U.S. retailer Ulta Beauty shelves plans for Canadian expansion

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U.S. cosmetics retailer Ulta Beauty Inc. has shelved its plans to expand into Canada.

The popular beauty chain, which sells a wide range of cosmetics, skincare products and fragrances, had initially planned to begin opening stores in Canada in late 2020 or early 2021, The Globe and Mail reported last year.

“Ulta Beauty continues to believe international markets provide a long-term growth opportunity for the company,” the Bollingbrook, Ill.-based company wrote in a filing to the U.S. Securities and Exchange Commission on Wednesday. “However, given the current operating environment, the company has decided at this time to prioritize growth of its U.S. operations and is suspending its planned expansion to Canada.”

Ulta had already signed leases for a small number of stores and had begun “early-stage infrastructure buildout,” according to the filing. Breaking those leases and cancelling its plans in Canada will cost the company US$55-million to US$65-million this fiscal year, it said.

The expansion would have intensified competition in an already crowded retail market. It would have been Ulta’s first expansion outside the United States. The chain has more than 1,200 stores across the U.S. and carries approximately 500 beauty brands – both from those commonly found on drugstore shelves such as Maybelline as well as higher-end products such as Kiehl’s – as well as its own private-label products.

Competition in the beauty space in Canada includes Shoppers Drug Mart, owned by Loblaw Cos. Ltd.; Sephora, owned by France-based luxury giant LVMH Moët Hennessy Louis Vuitton SE; department-store chains including Hudson’s Bay Co. and Nordstrom Inc.; as well as online-only competition from brands such as Well.ca, Glossier Inc. and Amazon.com Inc.

While Ulta has a well-established e-commerce store, it is also known for having full-service salons within its stores that offer hair styling and makeup services, as well as skincare treatments such as facials. That would have made Ulta an attractive tenant for commercial landlords that are looking for experiences that draw shoppers into physical stores.

Like many retailers, Ulta has taken a hit during the novel coronavirus pandemic. In its most recent quarter ended Aug. 1, its comparable-store sales fell by 26.7 per cent, and net income plummeted 95 per cent to US$8-million, compared with the same period last year.

In a research note, Simeon Siegel, a New York-based analyst with Bank of Montreal, said it was the right decision for the company, commending Ulta for using COVID-19 as an opportunity to focus on "healthy growth, rather than growth for growth’s sake.”

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