Welcome to Glossy’s Beauty and Wellness Briefing. This exclusive and inside look at the beauty and wellness industries is meant to dig into the topics that really matter and shed light on the elephants in the room. Sign up here to get the briefing delivered to your inbox every Wednesday.

When shoppers enter select Ulta Beauty stores this week — 350 locations to be exact — they will encounter a new section simply called “Wellness.” Situated in the bath and body section of stores, it’s Ulta’s first outward-facing push in the wellness category. It will be compromised of eight brands, including skin and body company Yuni, butt mask brand Bawdy Beauty and influencer-led beauty brand Megababe, and over 80 total products, with more set to be added soon. By late summer, the experience will expand to 700 stores and Ulta’s wellness products will account for about 25% of the overall bath and body assortment.

“There is a growing interest from the consumer — and this goes beyond the Ulta consumer — around what they are putting on their bodies, what they are putting in them and how to achieve overall beauty,” said Monica Arnaudo, Ulta senior vice president of merchandising. “This quest for wellbeing has evolved into beauty and self-care.” Beauty and personal care products currently account for more than $1 billion of the larger $4.2 billion global wellness industry. Meanwhile, Ulta’s skin, bath and fragrance category is its second largest segment after cosmetics; it accounted for 21% of its $2.1 million fourth-quarter net sales.

Ulta has been slowly testing out this type of “good-for-you” product with brands like Megababe since last May, primarily online, but its official Wellness section follows Nordstrom’s Well Beauty shop that debuted in January 2018, as well as Bloomingdale’s WellChemist experience and Sephora’s Clean at Sephora and Wellness Wall plays. Each retailer has its own interpretation of what wellness is, and at Ulta, nothing in the assortment is over $48. (Fur’s Silk Scrub exfoliating treatment tops out the range.) This is what the retailer believes is its point of differentiation.

“It’s a curated assortment, but also broad. We knew it couldn’t be intimidating and had to reflect our brand’s personality,” said Arnaudo. “Our take is that it’s beauty with benefits. The products feel approachable and accessible, whether you are somebody that is an expert in this space or somebody that is new to this segment.”

“We are a brand for everyone and not just one that sells to coastal customers,” said Fur co-founder Laura Schubert. “Ulta gets that wellness doesn’t have to feel exclusionary.” Fur debuted on Ulta.com in March — its Fur Oil, a salve for the pubic area, is a best seller on Ulta.com — and the brand will debut in Ulta stores as part of the wellness experience for the first time this week.

Though many of Ulta’s wellness products touch on the burgeoning trends in beauty and personal care, like sexual wellness and cannabis (for example, Yuni’s Rejuvenating Facial Oil contains cannabis sativa seed oil), many of its wellness offerings stemmed from finding updates to often forgotten categories in pharmacies or grocery stores.

Carrying Yuni’s Shower Sheets, which are full-body bathing wipes, is a response to millennials’ and Gen Z’s active lifestyle. Including Megababe, which sold of out its alcohol-free, paraben-free Rosy Pits deodorant last May after debuting in Ulta’s grab-and-go “Impulse” fixture, is an example of driving newness in the personal care category. Its Thigh Rescue anti-chafing stick is its No. 1 product at Ulta.

Megababe will be launching three new deodorant products with Ulta, including deodorant wipes and a body powder. “Everyone is looking for aluminum-free and non-toxic options, and realize the importance of natural,” said founder Katie Sturino. “Ulta understands our brand and how we want to be solution-oriented in ways that others aren’t.” Megababe and Truly Organic, the latter of which is known for its rainbow-colored hair and body treatments, will have the most real estate within Ulta’s wellness experience.

Though the focus, for now, is the in-store updates, the retailer — in true Ulta omnichannel fashion — has developed a new online navigation under the bath and body category, dubbed “Self Care and Wellness.” Many of the brands that are in the Wellness section in physical stores, like Fur, were already online favorites, said Arnaudo. Ulta will also be messaging the launch of the Wellness section in pulsed emails and social media posts by brand and by product, according to the company.

“Wellness is a growth area for us and it continues to be an important area of the business, but it doesn’t have to be so serious,” said Arnaudo. “Ulta’s take is that it can be fun. We want to evolve with it and grow with the trends.” — Priya Rao, beauty editor

What’s Working, What’s Not: Earnings Edition

Last week, the beauty industry saw three heritage players, The Estée Lauder Companies, Avon Products Inc. and Sally Beauty Holdings Inc., present earnings. Avon saw traction in Asian markets, while ELC and Sally Beauty saw growth in prestige categories. Ahead, a breakdown:

Avon Products, Inc.

Avon Products, Inc., the international beauty company, released financial results for the first quarter of 2019. Net sales were $1.1 billion for the quarter, a decline of 15% year-over-year.

What’s working:

  • Revenue grew 12% year-over-year in the Philippines, due to an effective pricing strategy and Avon sales representative events that increased recruitment.
  • In China, Avon increased sales by 29%, due largely to a new partnership with Tmall.

What’s not:

  • Russia was called out as a declining beauty market because of increased competition. Sales leaders were unable to attract new representatives, and Avon also experienced a significant loss in existing reps.

The Estée Lauder Companies

The Estée Lauder Companies saw net sales reach $3.7 billion — an increase of 11% year-over-year — in its third-quarter results. It saw net sales growth in nearly all product categories and channels.

What’s working:

  • Skin care continues to be the company’s largest and best performing category across almost all brands. More marketing resources resulted in a “sharp” sales increase, said CEO Fabrizio Freda.
  • For the first time, half of the company’s sales came from mobile devices, with the highest penetration in Asia Pacific.
  • The company’s strategy to create fewer and bigger product launches is resonating. Sales of its top 30 product launches are 30% higher than last year, on average.

What’s not:

  • Net sales in the Americas declined by 6%, reflecting a deceleration in prestige beauty in brick-and-mortar, as well as fewer in-store promotions.
  • Lower makeup net sales from Smashbox partially contributed to the decline of overall makeup operating income, as did $52 million of accounting goodwill and other intangible assets related to Smashbox.

Sally Beauty Holdings, Inc.

Sally Beauty Holdings, Inc. saw net sales decrease by 3% year-over-year in its second quarter.

What’s working:

  • Due to the launch of premium hair-color brand Pravana, Sally Beauty saw “significant new customer wins,” said Christian Brickman, Sally Beauty Holdings CEO.
  • The company’s loyalty program, Sally Beauty Rewards, which debuted in the U.S. and Canada in October, now has 14.5 million customers. Approximately 63% of transactions and 71% of sales in these countries are now tied to the membership.

What’s not:

  • Beauty Systems Group, a professional division of the company, saw gross margin decline by 40%. This was due to changes within the merchant and field teams, and the segment’s inability to transition to modern technology and data practices, said Aaron Alt, Sally Beauty Holdings CFO.
  • Gross margin for Sally Beauty Holdings in the second quarter was nearly 50%, a decrease of .4%, driven primarily by a declining European market and Beauty Systems Group. In Europe, impacts of Brexit and civil protests in France have also led to a decline of same-store sales. — Emma Sandler

Analyst Watch: Virtual Reality

Trend forecasting company WGSN released a new white paper, “Gen Z: Building New Beauty,” which takes a look at key focuses beauty brands need to resonate with Gen Z.

A major takeaway? According to the company and survey data from research firm Gartner, 46% of retailers said they would be using virtual reality or augmented reality services by 2020 to improve the customer experience. Gartner also said by 2020, 100 million consumers will be using AR in both online and in-store shopping experiences. This could have major results on sales conversion, as Gen Z is estimated to have $140 billion in purchase power.

“More retailers and brands will have to adopt AR or XR technology to remain relevant, boost engagement and conversion,” said Jemma Shin, associate editor of consumer insights for WGSN. Shin pointed to ModiFace’s Virtual Nail Salon app, which launched in November and uses augmented reality to test out various nail polish colors. More recently, Nars Cosmetics partnered with Perfect Corp., in March 2019, to let customers virtually try on all 700 of the brand’s products on iPads.

So what’s next? “XR, avatars and digital influencers will be the new norm,” said Shin. “It’s an immersive and interactive shopping experience for Gen Z.” — Katie Richards

Inside our coverage

Gucci begins its Gucci Beauty relaunch with lipstick.

L’Oréal USA is back in the accelerator business.

Sephora continues CBD category expansion with Saint Jane.

Fitness brands, like Athleta and Obé, are broadening their wellness focus.

On our reading list

Kylie Cosmetics is in talks with potential buyers and investors.

Meanwhile, Charlotte Tilbury is also looking for an M&A deal.

Beauty and fashion brands try to capitalize on the Met Gala opportunity.