Ulta is betting $400 million that an NYC megastore will help it compete with Sephora—and that flagships still work
· Fortune
When Ulta Beauty opens its first-ever flagship, a four-level megastore in New York’s Times Square late next year, the retailer aims to create a more fun and modern shopping experience, showcase its more upscale house brands, and place itself at the center of the beauty universe as it seeks to expand its influence. The 27,000-square foot space is a new experiment for the fast-growing beauty retailer that’s a fixture of U.S. strip malls and a fresh test of the retail industry’s flagship model, which has lost popularity in recent years due to its high cost and ultra-high stakes.
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Ulta is reportedly paying $400 million for a 15-year lease for the mid-town Manhattan store, set in a tourist-heavy district where flashing billboards put American consumerism on full display. The company has been tight-lipped about its design, but Ulta CEO Kecia Steelman told investors last month that the flagship “will showcase next-level brand building and storytelling capabilities, unlock high-impact marketing” and feature LED-billboards and other flashy touches not seen at the rest of its 1,500 U.S. locations.
Ulta, a fast-growing retailer for more than 15 years, hit annual revenue of $12.4 billion last year, with revenue growth of 11% in the first quarter this year. But in the highly competitive beauty space, where influencers can make or break a new lip gloss or fragrances and shoppers want to touch and feel products, Ulta has to find new ways to distinguish itself from chief rival Sephora, which is more international and whose stores are big draws for Gen Z consumers.
“Times Square is a bit different. It’s a global stage. It is an opportunity as we are expanding,” Ulta Beauty’s chief retail officer Amiee Bayer-Thomas told Fortune during a panel at the CommerceNext conference in New York last month, noting that Ulta, long solely a U.S. retailer, has expanded abroad to Mexico and the Middle East. “This flagship location is going to show the next evolution of Ulta Beauty and the next evolution of what experiential retail looks like in the beauty space.”
The flagship “needs to be like Willy Wonka’s Candy Land but for makeup,” says Stacey Widlitz, president of SW Retail Advisors. Space NK’s lavish London flagship, opened in Oxford Circus last summer, has set the bar high for the in-person beauty retail experience, with its abundance of product activations and classes and a fun atmosphere, she says. Done well, an Ulta Beauty flagship can make the company “an authoritative” voice on cutting edge brands and capture more of the higher end of the market, a key to its long-term growth, Widlitz says. “They need to up their game. Let’s be real: they are in strip malls, and they’re not Sephora.”
Bayer-Thomas says that the flagship will ultimately serve as a testing ground for new products and marketing efforts and serve as an advertising vehicle for the rest of Ulta.
“There are so many places you can go and buy product now. So the stores have to be a differentiated space for the guest to come in and do something other than just transact,” she says. “We think about the flagship, it is about relationship building and loyalty.”
Those principles are essential for any flagship to work—and it must stand out within a retailer’s portfolio. “I’ve seen plenty of flagships that are just really oversized stores in a really cool location. It can’t just be, ‘Oh, here’s every brand we carry,’ or ‘It’s on the Champs Elysées.’ That’s not inherently interesting. It’s really just a billboard,” says Steve Dennis, a former Neiman Marcus executive and president of SageBerry Consulting.
In the last few years, many brands, including Abercrombie & Fitch, The Gap, and Victoria’s Secret. closed down some of their flagship stores, finding them to be a financial drain while offering shoppers little more than they could find elsewhere. A&F’s CEO Fran Horowitz said in 2024, “Our customer has told us time and time again that that’s not how they’re shopping with us. Our stores are smaller. They’re more efficient.” In recent years, the company has closed flagships in New York, Milan, and Copenhagen.
Flagships are expensive to lease and operate, so it is essential that they draw shoppers who will splurge. American Eagle and Aerie’s flagship in New York’s Soho district, for instance, goes well beyond stacks of jeans and hoodies; it features a rotating art installation and photo booths that pull in young shoppers. The Levi’s flagship in Manhattan showcases its premium products and sells only-in-New-York merchandise.
Ulta is betting its flagship will ultimately pay for itself by creating a so-called halo effect for the entire chain by raising brand awareness. “Stores are queen,” says Bayer-Thomas. “Stores continue to be the place where beauty comes to life.”
This story was originally featured on Fortune.com