Meeting beauty consumers where they are—and where they’re going

Ulta Beauty is the largest specialty beauty retailer in the United States, offering 25,000 products from some 600 brands. Founded in 1990, the company now boasts 1,355 retail stores across 50 states. Its net sales in 2022 exceeded $10 billion.

“I’ve always loved the tangibility and accessibility of the products in consumer businesses,” says Kristin Wolf, senior vice president of enterprise strategy and transformation for Ulta Beauty. “That’s why I’ve worked in these spaces for more than 20 years.” In developing a growth strategy across a broad portfolio with diverse product categories and widely varying consumer and economic dynamics, Wolf strives to cultivate the cross-functional collaboration that is necessary for success at a larger scale.

Wolf recently spoke with McKinsey’s Pamela Brown about achieving growth during an uncertain economic moment, the evolving importance of physical stores, and the potential role that generative AI could play in transforming customer experiences. An edited transcript of their conversation follows.

McKinsey: When we look across contexts and companies, we find that growth comes down to three things: growing your core, growing into adjacencies—whether that’s new categories or new geographies—and growing through new businesses. We know that all three of these are important. The trick is striking the right balance between those types of growth at the right moments in time. How has Ulta Beauty thought about these different growth lenses and balancing them as headwinds and tailwinds have shifted?

Kristin Wolf: First and foremost, it starts with a strong core business. At Ulta Beauty, we believe we have a strong value proposition and a strong runway of continued growth in our core business. In my career, I’ve seen many companies jump into adjacencies or new businesses as a life raft to offset challenges in their core businesses. It’s tempting to chase shiny objects, but that can end up distracting from the critical issues in the core.

It’s tempting to chase shiny objects, but that can end up distracting from the critical issues in the core.

Building off our core business, we’re always looking for opportunities to innovate by leveraging our strengths and capabilities to better serve our guests and find continued growth. Over time, we’ve done this through both expansion into adjacencies and new business models. In supporting efforts beyond the core, it’s critical to ensure dedicated leadership mindshare and resources to drive success without losing focus on the core business.

McKinsey: Ulta Beauty’s launch of The Wellness Shop and its partnership with Target are examples of a company expanding into other categories, occasions, or distribution channels. What should guide a company’s thinking when it’s exploring adjacencies?

Kristin Wolf: We’ve always known beauty and wellness were closely connected, but the link was solidified and accelerated during the pandemic. Guests shifted, for a time, away from the cosmetics category and moved toward bath and body, self-care, and wellness. We saw it immediately and responded quickly, which led us to create a dedicated space within our stores and online with a curated assortment of products to deliver against our consumers’ needs. We included new brands as we started to stretch within wellness but also leveraged existing brands and products that serve these needs. For us, this was a very natural extension and an area where we see tremendous potential and opportunity to expand even further going forward.

With Ulta Beauty at Target, we saw a way to better serve our guests where they currently shop. This touchpoint gives guests the opportunity to earn Ultamate Rewards points on purchases at Target, which then motivates them to come back to Ulta Beauty and shop our full assortment while enjoying immersive beauty experiences and redeeming loyalty rewards points. We now have more than 41 million Ultamate Rewards members who are key to this strategy. The loyalty program is a core driver of our long-term growth: 95 percent of our sales come from these members.

Target represents an incremental shopping occasion for our consumers and an extension of our omnichannel ecosystem. Outsiders might have considered this a counterintuitive move because Target has its own beauty business. But I think sometimes tapping into breakthrough growth opportunities requires adopting a different mindset and seeing things from different angles.

McKinsey: What was the tipping point when you were making the decision to launch your partnership with Target? Were there two sides in the company—one that saw the logic and one that didn’t?

Kristin Wolf: One could look at the partnership with Target and worry there could be cannibalization. But one of the things that I love about Ulta Beauty’s leadership and our board is that we are very open-minded and not afraid to explore new possibilities. In this case, there was a lot of discussion about whether the benefit would outweigh the risk. It was not an off-the-cuff decision. At the end of the day, we anchor decisions based on our consumer, and we know our consumer shops at Target, so the incremental opportunity to expand our ecosystem through this creative partnership made good sense.

The role of the physical store is evolving. Counterintuitive to what one may think, Gen Z actually has a strong preference for shopping in stores. Digital still plays a critical role within their shopping journey, through product finding, reviews, and so forth. And the democratization of beauty—in a universe that used to be just prestige versus mass—has blurred the lines across channels. Ulta Beauty at Target is an example of capitalizing on these trends.

McKinsey: How does Ulta Beauty think about evolving its core as consumer preferences and demands around conscious beauty evolve?

Kristin Wolf: We know clean and sustainable beauty is continuing to grow in importance—especially for younger shoppers. As a leading beauty retailer, we see this as an opportunity and a responsibility. We want to try to drive greater impact through this lens, while supporting our guests on their journey through the space and meeting them where they are. We want to give consumers a framework to help educate, guide, and simplify their choices.

We have five core pillars in Conscious Beauty at Ulta Beauty: clean ingredients, cruelty free, vegan, sustainable packaging, and positive impact. When we launched, most of the existing industry programs focused on clean ingredients with a very tight lens. Recognizing the evolution in this space, and the fact that this is much broader than one singular need around ingredients, we sought to be more holistic. We launched Conscious Beauty in 2020, and we’ve experienced tremendous growth.

This is a dynamic space. So we approach it as an “always on” effort, working with our teams to ensure we remain at the forefront of developments in the space and the evolving needs, wants, and values of our guests. We also have a Conscious Beauty Advisory Council, which consists of brand partners and industry experts.

McKinsey: One of the hallmarks of companies that successfully grow is that they make a lot of bets. Some of those bets won’t pan out. So how should companies think about disappointing initiatives, or when to decide to leave something and move on?

Kristin Wolf: One of the keys to success is taking a portfolio approach—pursuing multiple opportunities and not betting the farm on any one thing. It’s about developing thoughtful strategies grounded in market opportunities, defining clear success metrics, getting into market quickly, iterating and learning along the way. There also needs to be recognition at all levels that not everything is going be a home run. The market is dynamic, and it’s critical to maintain perspective, recognizing when it’s time to pivot from something that may have sounded incredible but turned out differently.

We saw a lot of companies embracing the power of the pivot during the pandemic. That was definitely true for Ulta Beauty. Our business shifted in an instant. We went from a fleet of 1,300 stores to an e-commerce-only business overnight. We had to quickly reevaluate our priorities, and ultimately we shifted our focus to double down in critical areas like omnichannel capabilities, curbside pickup, and virtual try-on—which is our capability to help guests try on makeup and hair looks online. At the same time, we reevaluated and paused other priorities, such as our planned expansion into Canada. The key is to read the signals and have a willingness to move quickly when signs point toward shifting priorities.

One of the keys to success is taking a portfolio approach—pursuing multiple opportunities and not betting the farm on any one thing.

McKinsey: If you could think five or ten years ahead, what does the future of beauty look like? What are the things that will be substantially, substantively different?

Kristin Wolf: I think the things that are truly important—like the emotional connection with beauty—will remain constant. But we’re going to see much more advanced digital capability in this space, more options for fulfillment and purchasing, more sophisticated guest navigation and experiences, and much more advanced personalization. We’ll see consumers shopping for beauty in even more places. And a lot of new players will try to break in—perhaps fashion players or digital marketplaces.

There are many things generative AI could potentially do within the beauty category, and we’re looking at that. You can imagine leveraging genAI to instantaneously curate information about how to create a look, for instance. That’s just going to accelerate, and I don’t think it’s a five- to ten-year thing. I think it’s a two- to three-year thing, to be honest. It is certainly an area where we continue to be focused.

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