Sephora vs. Ulta: Who is better prepared for coronavirus?

This article is part of Glossy’s Beauty and Wellness Briefing, which features exclusive news, interviews with industry change makers and behind-the-scenes looks at what actually matters. To receive the Beauty and Wellness Briefing and read for free, please subscribe.

Since skirting around store closures last week, beauty giants Sephora and Ulta have both decided to halt business as usual in their respective U.S. locations.

On Monday night, Jean-André Rougeot, president and CEO of Sephora Americas, announced that all store locations would be closed as of Tuesday, March 17 through Friday, April 3 due to the ever-changing coronavirus climate.

In a statement to Glossy, a spokesperson said: “The health and safety of our employees, their families and the community is our first priority… All store employees will continue to receive their base pay for scheduled shifts for the duration of this closure. In addition, health and wellness benefits for employees, who are currently enrolled, will continue.”

Ulta followed with an announcement stating it would temporarily close all of its stores effective 6:00 PM on Thursday, March 19 until at least Tuesday, March 31. Though stores would be not be operational, the retailer said that most of these locations would continue “to be outlets for buy-online, pick-up in-store [BOPIS] as allowed by local and state regulations.”As of the afternoon of March 17, Ulta said BOPIS will also not be available during this time. Due to the fast spread of coronavirus, Ulta is withdrawing guidance previously issued for fiscal 2020 and would not offer an updated outlook.

“We understand the direct impact this will have on our associates and guests,” stated Mary Dillon, Ulta CEO. “But during these critical times, we believe it is absolutely necessary to prioritize their safety and that of the broader communities we serve. At Ulta Beauty, our associates are at the heart of our company. As such, we will continue to pay our store and salon associates and provide benefits for those who are currently enrolled during this period.”

Now that Sephora and Ulta have pressed pause on physical stores due to coronavirus, their omnichannel strategies will be put to the test.

Both companies have spent the last three years linking their store teams with digital. In October 2017, Sephora created a new role, executive vice president of U.S. omnichannel retail, and department to better integrate teams, and Ulta, has worked to redesign its Ulta mobile experience, as well as bring digitally native brand buzz to stores. Ulta also made large investments in omnichannel at the end of 2018 by making its first-ever digital acquisitions — in artificial intelligence and augmented reality startups QM Scientific and GlamST, respectively — and investments in digital workflow partner Iterate and online booking tool Spruce.

But in this environment, pushing beauty sales will likely come down to who is better prepared for logistics.

Stephanie Wissink, equity analyst at Jefferies Financial Group, said that Ulta’s strip mall format plays in its favor.

“Sephora is slightly more mall-centric, so if the malls are shut down, even if [some] Sephoras are open, [many] customers can’t buy online and pick-up in-store. If Ulta has a front door and a back door entrance, there’s an ability to have micro-logistics hubs that can continue to move product,” she said

Sephora did announce its plans for 100 city center, strip mall locations, just a month ago, but that rollout is expected to slow given coronavirus. Ulta, too, had plans for 75 new stores in 2020.

Sephora is currently offering free shipping, a rarity for the retailer, through April 3. While it is surprising that Sephora is taking on free shipping costs, for now, it is likely to boost online sales as store formats take a hit. However, shipping costs could be greater than anticipated.

“That intermodal transport of goods is going to get clogged, so we are already seeing increased shipping charges on online orders,” said Wissink. “Free shipping is only going to exacerbate that and Sephora is absorbing that.”

For its part, Amazon announced this week to its brand partners that because “household staples and medical supplies” are out of stock, its fulfillment operations were going to be “temporarily prioritizing household staples, medical supplies and other high-demand products coming into [its] fulfillment centers so that [it] can more quickly receive, restock and deliver these products to customers.” An email Glossy obtained from Fulfillment by Amazon to partners said, “For products other than these, we have temporarily disabled shipment creation. We are taking a similar approach with retail vendors.”

Still, as Andrew Lipsman, principal analyst at eMarketer, stated, “Free doesn’t mean fast,” in regard to Sephora.“It’s going to eat into their margins, but [free shipping] doesn’t acknowledge how tolerant customers will be if they don’t get their cosmetics on time,” he said.

Ulta, meanwhile, has not offered free shipping to most customers beyond its “free standard shipping over $15.” More significant for Ulta is that it did not postpone its annual “21 Days of Beauty” sale that began March 15 and will continue to April 4.

“I think there will be an acknowledgement, and they will try to move on,” said Simeon Siegel, managing director and senior retail and e-commerce analyst at BMO Capital Markets. “Companies, like Ulta are going to face a whole source of costs that they will be eating.”

Wissink was surprised that Ulta did not plan a postponed date given that “21 Days of Beauty” is its biggest volume driver.

However, Siegel said that neither Ulta nor Sephora will get dinged for lack of coronavirus preparation if customers are still shopping for beauty, but that depends on the length of the pandemic in the U.S. and globally. Per survey data from Astound Commerce, 31% of shoppers have made more online purchases over the time period of March 10 through March 11.

“The bigger question is around what the duration of the actual disease is and what the lasting lasting impact is to consumer behavior,” said Siegel. “If social distancing continues even after it is regulated and mandated, it doesn’t matter if BOPIS is available or not, because people will be avoiding crowds.”

Lipsman agreed. “There will be a demand shock that we are all facing, but I imagine beauty and apparel will be hit the hardest in the short term,” he said.

Now that China’s manufacturing capabilities are near normal, beauty supply is likely to outpace demand in the U.S. and internationally for some time. Thus, in the long term, it makes much of these coronavirus-impact conversations fundamentally economical.

For now, both Sephora and Ulta are continuing to pay employees during store closures, but if social distancing lasts for more than the planned month to six weeks or eight weeks or longer, payroll cost-cutting will have to happen. In the U.S., Ulta has more than double the stores of Sephora, thus a higher associate headcount, making it particularly vulnerable. For now, store employees at neither company are being redirected toward digital — meaning providing services to online customers instead of in stores or even dabbling in customer service queries — which could serve as immediate fixes.

“The interesting dynamic about cosmetics is that this is a category than can really build on online engagement and strengthen those relationships, even if it doesn’t drive sales in the short term,” said Lipsman. “Behaviors need to be developed to support long-term shopping behavior more than ever now.”

Editor’s Note: This article was updated to reflect that Ulta changed its buy-online, pick-up in-store policy on the afternoon of March 17 . BOPIS will not be available when stores are closed due to coronavirus.

Get news and analysis about fashion, beauty and culture delivered to your inbox every morning.