Problem-Solution Analysis: Ulta Beauty, Inc.

Executive Summary and Industry Scope

Ulta Beauty is a fortune 500 company that is publicly traded on the stock market. It is one of the largest retailers in the beauty and cosmetic industry in the United States. Ulta Beauty’s mission statement is “the power of beauty to bring to life the possibilities that lie within each of us.” Their vision is centered on, “being the most loved beauty destination of guests.” Ulta Beauty’s target market focuses on beauty enthusiasts and people that are interested in purchasing a variety of skincare and cosmetic products. Ulta Beauty took a large financial loss during the coronavirus pandemic, but they were able to remain open for limited hours during the lockdown because they provided personal safety supplies. The Expansion Team also has identified some issues in regards to Ulta Beauty’s turnover rate with employees, promotion to higher positions, and issues with service and products. Moreover, Ulta Beauty has managed to have some success due to having a full online store option with curbside availability.

Introduction

Ulta Beauty is headquartered in Bolingbrook, Illinois. There are reportedly 1,290 locations spread nationwide. The Ulta Beauty location that was primarily used for this consulting project was in Escondido, California. This store is located in the Escondido Promenade shopping center, which also contains a Target store and a Sally Beauty store. These are both top competitors of Ulta Beauty. Despite the competition, the Escondido location is one of the most profitable and successful locations in the region according to our interviewee, Danielle Heath.

Ulta Beauty has employees including managers and full-time and part-time associates at several regional retail stores. Part-time associates will usually be scheduled to fill in the gaps in schedules between their full-time counterparts. A lack of available full-time positions however increases the turnover rate as part-time associates are forced to find a different job when there are budget-cuts and their hours are the first to be decreased. Team Expansion is focusing on how COVID-19 impacted Ulta Beauty Inc., as well as how employees were affected. This problem and solution analysis includes the company financial reports, employee interview, and a large amount of research to understand what are the successes of the company and what improvements are required for the company.

Interviewee Information

I reached out to the part-time manager, Danielle Heath, through email communication method. Heath’s email was acquired through another employee at the store. I collaborated with her by gathering a list of fifteen questions about the living conditions, culture, and ethical standards placed in the particular store located in Escondido, California (D. Heath, personal communication, April 21, 2021). Heath is responsible for executing tasks and decisions for other employees during her part-time shifts. Her role as a part-time manager includes recording product inventory in store and assisting her senior managers in the hiring and training process of employees. As a dedicated part-time manager for 5 years, she was able to hold extra shifts on behalf of her senior managers and complete the store safety inspection forms online on their behalf during their absence. The store has 4 other managers with different responsibilities and around 25 employees. As a manager, she is responsible for a portion of the store floor while she is working, and can be the top person in charge if other managers are not present.

Factors that affect Ulta Beauty

SWOT Analysis

Strengths

Within this company, there are many internal strengths. Ulta Beauty has a strong brand portfolio and public image. Their website includes messages of inclusion, helping the community, and taking corporate responsibility. Ulta strives to adhere to its four pillars of progress: People, Product, Community, and Environment (“Ulta Beauty,” Corporate Responsibility) Having a positive public image allows Ulta to maintain high status, and consumers are more likely to market them positively based on these factors. The second strength of Ulta Beauty is its ability to develop good customer relationships. Ulta is committed to creating a welcoming and equal environment for all guests. To maintain this promise, the company provides its employees with training focused on race, gender, and inclusion through programs such as their Race Matters Leadership Training (“Ulta Beauty,” Champion diversity). A reward system is also available to customers to collect points, receive perks, and redeem rewards. Good customer relationships allow Ulta to maintain its market share and ensure that consumers continue to come back after each visit. A third strength of Ulta Beauty is its distribution network. Ulta Beauty is the largest beauty retailer in the United States (“Ulta Beauty,” Company overview). The company offers over 25,000 beauty products from 500 well-established beauty brands (“Ulta Beauty,” Company overview). Other amenities such as their online store and curbside pick-up allow them to reach a broader range of consumers, therefore, increasing their market share. A well-developed distribution method is crucial to any company, and Ulta Beauty has learned how to use that to its advantage.

Weaknesses

While Ulta beauty has many internal strengths, it has one weakness that could impact in the long run: poor management skills. When reviewing sites such as Indeed and Glassdoor, many former and current employees reflect on their managers' poor skills to effectively lead a team. For example, on Indeed, one anonymous reviewer explains that their manager created a negative and hostile work environment by not cooperating with other team members and lacking emotional empathy for their subordinates. A reviewer on Glassdoor claims that their manager lacked communication skills causing the other employees to be confused about their tasks and goals within the store. The reviewer advised Ulta Beauty to better care of their workforce and focus on resolving miscommunication issues. In addition to this, numerous employees commented on Ulta’s Human Resources department's lack of effort to help lower-level employees fix problems across several reviews. It appears that their H.R. has not provided an adequate outlet for anonymous complaints. Instead, employees have reported that their complaints are not anonymous, making them "targets" to managers with poor conflict resolution skills. The key to a strong company is strong management and leaders. Without these leaders, the company will fall apart and not maintain its good image within and outside the company.

Opportunities

There are various opportunities Ulta Beauty can seek to keep growing as a company. New innovative strategies are developing within the Cosmetic industry. An example of this is launching naturally sourced and eco-friendly packaged products (Chouhan, Vig, & Deshmukh, 2021). This helps Ulta continue to work on its corporate social responsibility by helping preserve the environment. In addition to maintaining its corporate responsibility, launching naturally sourced products allows Ulta Beauty to reach a market share where consumers value being eco-friendly and more natural in their appearance. Another opportunity the Cosmetic industry presents to Ulta is room for expansion nationwide. The Global Cosmetic market is expected to reach $463.5 billion by 2027 and grow in online sales channels by 7.6% (Chouhan, Vig, & Deshmukh, 2021). This allows Ulta to focus not only on its physical stores but its virtual stores too. With online ordering, Ulta has the opportunity to create a new customer experience and reach more people during this digital age.

Threats

Ulta Beauty faces many external threats that can impact its company in the future. One threat is the impacts of COVID-19. Our interviewee Danielle Heath, manager of Ulta Beauty location in Escondido, CA, states that she noticed a decline in sales from her store when the pandemic first hit and continues. Many companies, including Ulta, have dealt with unforeseen temporary closure resulting in company losses. In their 2020 Annual Report, Ulta Beauty reported sales of $6.152 million in 2020 and $7.398 million in sales (“Ulta Beauty,” 2021). That is approximately a $1.2 million loss in sales. The company itself states that “The COVID-19 pandemic has had, and will continue to have, a negative impact on our business, financial condition, [and] profitability” (“Ulta Beauty,” 2021). A second threat Ulta faces is intense competition within the Cosmetic Industry. Ulta claims that they may be unable to compete effectively in their industry because of this. There are numerous big-name competitors such as M.A.C., Sephora, and Sally Beauty. With each company delivering similar products, it's essential that Ulta differentiates itself from its competitors and continues developing its workforce and customer relationships. The third threat Ulta Beauty will encounter is its fast-paced and constantly changing industry. The definition of beauty is always changing within our society, and it can be difficult to anticipate or predict these new beauty trends. Ulta needs to have a well-developed research and marketing team to stay with these new trends. A trend Ulta should be mindful of is the shift to "natural beauty." More and more young teens and women rely less on makeup and striving for a natural refreshing look. Careering towards this market share will help Ulta maintain its market share if not grow it.

Ulta Beauty Issue Analysis

COVID-19 and Unemployment

When coronavirus hit the US in early March, it affected several if not all businesses around the world, but especially for Ulta Beauty. A Forbes article by Shelley Kohan, states that there was a 33% decrease in sales given the store was closed for some time in 2020 and the demand for beauty cosmetics and skincare decreased due to the pandemic (Kohan, 2020). Curbside and online ordering at selected locations ended up being their only options for customers to get their products in a safe manner without little to no human interaction. Due to COVID-19, Ulta Beauty also had to cut their hours of service from 10AM to 6PM, Monday through Saturday and 11AM to 6PM on Sundays. This can be an issue for the company since employees are getting less hours to work, resulting in less income earned to support their lives. As a result, less hours for employees can have an outcome of high turnover.

As far as how Ulta Beauty handled unemployment during COVID-19, several employees received a furlough instead of complete unemployment, which stated that they would be temporarily out of work with no pay. In the article by Jeremey Owens states that Mary Dillon, owner of Ulta Beauty, emphasized the following: “After thoughtful consideration, we have made the difficult decision to temporarily furlough many of our store and salon associates” (Owens, 2020). A fortune 500 company could not support its employees during a pandemic, allowing them to experience unemployment. In a Reddit post by former employees, they stated that some could not even qualify for unemployment even if they started working there prior to the pandemic. Several other employees had issues applying for unemployment and were not accepted. This makes Ulta Beauty appear unethical, resulting in unhappy employees with no financial support from their work.

Dangerous Company Policy

Ulta Beauty has implemented a dangerous policy for several years to bleach the products that are returned by customers so that the products are destroyed completely (Thompson, 2020). Ulta Beauty emphasizes that they discourage the unsafe and sometimes illegal practice of “dumpster diving.” Because the company can not resell the returned products, it destroys them with bleach substances so that dumpster divers do not sell them to other people for profit (Thompson, 2020). The management is imposing a risk to employees that are bleaching the products and the trash municipality that are gathering the bleached products to throw them to bigger dumpsters. Moreover, Ulta beauty has been in a secret illegal practice of training its employees to resell the damaged and returned products as new products so that the business saves money (“Ad-ttorneys@law,” 2018). This issue was brought to attention by employees whose work ethics did not comply with their personal ethical values. This practice of reselling was brought to several state courts as lawsuits. However, there are some states that have not brought an end to this particular action because the action was never reported by potential employees.

Paula Ogurkiewicz, a former employee and avid purchaser of Ulta Beauty, reported that employees are trained for several years to touch up on used products with napkins so that they appear clean and new to be repackaged and placed on shelves for sale (“Ad-ttorneys@law,” 2018). When employees open the products in stores and repackage them, they are exposing the products to a wide variety of bacteria. Employees are contaminating the products because they are not following the sanitary standards and safety guidelines as employees in large makeup factories follow in their designated facility (“Ad-ttorneys@law,” 2018). Additionally, the decisions employees make are influenced by the managers’ ethics. In this instance of betraying customers with repackaging used and damaged products, it shows that managers are guiding their employees to the wrong path and are establishing an unethical culture within the workplace. A higher executive or assigned manager that establishes such a culture may ignore what is right and what is wrong for the intention of enhancing his or her career. In other words, they are making decisions that are in the best interest of the manager only and not in the best interest of the company policy and society.

Financial Crisis

The company has been experiencing a decrease in makeup sales due to the changes in consumer behavior during the COVID-19 pandemic. Customers are spending most of their time at home, making them worry less about their hair or whether they look presentable in features. Danielle Heath, Ulta Beauty’s manager at Escondido, California, states that during the beginning period of the COVID-19 pandemic, Ulta Beauty continued to remain open for curbside pickup only (D. Heath, personal communication, April 21, 2021). The curbside pickup was the only way to shop to get the in-store experience. When the curbside pickup policy was in effect, it reduced the sale of their products because the curbside pickup was not everyone’s shopping preference (D. Heath, personal communication, April 21, 2021). Heath also stated that customers like to purchase products when they can try them with a sample as Ulta Beauty used to offer customers with testing supplies before the pandemic. However, due to the new sanitary requirements and standards, the company is urged to stop offering testing supplies for makeup and skincare nor allow customers to try them in the stores. Moreover, management has estimated that the pandemic has brought additional costs in the range of $180 to $190 million towards personal protective equipment like masks, sanitizers, wipes, and gloves for employees and other operating costs in fiscal 2020 (“Zacks Equity Research,” 2021). Also, the company had to maintain fewer employees. This action of maintaining less employee interaction creates a change in employee cognition, incentive, and intention to work at the company. An employee’s cognition may signal the idea that Ulta Beauty is not a secure workforce to maintain a long-term position.

Furthermore, Ulta Beauty’s current issues and work ethics of bleaching used products or repackaging used products imposes a threat on employees personal ethical standards. Employees would understand that their personal ethical values are not consistent with their workplace cultural values. This could potentially make them unsatisfied about their experience on a daily basis. When employees are not happy with the management rules assigned for them, they would feel compelled to look for a satisfying work environment where employee instrumental values are respected because employees can some day become customers of a business, making it important to deliver a good experience. Employees with instrumental values have a strong desire to behave ethically and be honest in pursuing the terminal value of prosperity, sense of personal accomplishment, and dignity. Employees will look for workforces where they can express their opinions about what actions are considered acceptable and what is deemed as unacceptable to continue. This way they are being honest at work as they are maintaining the company’s social responsibility policy.

Lack of Advancement Opportunities

It has been known by the employees of Ulta Beauty that the lack of advancement within the company is very low and at times not fair to the ones who have worked for several years than other employees. Websites like Glassdoor and Indeed give previous employees thoughts and ratings on their experiences with their past jobs. A review dated April 17, 2021 from a former employee stated that an employee of 3 weeks got promoted before an employee who worked for 1 year. Our interview with Danielle Heath at Ulta Beauty explained that getting promoted can be a pain and usually comes down to the amount of sales they can bring. It does not necessarily matter how long they have worked for the company (D. Heath, personal communication, April 21, 2021). Being a top performer can get you a promotion before someone who has been there for years. Former employees have also said that Ulta Beauty has a high turnover rate of managers so advancing and growing in the company can be tricky. Companies that have multiple managers that come in and out can create a complicated work environment since employees are being trained and mentored by many different people. Employees would not understand what can be right or wrong in different people's eyes. The pay at Ulta Beauty is also very limited given that employees do not get commission if they sell products and only make minimum wage unless they are a salon or sales manager. However, they do receive benefits like 401k, health insurance, and discounts on products and services.

Ulta Beauty Manager Experience

Danielle Heath described the culture of her workplace as following the golden rule (D. Heath, personal communication, April 21, 2021). The golden rule she refers to is the act of treating other employees the way you want to be treated everyday. She considers herself as an easy-going manager so that employees are comfortable and welcomed at work on a daily basis. Heath emphasizes how each manager sets a different working style. Some managers are very demanding and work-driven, meaning they require their employees to research on their own time about what they should do to remain successful in their position (D. Heath, personal communication, April 21, 2021).

However, Heath mentions that she always offers support even after employees are trained for several hours. She states that even though some managers require employees to study on their own time about their position by watching several training videos, she still offers her personal process for mentoring by training employees in the store on a one-to-one basis. Heath offers personal experiences that have helped her reach the goals of the store, maintain job satisfaction, and impress the senior managers for an advanced position in her career with Ulta Beauty (D. Heath, personal communication, April 21, 2021). She mentions that it was difficult to get promoted within her workforce. After several years with Ulta beauty, she recently acquired a position as a manager due to the understaffing circumstances that COVID-19 has urged the company to maintain. Heath states that employees usually have difficulty understanding how to create loyalty reward programs and credit cards for customers (D. Heath, personal communication, April 21, 2021).

When employees are being less productive in a fast-paced environment, she communicates with them during the slow working hours and reminds them about their goals for the week. As a result, employees will then be aware that they are being observed by managers and will have to be productive so that they can meet the goals of the company. The Hawthorne effect occurs when employees improve their performance by quickly adapting and understanding the work environment because of the verbal warnings they have received about their productivity. Heath believes that her method of reaching out to them verbally through role playing and making them feel like she was a friend, has helped in the process of making employees comfortable with a certain style of communication and expression.

When employees are under performing, she does not scold them. Instead, she creates a comfortable set of tone to communicate with employees so that they understand that their unproductivity can cause them to get fired. Heath describes that other managers typically have harsh verbal tones when communicating with employees and usually offer written warnings. Additionally, Heath assigns certain difficult tasks to employees according to their capabilities (D. Heath, personal communication, April 21, 2021). She understands that a fast employee will be assigned with tasks that align with his or her abilities and level of understanding. On the other hand, employees that are slow and have difficulty in understanding the work assignments, they are assigned with easier tasks until they adapt to the work environment to transition to harder tasks.

Ulta Beauty Solution Analysis

Change in Policy

As Ulta Beauty is moving their policies from an in-store trial to a virtual glam lab, it will boost their sales through online sales by screening their customers' faces and giving customers opinions based on their face structure (Wolf, 2020). This change in policy will allow Ulta Beauty to build their online customer base; however, this will also cause a problem with online traffic. There will be an issue in the volume of online traffic because the online virtual glam lab will see an influx of customers. This will push a heavy load on customer services and in-store employees that will assist in the new process. To combat this issue of heavy pressure on employees, Ulta Beauty needs to increase the employee pay by $2 to adjust the amount of work they will deal with from the online services. Increasing the pay by additional $2 will not offset the company profit because the new customer base will be in high demand (Wolf, 2020). This will make the employees produce a high quality of work because they will be paid a compensating wage.

Changing the policies on how the company disposes the return products from bleaching to a more sensible process like emptying the liquid products down to the sink will minimize the presence of harsh chemicals in the underground flow. If the company chooses to recycle the makeup and skincare containers and plastic packaging instead of bleaching the entire product along with its containers, the environment and flow of materials from underground waste will be less harmful as it evaporates and condenses back to the air. The reason it will be less toxic to the environment is because the use of bleach will be eliminated.

Financial Structure

Ulta Beauty is looking to conserve cash and combat the damage it encountered from COVID-19 in multiple ways. According to the Wall Street Journal written by Kristin Broughton about an interview with Scott Settersten, Ulta Beauty’s Chief Financial Officer, “The cosmetics chain expects to open between 30 and 40 new stores this year, about half as many as initially planned for 2020, as the company looks to conserve cash” (Broughton, 2020). This is a smart decision based on what is currently going on in the world market because of COVID-19 restrictions. However, this will not solve their problem with their customer base. Customers are looking for a more permanent solution from not being able to visit the store at full capacity.

The virtual Ulta Beauty’s glam lab is a great solution to drive sales with the new growing online base market. Ulta Beauty will need to create a divisional structure that will better fit the new growing market. Analyzing the new market trends will allow them to pick new store locations for future buildings that will accommodate the online orders. Divisional structures will also allow them to determine which geographical areas are best suited for their brand. This way it will enable them to establish a new store location and determine which store can offer curbside pickup, in person orders, or both. Moreover, the management can determine which store needs a lease to restructure with the landlord and what store to close (Broughton, 2020). Restructuring retail store locations and renegotiating their lease agreements will reduce the company losses in revenue. However, the company will still need to do the divisional structure on their low or no revenue areas to potential high earning areas with a large population of teenagers and women.

Opportunities for Employee Promotion and Raise

In order for Ulta Beauty to improve their high turnover rate, they should allow for more employee opportunities. This involves improving the work environment and potentially having serious and more caring managers who have the ethical values that Ulta Beauty states in its policy and written agreements. Also, creating training modules for new hires is a good start to putting them on the right track to success. Employees who worked in the company for years and are hard workers, should get promoted to positions that give them a little more responsibility without completely overwhelming them. Employees should be promoted to advanced positions like a trainer who can train new employees on how to be successful in reaching the goals of the company. Moreover, monthly management meetings should be conducted with employees by one effective manager so that having multiple managers doesn't get too chaotic. This way employees are clear on the rules of how stores should be operating. More opportunities for employees to grow can cause them to stay with the company and possibly work their way up to the management level positions. For example, in the chapter “Motivating Behavior with Work and Rewards,” it states that providing employees with rewards or benefits can motivate them to keep their position at a company and work harder so that they can experience job satisfaction.

Improving Company Culture

Ulta Beauty must work on upper-management to employee relationships. The Expansion Team proposes the following recommendations for Ulta Beauty. First, Ulta Beauty should focus on downward and upward communication to make tasks and goals clear for employees along with an open-door policy for employee concerns. Better communication within the company and advancement opportunities can solve the company’s problem of high turnover. Some employees at Ulta Beauty expressed concern on the lack of communication resulting in difficulty of following tasks and achieving goals. Downward communication should lay out the task descriptions, instructions, and results. Furthermore, technology has allowed executives to send messages around the company relatively easy and fast. This formal communication is a great way to lay out task procedures. Written information of the task being followed gives employees a form to reference and ensure the procedure is being followed in accordance with the company.

Moreover, less formal communication, such as face-to-face interaction is important. Management should be encouraged to meet with their subordinates on a regular basis to find out what they may need and what could be improved. Additionally, the company should provide an open-door policy that will keep employee concerns and complaints anonymous. Employees need a way to contact the executive leadership team in the company without fear of retaliation from their managers. An open-door policy can build trust between the company and its employees. This communication between lower-level employees and higher-level employees is known as upward communication. Upward communication should be encouraged as not only does it give employees an outlet to express their concerns and challenges but it also allows managers to understand what areas require improvements.

Furthermore, Ulta Beauty must promote and encourage employees to seek growth within the company. For example, the company can offer employees an outlet that will allow them to explore different positions within the company and a clear path to reach those positions. Many employees have been disappointed by the lack of advancement opportunities which have resulted in departing from the company completely. Additionally, culture is made up of many different factors such as geographic location, industry, and individual employee traits.

Conclusion

To sum up, Ulta Beauty has plenty of room for improvement. Beginning with communication from executives to lower-level employees about outlining tasks clearly and allowing those employees to reach out to executives about any concerns. The company should adopt an open-door policy for employees to express their challenges and difficulties without fear of retaliation from management. The customer shopping experience has changed completely, making Ulta Beauty to consider more employee-customer interactions. The company’s artificial intelligence product, the virtual glam lab, is definitely a great way to provide customers with a safe and comfortable approach to experience cosmetic products.

References

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Wolf, L. (2020, June 17). Beauty Retailers Face New Challenges Post-COVID. Wealth Management. https://www.wealthmanagement.com/retail/beauty-retailers-face-new-challenges-post-covid.

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