Ulta plans 'fast fulfillment centers' to handle online orders

Dive Brief:

Ulta is in the process of converting its Romeoville, Illinois, distribution center outside of Chicago into the company's first "fast fulfillment center," scheduled to open this summer, CEO Mary Dillon announced on the company's recent earnings call.
This center will fulfill up to 30,000 e-commerce orders per day during peak times. The center is part of the company's goal of providing two-day e-commerce shipping by 2021, Dillon said.
The company has plans for a second fast fulfillment center located in Jacksonville, Florida, that will open in the summer of 2020.

Dive Insight:

Ulta is making changes to multiple aspects of its supply chain as the company continues to grow both its physical footprint and online sales.

The retailer opened 11 stores in the fourth quarter of 2018 and plans to open 80 more this year. Sales on Ulta.com grew 25% in the fourth quarter compared to a year earlier. This online growth was lower than expected, which the company blames on underestimating consumers' desire to try products in the store.

Ulta will shutter its Phoenix distribution center later this month and has been working to shift inventory to other locations. This closure comes as the company's new Fresno, California, warehouse is handling increasingly more inventory — serving 235 stores and 21% of e-commerce orders.

CFO Scott Settersten laid out a plan last year for how the company plans to better manage inventory to help improve margins. On this effort, Settersten said, "we still think there is a long way to go there."

The company's total inventory grew 10.9% and was up 1.3% per store. Margins did improve year-over-year and the company is still using Swift, an inventory management system, that it says will help improve the way it handles inventory.

"We believe we've got the tools and the capabilities in place now to definitely do a lot more by way of optimizing our inventory over the long-term," Settersten said. "And margin results there are coming from being able to better control the flow or more automated kind of markdowns, doing better with our transitions and our assortment decisions."