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Ulta Beauty Acquires AI, AR Startups Amid Digital Acceleration

Ulta Beauty Acquires AI, AR Startups Amid Digital Acceleration

Ulta Beauty has taken both the investment and acquisition routes as it accelerates digital innovation and personalization. During its annual analyst and investor conference, the retailer revealed that it has invested in digital workflow partner Iterate and online booking tool partner Spruce, and recently acquired QM Scientific and GlamST, technology startups in AI and augmented reality.

The moves from Ulta mirror those of Nordstrom, which acquired two retail technology startups early in 2018: digital selling platform provider BevyUp and conversational commerce app MessageYes. Like Nordstrom, the Ulta investments indicate that the company is serious about leveraging digital technologies and gaining third-party expertise in the fields of AI and augmented reality.

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With Sephora building out its own augmented reality Virtual Artist technology both on mobile and in-store, Ulta likely sees tremendous opportunity to not only catch up with its biggest rival in AR but also to take the technology in a whole new direction.

At the annual conference, Ulta unveiled initiatives related to its in-store and e-Commerce businesses. The retailer has been on an aggressive brick-and-mortar expansion kick in recent years and still plans to open 225 more stores by 2021 — but this figure represents a dip from initial plans for 300 locations. Ulta operates 1,163 stores in the U.S. and has a nationwide store target ranging from 1,500 to 1,700 stores.

Even though its physical expansion is slowing, Ulta plans to support two-day delivery for all shoppers by 2021. The retailer is preparing to open an online-only Fast Fulfillment Center in 2019 and deploy ship-from-store in select stores, and is still testing in-store pickup of online orders. To fund these investments, Ulta has embarked on a multi-year $150 million to $200 million cost savings effort.

The beauty retailer also revealed that it will exclusively sell Kylie Jenner's Kylie Cosmetics and Kim Kardashian West's KKW Fragrance at Ulta stores beginning later in November. Exclusive merchandise currently accounts for 9% of Ulta sales, but the influence of celebrities like Jenner and Kardashian West could be a major push for driving these sales.

Ulta unveiled preliminary Q3 earnings numbers at the conference, led by 7.8% comparable sales growth (including e-Commerce). The increase is primarily driven by transaction growth and is in line with guidance of 7% to 8% issued on August 30, 2018. In-store comparable sales growth was 4.4%, including salon comparable sales growth of 3.3%. E-Commerce sales grew 42.2%, further showing the retailer’s strength in digital. Upon officially releasing Q3 earnings on Dec. 6, Ulta expects to report Q3 diluted earnings per share at the high end of the its previous guidance range of $2.11 to $2.16.

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