Behind the scenes of Ulta Beauty's new marketplace

0:09Hey, everybody. Welcome to the Modern Retail Podcast. It is our show that covers the ways the retail industry is changing and modernizing. I am senior reporter Gabby Barco. I'm here with co-host Melissa Daniels. How are you today, Melissa? I'm doing well, Gabby. I am in the throes of Halloween party planning. So something we've discussed on this podcast before. Big shout out to Target, Walmart, and Dollar Tree for always coming through for me on goodies. How's your week going? it's going well pretty busy as usual um yeah i feel like a lot of news going on and uh it's getting chilly here in new york so trying to adjust my wardrobe after dressing like it's been summer for for four months um but yeah otherwise uh that is it for me but we have a pretty exciting episode, I would say.

1:04Later on, we are going to talk to Alta's VP of Marketplace, James Lang. So he came on to talk about the launch of their third-party seller marketplace, which is pretty exciting. They're sort of one of the last to join this cohort, but he's going to talk about how they designed it. So we're excited for that. But first, we're going to talk about what else M &A. There's been a lot of it this week, at least, you know, in the realm that we cover, which includes the acquisition of baby care startup Coterie and then Unilever sold off Kate Somerville. So that kind of shakes up the beauty and skincare space a little bit there.

1:49But yeah, what are your thoughts on Coterie? Let's start there because they were acquired by Mammoth Brands, which for those unfamiliar is essentially the spin-out company of Harry's Inc. That is the razor brand Harry's. They also own the women's razor brand Flamingo and Bloom, which is known for their full-body deodorant, right? That's sort of their thing. So they built this portfolio the last few years, and now they've added this subscription diaper brand, which we've both been covering for a while. So I'm curious about your thoughts and yeah, how you think it fits. Yeah, this was some pretty big news that came out this week.

2:33I can't say I was surprised that they were acquired given how much they've grown and what a buzzy business coterie has been. But Mammoth getting into diapers was kind of like a, oh, cool moment for me. You know, I've always thought of them who are in this sort of personal care space. And I think we forget sometimes that diapers are part of the personal care space, right? It's just kind of interesting when you think about who else is in their portfolio. You know, what do these brands have in common? We can get into all that. But yeah, you know, we don't know how much the deal was as far as numbers are concerned.

3:10Reuters estimates it's worth over$1 billion. And Coterie's just been on such a growth spurt. So this is coming at a time when the company told me earlier this year that they'd had 45 % year-over-year growth. They had around 120 ,000 subscribers. And the company has just seen a lot of strong lifetime value. Once people start buying Coterie diapers, they stick with it. So top level, this is just a company that's been growing, has found its groove, and is now going to be in a position to potentially grow even more. Yeah, so we should mention that Coterie launched in 2019. So it's relatively young and it is like for the most part a subscription brand, right?

3:57I think 90 % of the business is direct to consumer. And then they do have some retail presence at Whole Foods, but it's a pretty small channel. It's really more for awareness at this point. But judging by the steel and Mammoth's experience in retail, I imagine this is going to be the next phase. sort of mass retail expansion. But yeah, this is, it's really interesting. I mean, as a mom, you know, I'm sure you can kind of attest that customer acquisition in this space tends to be actually like really word of mouth. I feel like parents just trust each other when it comes to recommendations versus like some influencer or some ad.

4:37So it kind of, it doesn't surprise me that their CAC is relatively efficient. Right, yeah. And that's sort of been the company's secret sauce is just getting folks to recommend Coterie to each other, gift Coterie to each other, and then just get on that subscription chain. You know, they have kind of bundles where you can get diapers and wipes sent to your house. But, you know, they kind of have a standard diaper plan that, you know, it's six packs for box. This is what we think you're going to need for the month based on how old your kid is and what size they're in. You can get more onto that if you really wanted to.

5:14But, you know, a big part of the Coterie story and at least from a consumer perspective, is that it is pretty much the priciest diaper out there. It's way more expensive than what you find on the Target or Walmart shelves right now from Pampers, Huggies, or a lot of the other DTC to wholesale brands that I've covered over the last couple of years. I feel like with Coterie, they have this angle that the diaper is really clean. It's got that better for you and sustainable angle to it. You know, and that it's, you know, chlorine free and it doesn't have any synthetic scents on it. They also have this really great value prop where they say, hey, our diaper is gonna help your kids sleep better because it is such a clean, healthy, well-made diaper that your kid won't wake up during the night because they are leaking through their diaper.

6:04And I feel like that's a value prop that has been very strong for them. You know, people buy it because it works and then they keep buying it because it keeps working And people are willing to pay a little bit more when it comes to something that's going to help them sleep through the night. Yeah, especially, you know, not to speak for parents, but I feel like when it comes to your kid, people are usually willing to spring for anything that's going to help them. And then speaking of, I mean, they're also diversifying beyond diapers to kind of build out this line. So they've got a new luxury baby skincare line with a cleanser, a moisturizer, protective balm, and these are priced around$40 without the subscription.

6:47So again, a little bit more of a high-end proposition, but obviously there are segments out there that are willing to buy these. And so I think they're hoping that these are going to help with growth further. Because one thing that I always wonder about baby brands is like, you do have this customer for an X amount of time, something like for like diapers, I mean. And so how do you kind of retain that customer? Obviously, there's always, they've had more children or if they refer friends and family. But I think if you can kind of keep them in that fold with other products, that helps too. Yeah, yeah.

7:25This is a category that is always having to go find new customers. And while Coterie has said that their LTV is really strong, that there's about 50 % of their customers who start at the newborn level and stay for about three years, eventually that kid gets potty trained and doesn't need your product anymore. And you do have to bring new folks into the fold. And that's where a lot of the referral comes in, as well as some of that on-shelf discovery that we talked about earlier. Now we can talk about how does Coterie fit into the Mammoth Brands portfolio. We kind of hinted at it earlier, which is that this is obviously a new category for them.

8:05So for those unfamiliar, Mammoth was essentially a rebrand of Harry's Inc. that was launched earlier this year. And so now they've got all of these brands under one big parent company called Mammoth Brands. And so this is their first really big acquisition since they've spun out the company. But yeah, it's an interesting direction to me because basically what happened is that in 2020, Harry's was almost acquired by Edgewell. And that deal felt through due to regulators blocking it. And then what they did essentially in the last few years was build their own in-house CPG company. And that's been really interesting because it's not really a direction that many startups go into.

8:51Like most of them are trying to exit usually. This is something I've spoken to Mike Duda, who's an investor in Harry's, about, you know, how do you feel about a company that is a decade plus old that is still building out its brands, right? Like it's not waiting to be acquired or it's not doing a direct listing at this point, which kind of brings us to the next point. You know, what is the valuation, I guess, like what happens here, right, once you are this big as a quote unquote startup brand? Yeah, I mean, I feel like they're kind of at this inflection point where, you know, can you continue to grow these companies that have kind of had runaway success with certain segments of the population, but could grow more if you, you know, as you said, get them into different wholesale channels, get them in front of new demos, diversify the product lineup in a way that can speak to those customers.

9:49You know, what's interesting to me is that even though Baby maybe doesn't seem like it fits with this more like grooming body care for adults kind of lineup that Mammoth has, there is this sort of core commonality that I see between something like Flamingo Coterie and Harry's and Loom that they're sort of these like story led brands. You know, they're very much about solving a pain point with this very everyday product in a new way and putting a really glossy, modern brand in front of it. You know, you could buy any old razor, but you buy Harry's because of the brand and what it stands for in some sense.

10:30You know what I mean? Like they're just sort of shaking up these more staid categories. Yeah. And obviously the big through line is that they lend themselves to the subscription model, which is, you know, sometimes there's a lot of hiccups in certain brands that go subscription. But in this case, most of us tend to repurchase these products on a regular basis. So yeah, subscription makes sense here, which also explains the sort of heavy D2C presence for somebody like Coterie. But yeah, I mean, as far as eventual exit, this is hypothetical, of course, we're just speaking freely here. But the company's valuation kind of puts it at a place where it essentially would either be purchased by a bigger CPG or a conglomerate or maybe do a direct listing, an IPO, question mark.

11:27Yeah, we're not predicting anything. And also the IPO market is very messy right now. So this is all just speculation. But I do kind of wonder the trajectory of where they'll land because they are a company that I have covered and followed for going on a decade now. So it's always interesting to kind of follow along. Well, speaking of conglomerates and exits and offloading, we had some other M &A news this week, and that was from Unilever, who said that they're offloading Kate Somerville after 10 years of holding that business. Unilever sold Kate Somerville to Rare Beauty Brands this week for an undisclosed sum.

12:09Not Selena Gomez's Rare Beauty. I want to be clear, Rare Beauty Brands, which is a different company who owns skincare brands, Patchology and Dot Dot Dash, which are pimple patches brands. Yeah. So before we get into Kate Somerville's sort of history as a prestige skincare brand, I want to note that this is part of a bigger strategy for Unilever. So they bought this brand in 2015. This was like the height of like high-end skincare, if you remember. I think Melissa, you and I were both there. It was the luxury serums and face masks and whatnot were all the rage. But since then, this space looks completely different.

12:53Now we've got dupe cultures, more on that later. But yeah, they essentially said that they were going to sell this off because the sales were flat for their prestige segment in the first half of 2025. They also sunset another brand called Ren. That was like a clean, one of the earlier clean beauty brands, RIP. I was a customer of theirs. So it kind of just shows you where they are and where they find value, which is probably more on the drugstore side now. And so that leads us to sort of the rise of dupe culture, really throwing a wrench into these high-end brands' growth trajectory, which for a long time was on the up.

13:37Yeah, I think that's a great observation. Just the way that this category has changed so much in the last decade, since Unilever first acquired the Kate Somerville brand, there's been so much more competition. There's so many different ways people are finding out about products too, and just different channels that people are buying in. And, you know, it's just hard to see if that luxury end of this has, you know, an ever-expanding market. As Mary Carmen Gasco-Boisson, the chief executive of Uniliver Prestige, said, as the brand Kate Somerville enters a new chapter, we believe that its continued growth and success will be best supported by new ownership, better aligned to meet its evolving needs.

14:22And when you think about where Uniliver's focus is, it's just so much more, I think, in the mass space. Yeah, so Kate Somerville was sort of part of that early wave of higher-end skincare brands, very ingredients-focused, really nice packaging, just luxury feeling. It was started in 2004 by Kate Somerville herself, the founder, in LA as sort of like a clinic or a med spa. And then, yeah, in 2015, it was purchased. But I'm kind of curious, Melissa, what you think about where these types of brands are going to stand as they try to compete with dupe culture, which I alluded to earlier, because there are entire subreddits and websites literally dedicated to finding dupes based on ingredients of your favorite, you know, high end, you know, Sephora purchase.

15:21whatnot? You know, I do think luxury skincare will continue to have a place, whether that's at certain shelves in Sephora or department stores. But I don't necessarily think it's the future of the whole business, right? Which is, I think, maybe what we're seeing from Unilever here. At the same time, I think you have retailers like Target and Walmart who've played around with trying to offer higher price point skincare items. And I'm just not sure if those brands take off as fast as something that's more competitive like a bubble or an elf, right? I mean, those are the brands that are hot right now that people are reaching for wherever they can find them.

15:56But as far as Kate Somerville is concerned, I think that as a legacy brand, it will continue to have some sort of relevancy. The ExfoliKate product that it has, which is an exfoliator cleanser, I think it's been on a ton of best of lists. It's always in editor's picks. I still see it showing up now and then. And I think when brands can have that one product that has really stood apart and has already stood the test of time, they kind of can hang their hat on future growth because of that. Yeah. And then I was looking and Unilever, you know, they do have a few more prestige brands, including Tatcha, which they acquired in 2019.

16:37That was a really big buy. again, sort of peak high-end skincare bubble. And so I do wonder, yeah, how are they going to continue to recalibrate this part of the portfolio? But yeah, with that, I mean, we can talk about some of the data about dupes in beauty, including makeup and skincare. We have a lot of studies that have come out, especially with Gen Z and Gen Alpha, where they feel like they don't necessarily need the expensive version anymore. There's a 2024 study by Mintel Market Research Company where seven out of 10 makeup users have purchased a dupe and more than half actively look for dupes on social media.

17:24So yeah, I think that's probably always going to be sort of a hurdle for more expensive brands. But like you said, there's always going to be room for a$40 lip balm. I feel like that's where we're at right now. It's like the lip balm craze. But yeah, it's going to be interesting to see how a lot of those acquisitions that happen during that time where they're going to land in the next few years. Yeah. I mean, you mentioned Tatcha, you know, who is very well known for the water cream. I mean, that's like a$70 cream,$90 cream based on the size that you're buying. But you know, the dupe that's kind of run away with that is the Neutrogena Hydro Boost water gel.

18:10And people just buy that now. Yeah, that's everywhere. And it's that same kind of lightweight formula that the Tatcha water cream was sort of, you know, first to the game and really got on people's radars in a lot of ways. So I think that's kind of always going to be the give and take here. Luxury brand comes out with some great idea. Drugstore startup or drugstore mass finds a way to dupe it. The cycle begins once more. And then we should mention the other side of the coin is that consumers themselves have become more aware and just more educated on ingredients. So Neutrogena is a perfect example.

18:51It's the drugstore counterpart. It's a Kenview-owned brand that has really become this sort of go-to dupe, same way that Elf or ColourPop or all these other drugstore brands have become go-tos for people that are trying to just go strictly by ingredient versus the shiny packaging and the really nice branding that comes with luxury skincare, which you and I have both fallen for over and over, you know, in our lifetimes. No shame. Yeah. And, you know, every now and then, you know, I think speaking of Ulta, which we'll get into later, you know, every now and then, do I treat myself? Yeah. But sometimes I'm more likely to add the Maybellines and Elves of the world these days.

19:39It's just the way I've changed my behaviors personally. And I think a lot of people are like that these days. Next up, we have this week's featured segment, which is Alta announcing the launch of their first ever marketplace. Melissa, you and I had James Lang from Alta on, and I thought it was a really cool conversation around his approach to marketplaces for these third-party sellers that are coming to Alta. Yeah. Yeah. I mean, some people might be surprised that Ulta didn't already have a marketplace, given what a big brand it is and given how many brands they carry, right? You know, they're forecasting sales of at least$12.1 billion this year, you know, so they're a pretty massive company on their own.

20:25But what we spoke with James about was just the many opportunities they see in allowing third-party sellers to come to their site, As well as the challenges there of making sure that those brands are still representing, you know, the Ulta experience, so to speak, because consumers these days are really smart and really hip to this idea that, hey, I think I'm buying something from Target, Ulta, etc. But it's not coming from that company directly. You know, there are Reddit threads upon Reddit threads of people having concerns about third party sellers. So we get into all of that with James. It's a great conversation.

21:01We also get some really good behind the scenes on how Alta stood this up rather quickly. So a good one for my project management nerds out there. Yeah, so listen for that right after the break.

21:22beauty retailer alta has officially joined the growing list of companies who have a marketplace we've seen this from stores like target and best buy before and what a marketplace basically means is that people can buy products directly from a brand but via the retailer's website think about when you're online shopping and it says shipped by Adidas or any other third-party seller. But UB Marketplace, as they're calling it, isn't just letting anybody in. This invitation-only marketplace is a way for Ulta to get more brands on its site in a much faster fashion than its typical onboarding. But it's still using the same vetting process it would to land a brand on store shelves.

22:04The marketplace is built in partnership with Miracle, a tool that brands can use to sell on other retailer websites. To unpack the how, when, and why of this strategy, we are joined by Alta's VP of Marketplace, James Lang. James, welcome to the Modern Retail Podcast. Thank you very much, Melissa. It's great to have you here. How's your day going so far? It's going well. It's going well. Beautiful weather in Chicago. We love a fall mid-Atlantic day. Okay. Well, let's get into it. You know, you're new to Ulta as part of this whole marketplace endeavor that they've gone on. So, you know, talk to us a little bit about just how this got set up and, you know, what your sort of entry into Ulta was.

22:49Yeah, you know, again, I think I started in April. We know that this is a huge opportunity for us to really embrace our beauty and least strategy. So as I joined, what was really exciting is why now? Why did we decide to do a marketplace? We think it makes perfect sense. I thought it made perfect sense as I was interviewing. This is an amazing opportunity to really live out our ambitions and really grow our business the way that we want. I would love to hear a little bit about the why now, because I think for some folks, they might be surprised that Ulta didn't have a marketplace already. You know, it's a 35-year-old brand, certainly not new to e-commerce either.

23:33So, you know, why did it take this long? You know, I think everybody asks that, right? I even asked that when I interviewed. You know, it's a great question. And again, it's a key lever to our Ulta Beauty On-Lease strategy. You know, really, this allows us to continue to have, you know, a great marketplace environment with a curated brand invite-only ecosystem. where we can rapidly test, we can deepen our category authority, and do it in an asset-light margin accretive model. So it's just an amazing way for us to grow without taking on the traditional burden of what would be a wholesale or brick and model, a commercial model.

24:12You mentioned testing assortments, but before we get into all of that, I wanted to ask you, James. How did this come about operationally? I know that you have helped build marketplaces for other retailers before, so we'd love to hear a little bit about your background and then get into some of the lessons you learned that maybe you brought to the table for UB Marketplace. Sure. I've spent the majority of my career in retail, I've spent the majority of my career in department store retailing, really owning the unowned inventory strategies for different retailers. And in all of those scenarios, the critical thing is that the guest wants what the guest wants.

24:55And if a retailer has the capacity to be able to bring that product to life, you have a better chance of satisfying your guests, making them exciting and making them want to come back, right? Making them stickier and more excited about your brand and what you what you offer. So the short answer is, how did we bring this together operationally? We really announced in March that we were going full on into marketplace. And we launched just this past week and a half at the end of September. It takes amazing cross-functional alignment. We set up work streams, we set up sprint teams across merchandising, digital, tech, legal, and our guest services teams, and really defined clear SLAs and clear deliverables on what was important, how do we get an MVP up and running, and how do we make sure that the guest experience is amazing, right?

25:46We want to be best in class, and that allowed us to be able to do that. We chose, as Melissa mentioned, we chose Miracle, an industry leader in Marketplace, to really power our backbone. So leveraging product catalog quality, seller tools, the different integrations that they have with Shopify and others, so that we can move very quickly while preserving best-in-class standards. Lastly, we created a focused staffing model. So dedicated onboarding, dedicated compliance, brand management to really keep high quality and keep the Ulta Beauty experience exactly the way it is for all of our brands and keep it at a very high level while we scale.

26:25You said a phrase that I really liked, and this is unowned inventory. And I think for the marketplace curious listeners out there, this is maybe where we can kind of get into the guts of a marketplace. And, you know, when you talk about a marketplace being a way that you can get stuff to customers faster, that's because it's unowned inventory, right? Can you kind of unpack a little bit about what that looks like? Yeah, I think for anybody, there's a traditional wholesale model where retailers will buy inventory from brands. They will keep it in their warehouse and they will be the fulfiller and the shipper of record, the merchant of record.

27:03In an unowned inventory model environment, the experience for the guest is virtually indistinguishable. We're just asking the brand to ship the inventory. So they're going to hold the inventory. They're going to be able to ship on our behalf, but it's still all within the same standards and guidelines of what we would expect from anything that we would carry in our own DC. So again, it just allows us to take advantage of more things sooner without having to figure out where to house it, whether it's in our stores or in our DCs, it just takes up space. And in an unowned inventory model, it just allows us to expand our desires a little bit wider without having to get stuck.

27:43Yeah, I wanted to just ask a little bit more about the complementary aspect of it, which is that you're specifically seeking out products and brands that will sit alongside your vast inventory, especially online, where it makes sense. I mean, I was browsing earlier and I saw Apotheky, which is a pretty big candle brand on there. And it makes sense because it is home fragrance candles, but it doesn't feel out of place on Alta.com. So yeah, I just want to get a little bit more color on how you went about seeking these assortments. Yeah. So I think for us, it's been very targeted. We want a very curated environment where we know we have the right to win.

28:29If we think about what the addressable market is for complementary categories, we think we have an amazing opportunity to continue to build out into things where there's natural breakpoints. And those breakpoints could be, you know, by price, they could be by, you know, product category. So if you think about, you know, pro, you know, pro tools, if you think about grooming, if you think about luxury fragrance, etc, there's just a great opportunity. And the way that we're defining those complementary categories, think about it as the second floor of our digital store, right, or a new floor to our digital store.