover's Inc , 2018) As of 2018, Ulta operates more than

1,000 stores across the US and have 34,700 employees total working within all their sites.

(Hoover's Inc , 2018) Per Ulta’s financial statement, with their loyalty rewards program, the

company has about 28 million loyalty members which accounts for 90% of the company’s sales.

With the loyalty programs, it allows and encourage for repeated purchases. (Cohen, 2018)

Ulta Beauty aims for a brick-and-mortar retail for their customers. Their goal is to allow a

hands-on products that their customers can try in stores. To set themselves apart, Ulta provides

salon services and mass-market merchandise to consumer’s aestheticians and salons. Hoping to

provide a diverse variety to their customers. (Hoover's Inc , 2018)


Competitive Analysis 9

The first Sephora USA store opened in 1998 but was originally a French-based retailer.

The current president of Sephora is Calvin McDonald and with it’s headquarter based in San

Francisco, CA. Sephora currently have more than 300 stand-alone stores in North America. As

of 2018, Sephora currently have over 5000 employees totaled in all of their sites. (Hoovers Inc,

2003) In 2006, they we able to collaborated with JC Penny and open mini-Sephora shops within

the department stores. There are currently 475 mini-Sephora is inside JC Penny, and will

continue to expand in JC Penny locations with a target of 600 stores nationwide. In terms of

product, Sephora offers a broad array of products from brands like Bare Escentuals, Clarins,

Clinique and Shiseideo. They also provide beauty services that includes makeup lessons and hair

stylings within the stores. (Hoovers Inc, 2003)

Sephora also have their own private label which makes up for 10% of the sales. (Hoovers

Inc, 2003) In 2016, Sephora launched their subscription based service beauty box where every

month subscribers can receive five travel size beauty products that is curated to certain themes.

The subscription cost $10.00 per month. (Cohen, 2018)

Sephora aims to achieve its growth by offering a distinct in store experience where

shoppers and employees and enjoy an entertaining experience. Employees are referred as “cast

members” and the sales floor is the “stage”. This is because the company have a strong focus on

providing great customer service. (Cohen, 2018)

Sally Beauty Holdings is known as one of the largest retailers and distributors of beauty

supplies in the US, founded in 1964 with the current chair Robert McMaster and with their

headquarter base in Denton, TX. The company have 3,700 Sally Beauty Supply stores that sells

more than 10,000 professional hair, skin and nail products and employing 29,475 employees

total in all their sites. (Hoovers Inc., 2018) About 70% of sales comes from their hair color and
Competitive Analysis 10

hair care products and skin and nail care products supply about 10% of sales. (Hoovers Inc.,

2018) Out of the three companies, Sally Beauty is the only company that is more international.

Their stores are spread throughout Canada, Mexico, Chili, United Kingdom, Ireland, Belgium,

France, Germany, the Netherlands, and Spain. (Cohen, 2018)

Figure 2. Key Information

Ulta Beauty Inc. Sephora Inc. Sally Beauty

Market Share 29.8% 18.4% 8.4%


Positioning Own full service Affordable prices Distributor of
salon in every and high quality professional beauty
store in the US. products. supplies.
Revenue $5.9 Billion $4.1 Billion $3.9 Billion
Headquarters Bolingbrook, IL San Francisco, CA Denton, TX
Year Founded 1990 1998 1964
Employee count 34,700 5000 29,475
1 Year Employee 9.12% 0.0% (0.64%)
growth
# of store locations 1000 300 + 475 mini- 3,700
stores
Products High-end and drug High-end cosmetics Professional
stores cosmetics, and private labels products for hair,
bath fragrance, products. skin, and nails.
skincare, haircare
products and
styling tools
(Cohen, 2018)
Competitive Analysis 11

Industry Future

Over the next three years, factors that will influence the success in the Beauty, Cosmetics

& Fragrance Store in the US industry is how much innovation the company are investing in the

digital technology as it is a trend that will increase in the newer market. Currently Ulta Beauty

have a mobile application for their customers who can download it onto their phone. With their

“Glam Lab” it allows shoppers to take a face selfie and is able to virtually apply the makeup on

their phone, this allow for customers to try on the products before having to make a purchase.

The Ulta app, also allow customers to shop on their mobile phone. (News, 2017) Sephora also

have a similar app. Through the mobile app, it also allows shoppers to also shop online, but on

the apps it gives users the ability to experience virtual artist that helps show or demonstrate how

a to apply lashes, or eye shadows. Through their mobile app, users can also book a reservation

for their Beauty Studio, scan any items for prices and deals. (Sephora, 2018) As for Sally Beauty,

they currently do not have a mobile app.

A factor that will influence the decline for the Beauty, Cosmetics & Fragrance Store in

the US industry, is more people will choose to shop independent brands. In a recent article from

Forbes, it mentions how independent brands have gone up 42.7% because brands are being

created at the speed of light. (Kestenbaum, 2017) Another factor that will influence the decline

is, E-commerce which will be one of the fastest-growing threat for this industry. As more

consumers will opt out of shopping in traditional stores as more will choose the convenience and

wide selection of product options available online. (Cohen, 2018)

In the next three years, I think each of the competitors will invest in more innovations for digital

options, Ulta and Sephora is already up in the game with their mobile apps. In the next three
Competitive Analysis 12

years maybe one of them can create a feature to help choose certain styles for certain events or

have the ability to help user find the perfect shade of foundation that matches them.

For all the three companies, I think the opportunity to go global is a trend that will increase.

Ulta Beauty is slowly going towards global brands. In 2017, Ulta started to partner with Landing

International and offered Korean beauty brands from Tony Moly, Missha, and Skin Food.

(Kinonen, 2017) Just this year, Sephora also partnered up with Ecommerce Company Memebox

to create a new Beauty Line “Kaja” which means “let’s go” in Korean, that will offer 47 products

with eyeshadows and lip stains, also making this the first complete K-Beauty color cosmetics

line in the U.S (Alcantara, 2018)

Conclusion

Overall, the Beauty, Cosmetics & Fragrance Store in the US is an industry that will

continue to grow. Probably not as high or fast as other industries but it is won’t really decline

either. This industry would be a great industry to invest in the next three year because the

opportunities for ecommerce and globalization is very huge. After so many years, the industry

just started to partner with other global brands overseas and there will be an increase of

partnership and globalization in the next couple years. As mention due to consumer’s realization

and the importance of self0imahe, this industry will continue to grow to meet the demands of the

consumers. The impact of the Porter Five Forces on the industry discuss that this industry have a

medium competition and low supplier power and a high customer power but also have a larger

number of substitutes.
Competitive Analysis 13

References

Alcantara, A.-M. (2018, September 18). Sephora Teams Up With Ecommerce Company

Memebox for a New Korean Beauty Line. Retrieved from AdWeek:

https://www.adweek.com/digital/sephora-teams-up-with-ecommerce-company-

memebox-for-a-new-korean-beauty-line/

Cave, J. (2017). Consumer Insights. Retrieved from Cosmetics Europe:

https://www.cosmeticseurope.eu/files/6114/9738/2777/CE_Consumer_Insights_2017.pdf

Cohen, A. (2018). Beauty, Cosmetics & Fragrance Stores in the US (Industry Report 44612).

Retrieved from IBISWorld database

Danziger, P. N. (2018, August 6). Sephora, Ulta And The Battle For The $56B U.S. Beauty

Retail Market. Retrieved from Forbes:

https://www.forbes.com/sites/pamdanziger/2018/08/06/sephora-and-ulta-are-on-a-

collision-course-then-there-is-amazon-where-is-us-beauty-retail-headed/#229233e855dd

Hoover's Inc . (2018). Ulta Beauty, Inc. Retrieved November 17, 2018, from Hoover's Database

Hoovers Inc. (2003). Sephora USA, Inc. Retrieved November 17, 2018 from Hoover's Database

Hoovers Inc. (2018). Sally Beauty. Retrieved November 17, 2018, from Hoover's Database

Kestenbaum, R. (2017, June 19). How The Beauty Industry Is Adapting To Change. Retrieved

from Forbes: https://www.forbes.com/sites/richardkestenbaum/2017/06/19/how-the-

beauty-industry-is-adapting-to-change/#2201ec7d3681
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Kinonen, S. (2017, March 3). Ulta's Korean Beauty Section Just Got a Whole Lot Bigger.

Retrieved from Allure: https://www.allure.com/story/ulta-korean-beauty-section

News, B. (2017, January 27). Mobile Helps Ulta Shine. Retrieved from Digital Commerce 360:

https://www.digitalcommerce360.com/2017/01/27/mobile-helps-ulta-shine/

Porter, M. E. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business

Review.

Sally Beaity. (n.d.). Sally Beauty Rewards. Retrieved from Sally Beauty:

https://www.sallybeauty.com/sally-beauty-rewards.html

Sephora. (2018, October 9). Beauty Insider. Retrieved from Sephora:

https://www.sephora.com/loyalty-program

The Nielsen Company, LLC. (2018, February 15). The Future of Beauty. Retrieved from

Nielsen: https://www.nielsen.com/us/en/insights/reports/2018/the-future-of-beauty.html

Ulta Beauty. (n.d.). About Ultimate Rewards. Retrieved from Ulta Beauty:

https://www.ulta.com/ulta/myaccount/learnmore_template.jsp?page=benefits