Amazon has taken a bold step in the direction of the beauty industry, a market with a net worth of $400 billion. The e-commerce giant recently saw a 43% increase in cosmetics sales across five western markets, a fact that didn’t escape the notice of the actual cosmetics industry.
This trend officially makes Amazon one of Ulta Beauty Inc’s largest competitors for the head of the industry. Ulta’s stock has dipped approximately 5% since Amazon began offering cosmetic discounts as a part of a promotion for its Prime membership. Rumors have marked Amazon as the potential new go-to destination for online beauty purchases.
However, InvestorPlace reports that it’s unlikely for Ulta to be going anywhere anytime soon despite its 20% stock decrease in June. The month prior to the fall, Ulta’s sales increased by 14% in contrast to the negative sales growth of retail companies such as Nordstrom Inc, Kohl’s Corporation, JC Penney Company Inc, and Macy’s Inc.
Ulta Beauty has been seeing positive indications of success elsewhere as well. Transactions have increased by 9%, e-commerce sales have increased 71%, salon sales have risen by 10%, and finally operating margins have gone up 60 base points.
Ulta’s stock may be seeing a drop due to reduced cosmetic prices in department stores across the country, not because of Amazon. However, Ulta’s stock may not stay down for long as prices can only be reduced for a short period of time before they become standard.
“Not much has really changed in the cosmetics world that will affect ULTA’s operating results now or in the future,” says InvestorPlace. “Cosmetics isn’t what big department stores do; cosmetics is what ULTA does. That means the company has a broader selection of cosmetic goods, and therefore is a far more appealing cosmetics destination than a department store.”
Ulta Beauty also provides their customers with informed employees who love cosmetics as much as they do, which makes them more trustworthy when asking questions. Department stores, on the other hand, aren’t as informed about cosmetics, which leaves their customers feeling more in the dark despite reduced prices.
Therefore, Amazon may be seeing an increase in beauty industry stock, but Ulta Beauty isn’t quite out of the ring yet.
“Is this an opportunity to buy a secular growth stock at a discount?” asks InvestorPlace regarding Ulta’s stock drop. “I think so.”
