1) Ulta Beauty’s wide range of luxury and mass market brands appeals to a broad base of customers, garnering the retailer a larger share.

Ulta Beauty was founded in 1990 in a suburb outside of Chicago as Ulta Salon, Cosmetics and Fragrance, selling a combination of high- and lower-end products. But since the entrance of Mary Dillon as CEO in 2013, Ulta’s identity has concretized and the company has expanded its physical presence from approximately 550 to 1,000 stores. Between 2014 and 2017, sales jumped 54% and today, 90% of revenue comes from the 27.8 million people who participate in the company’s Ultamate Rewards program, which allows them to collect points each time they shop that they can use as credit on future purchases. In 2015, Ulta surpassed Sephora as the biggest beauty retailer in the U.S., claiming 27% of beauty’s market share.

In the growing and increasingly competitive beauty space, Ulta stands out as a purveyor of both high and lower-end brands. Of the more than 500 brands that Ulta Beauty retails today (not including its plans to add 100 more in 2018), a customer can shop both prestige like MAC Cosmetics and Nars at the same time as drugstore favorites like e.l.f. and L’Oréal. Because the company is constantly challenging the boundaries of its selection, it stays top of mind to consumers and imbues freshness into the Ulta experience. Among other collections, Ulta retails its own low-priced private label, as well as exclusive and made-for-Ulta products and private labels from other brands.

This mix, along with Ulta’s midwestern origins, continues to ground the company as an approachable option, especially contrast to its main rival Sephora. In fact, when Ulta first decided to expand to New York City in the fall of 2017, it chose to break ground in the unassuming Upper East Side as opposed to the more prestigious Soho or Nolita (Ulta already had stores in Queens, Staten Island and the Bronx).

Ulta’s business model grows its share of the beauty pie

Though dealing with so many brands is a challenge, Ulta has built a pliable infrastructure over the years. In turn, the Ulta model invites customers to negotiate between high and low, growing the company’s reputation as a “one stop shop” for cosmetics where shoppers can seamlessly move up and down market. In the past few years, this has allowed the retailer to increase its representation of prestige brands, growing sales, without turning a back on its audience. One of the main strengths for this model is Ulta’s ability to test new brands out first before launching them en masse—in May 2017, the retailer’s partnership with MAC Cosmetics were made available online first, becoming the company’s most successful ecommerce launch ever, which persuaded Ulta to stock the brand at its stores. In March 2018, Ulta announced it will sell Chanel Beauté, which was previously only available for purchase at Chanel’s own stores and site, select high-end department stores and the luxury retailer Cos Bar.

This ladder strategy works well for Ulta—company data found that 77% of Ulta’s loyalty program members (Beauty Enthusiasts) purchase both mass and luxury brands. While new customers buy 100% mass brands in their first year, they typically purchase 40% mass and 60% luxury brands by their fifth. The wide range of products and general accessibility of the Ulta shopping experience means that the retailer’s customer base ranges from 13-year-old shoppers to women in their 70s—this makes Ulta relevant outside of the millennial market to older age cohorts that are not often the priority, but hold more purchasing power. In turn, the brands that wholesale to Ulta gain access to a wide number of demographics.

Today, other mass market players are striving to strengthen their middle- and upper-class customer base at the risk of siphoning more economical core customers: Target is opening smaller storefronts aimed at young urbanite professionals and Walmart redesigned its site in the hope that it will increase the number of visits and sales from higher paying customers. But because Ulta has always provided prestige and drugstore beauty brands, it de-risks the process of adjusting its SKUs altogether. Customers know to expect a balance of brands and prices—many will purchase cheaper options, but they’ll always have the opportunity to move up the ladder. As Ulta continues to lead with inclusivity, the company will evolve and develop its rewards program further. In turn, it will be able to more effectively address gaps and identity room for growth in its inventory based on data from sales.

2) Stitch Fix stands apart from other digitally native, direct-to-consumer brands as it evolves to match the typical American customer’s needs.

Stitch Fix, a subscription-based styling service founded in 2011, gathers shopper preferences to send a box of clothing and accessories right to her door. Customers—men, women and plus-size—pay an upfront $20 styling fee and then purchase the items they like from each box, or send back those they dislike—the styling fee is deducted from what she decides to keep. All the while, Stitch Fix collects data on her preferences in order to more closely align the next box with the shopper’s interests.

Stitch Fix’s model is inclusive for apparel much like Ulta is for beauty. Customers can request a mix of luxury and mass market brands, choosing to trade up or down in price point. Unlike much of the apparel industry—in particular, the ever-increasing number of digitally-native, direct-to-consumer brands, the vast majority of which are founded in New York and San Francisco and target high-paying customers—Stitch Fix is a “venture-backed company not built for venture capitalists.” In other words, the company appeals to the typical American consumer. Most items in a subscription box are under $100, and each subscriber lists the price points she is comfortable paying.

As the company has matured, customer data has found that many existing shoppers prefer a high-low mix and that some are increasingly interested in higher-priced items. Regardless, Stitch Fix always offers a “choose-your-own-adventure”-like course of action, both in price point and style. Like Ulta, Stitch Fix can utilize customer feedback on the contents of each box, as well as updates on subscriber profiles as their preferences change. This helps the company identify which brands to work with moving forward and in turn, what to send to subscribers.

Though founded in San Francisco, Stitch Fix takes advantage of the direct-to-consumer model, selling a service that appeals not only to the coastal elites, but also—and arguably more importantly—to middle America. Its consideration of this customer helps Stitch Fix stand out from the cacophony of other digitally-native brands and contributes to its overall mentality of inclusivity. For example, when Stitch Fix raised its advertising spend 84% in early 2018, it directed the funds to television advertising as opposed to digital, reaching a wider range of customers outside of urban areas—regions where millions of often underserved Americans live. Many who stumbled on the TV ads expressed interest in the service, but voiced their preference for more products in the $20 to $50 range, which the brand plans to provide. While these orders may be less lucrative for the company, there will be more of them, in addition to the higher paying customers who continue to use the service.