The coronavirus pandemic has created seismic change in the retail landscape, but for Ulta Beauty, the chief executive officer succession plan represents evolution, not revolution.
As reported, the largest beauty retailer in the U.S. said last Thursday that Dave Kimbell would succeed Mary Dillon as CEO, with Dillon moving up to become executive chairman of the board for a one-year period.
Kimbell has worked alongside Dillon since their days together at U.S. Cellular a decade ago, where he was chief marketing officer and executive vice president. He joined Ulta Beauty in 2014, a year after Dillon, as chief marketing officer, and added merchandising responsibilities to his role a year later. In 2019, Kimbell was named president of Ulta, and with Dillon, has helped the retailer more than double sales and store count over the last eight years.
“Dave and I have worked together a few times, and every time he makes me better,” said Dillon, in their first interview since revealing the news. “I’m optimistic that we will continue to grow share, delight guests and drive innovation. Dave is a world-class business leader with incredible passion, beauty expertise, unwavering drive and a values-based leadership style.”
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Kimbell assumes the top spot at a critical time for Ulta Beauty — and for all of retail — after a year in which the coronavirus pandemic forced store closures, accelerated the migration to e-commerce and transformed the way consumers think about beauty and self-care.
Ulta weathered the storm relatively well — for the full year, sales fell 16.8 percent to $6.2 billion. Net income was $175.8 million, a 75 percent drop.
Holiday sales dipped 4.6 percent, to $2.2 billion, compared to $2.3 billion a year earlier, an encouraging sign, said Kimbell.
“We’re encouraged by what we’re seeing. Store traffic numbers are starting to improve and the engagement across digital channels, including e-commerce, has been strong,” he said.
“We are seeing very strong growth across core categories like skin care, hair care, fragrance and bath, and we are starting to see signs that makeup is poised for a recovery,” Kimbell continued. “The rest of this year — there is still uncertainty, but if I look forward, there’s nothing that has changed about the core connection consumers have with beauty. There are some elements that have changed — the idea of wellness and self-care is more elevated — and all of that bodes well for the category.”
Those who’ve worked closely with him say that Kimbell’s merchandising and marketing expertise has given him a feel for the product side of the business that will be crucial as Ulta looks to the future.
“He’s so well immersed and connected with the brands — the heartbeat of the business,” said Savannah Sachs, the CEO of Tula, which is the fastest growing prestige skin care brand at Ulta. “With the blend of merchandising and marketing, he’s really well positioned to take Ulta to the next level and double down on e-commerce capabilities.”
Dillon’s personable leadership style has been a key definer of her tenure, and Kimbell, affable and well-liked both inside and outside of the company, is considered to follow suit.
Uoma Beauty founder Sharon Chuter first met Kimbell at the WWD Beauty CEO Summit in 2018, when she was in the early stages of conceptualizing her brand. “I knew very few people — it was like walking into someone else’s high school reunion,” she said.
The entrepreneur sat down at a random table and starting talking to a man seated there. “It was Dave,” she said. “On the spot, he introduced me to Tara [Simon, former senior vice president of merchandising) and Monica [Arnaudo, chief merchandising officer] and from then on, he’s been incredibly supportive,” Chuter continued. “He’s extremely down to earth and that seeps through to his whole team. It doesn’t feel like buyer-retailer-supplier when he is interacting with you.”
Going forward, Kimbell outlined six strategic priorities, which include doubling down on omnichannel, driving meaningful personalization, continuing to innovate and expand category assortments, cementing the culture and optimizing efficiencies and improving costs.
“I wouldn’t call them radical changes as much as continuing to build on the strengths we have to grow our market share and extend our competitive advantage,” he said.
One of Kimbell’s biggest tasks will be building out the strategic partnership with Target Corp., announced earlier this year. While he declined to name specific brands that are on board, Kimbell said the reaction in the market to the vision for a curated assortment of prestige products has been positive.
“Our plans are very much on track and we have gotten tremendous support from brand partners large and small,” he said. “We are going to launch with more brands than we originally envisioned and with the brands we wanted. One of the key elements is that guests purchasing in Target will be able to participate in our loyalty program, so we will be able to leverage our capabilities to engage them deeper in newness and brands.”
Ulta’s active loyalty program members decreased by 10 percent during the pandemic, and being able to expand and leverage that community will be a cornerstone to the retailer’s personalization push.
In terms of challenges, although Ulta doesn’t break out e-commerce sales separately, analysts say that they lag behind Sephora, although the implementation of programs like buy online, pick up in store have helped close the gap. William Blair analyst Daniel Hofkin estimated that in Ulta’s most recent quarter, e-commerce sales were about 30 percent of total sales.
Ulta executives told Wall Street on Thursday that it would focus on “meeting guests wherever they want to shop,” and will continue building out capabilities to meet the demands of in-store and online shopping. In stores, Ulta plans to shift layouts and re-introduce testers in 2021, as well as further train employees on key categories, like skin care. This year, Ulta plans to open 40 net new stores. The plan to enter Canada remains on hold.
There is also work to be done in making sure that Ulta is better set up to nurture the smaller emerging brands that are so popular with younger consumers today.
“There is definitely opportunity to make Ulta more nimble. Especially now that they are looking to bring in more Black founders, the ecosystem needs to evolve to support that,” said Chuter. “I’d like to see Ulta become a little less risk-averse, to really step up and support brands more meaningfully, as they do with celebrity brands. They are good at that. They have to pick a few brands from the BIPOC community and really back them and make them succeed.”
As for Dillon, in her role as executive chairman of the board, “I will support Dave in any way he sees fit,” she said. She will also maintain her chairmanship of the Retail Industry Leaders Association. While the business community loses a female CEO in a Fortune 500 position, Dillon said she has achieved her goal of building a deep bench.
“Dave’s leadership team is 60 percent women and 20 percent people of color,” Dillon said. “We are creating years of female leaders. We want to continue to create an environment that is inclusive and creates opportunities not just for women, but for all people who are underrepresented.”
While those in the beauty industry were not surprised by the appointment, Wall Street certainly seemed to be. Ulta’s stock price dropped 8.5 percent Friday, closing at $318.15.
Steph Wissink, an analyst at Jefferies, said that Kimbell’s appointment wasn’t a surprise, the timing was.
“While we are not at all surprised that Dave Kimbell is the one taking the helm as CEO, we (and we believe others) are somewhat surprised by the timing of the transition — 2021 is an important year for Ulta as it navigates this ‘new normal’ but hopefully improving environment, and as the key partnership with Target is set to launch this fall,” wrote William Blair analyst Daniel Hofkin in a note. “We have always been impressed by Kimbell, we are confident in his ability to lead Ulta Beauty, and we do not believe the transition or the timing reflects anything untoward regarding the company’s outlook. We just wonder whether 2022 (i.e., further into a recovery and post-Target launch) might have been a more opportune time for the transition.”
Wissink said that it was clear Kimbell was the “heir apparent.”
“The timing of it people are reading into a lot. Mary has been very vocal about her skills and focus as a growth-focused CEO. She is incredibly talented at growing businesses. And the interpretation might be that the pace of growth in this business over the course of the next five years is going to look very different,” Wissink said.
Wissink also noted that Ulta’s margin predictions have narrowed, and that Wall Street can be wary of change.
“She was a beloved CEO,” Wissink said, of Dillon. “She carri[es] herself with a degree of grace and professionalism and approachability and humor. That was something you don’t see a lot in public company CEOs, particularly CEOs of companies of this size and influence and industry.”
It may also be tougher for Kimbell to meet the demands of Wall Street, especially with the explosive growth Ulta had under Dillon’s tenure.
“Mary entered the business with meaningful amounts of upside potential, store count doubling, new markets opening, new categories, new channels. It was a lot of change and she’s really good at swift decision-making in a very grounded way,” Wissink said. “Now we’re entering a phase where there just isn’t that growth.”
“It’s really more about, OK, now that you’ve earned this position, what are you going to do with it, and how do you deliver back to your shareholders value in the construct of a lower-growth outlook?” Wissink said.
Kimbell is tasked with not only ushering Ulta further into the digital age, but making sure the retailer evolves with a new era of consumers.
Digitally, Wissink said Ulta needs to evolve its content strategy in order to better compete. “When you start looking into the digital space, you’re competing with a very different set of retailers. Amazon is a competitor, Target and Walmart are competitors, your brands are competitors, Sephora.com is a competitor, Instagram could be a competitor,” she said.
And competing with Amazon, which makes enough money in web services and other products that it can take lower margin from selling beauty, is difficult, Wissink noted.
“[Kimbell’s] going to have to figure out a way to make their e-commerce experience worth either a premium to get to the margins they want or a way to subsidize a low-margin, e-commerce business through other sectors of value,” Wissink said.
When it comes to navigating the evolving beauty shopper, Wissink said Kimbell was “smart in this area. She expects him to create a “safe space” for beauty buyers, and not feed into “the machine of creating expectations and social norms that are unhealthy.”
“We’re now entering a new era of the industry that’s going to be defined by a lot of different things,” Wissink said. “There’s clearly a sensibility around responsibility — what is Ulta’s role and responsibility in ensuring that beauty users are embraced for their authentic self and are celebrated for their authenticity?”
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