We’re in a trade-down economy, and Ulta is winning
If you’re feeling anxious about the economy, you’re not alone. Consumer confidence is at its lowest in more than a decade. Americans are worried about inflation, a possible recession, and job security—and that anxiety is reshaping how they spend.
Even high earners are pulling back. Households are cutting big-ticket indulgences like vacations, fine dining, and designer fashion and redirecting spending toward essentials like groceries and personal care. Even then, they’re choosing retailers that feel like smart value plays. Higher-income shoppers have increasingly frequented discount chains like Walmart and Costco—both of which have seen record-breaking quarters.
Ulta is poised to win in this economy. Since its founding in 1990, Ulta has specialized in selling mass-market beauty products, with some luxury brands sprinkled in. Walking the aisles, you’ll find a $12 Maybelline foundation across from a $190 bottle of Chanel No. 5 perfume.
“We’re very focused on being inclusive, and we want to be a destination for everyone,” says Ulta CEO Kecia Steelman. “We can take care of your beauty shopping needs no matter what your budget is.”
In a booming economy, that kind of mixing can feel unglamorous. Aspirational shoppers tend to gravitate toward retailers like Sephora or Nordstrom, where everything signals luxury. But for most people, this isn’t a boom time. As consumers tighten their belts, Ulta’s flexibility starts to look like a feature, not a flaw.
The retailer now draws shoppers across a wide income range—from households earning around $50,000 annually to those making well into the six figures. Budget-conscious customers can stock up on brands like E.l.f. and CoverGirl. Affluent shoppers, meanwhile, can trade down on basics while still splurging occasionally on Drunk Elephant skincare or a Dior lipstick.
This approach is working. As overall retail spending has slowed, Ulta has grown over the past several quarters and is tracking to $12.3 billion in revenue for the last fiscal year, up roughly 4.7% from the year before. Its in-store visits have also climbed 3.3% year over year. Other retailers focused on a mix of low prices and premium products, including Walmart and Costco, are also gaining momentum.
These trends point to a broader shift. The era of aspirational positioning is fading. This is a trade-down economy, and the retailers best positioned to weather it are the ones that adapt to that reality.
The Aspirational Economy Is Over
For the past decade and a half, we’ve been living in an aspirational economy. During this time, a new generation of brands popped up that allowed you to buy not just a product, but an identity. Startups like Allbirds, Casper, Away, and Glossier used sleek design and clever storytelling to signal good taste, high status, and progressive values. They were a ticket into a social class you wanted to join. Products were priced just high enough to feel special, but still within reach of middle-class shoppers eager to buy into the lifestyle.
That model is starting to crack: Allbirds is closing its stores, Away has gone through several rounds of layoffs, and Glossier’s valuation has dropped by half over the past five years. Part of the problem is that the number of middle-class consumers who fueled these aspirational brands is shrinking, with more than half of Americans living paycheck to paycheck, and a quarter of households spending nearly all their income on essentials.
Instead of seeking out aspirational brands, many of those consumers are migrating toward budget retailers. Walmart offers a telling example. Long associated with low-income shoppers, the company has spent years adding more premium brands to its shelves in an effort to attract wealthier households. The strategy is paying off: Walmart has gained market share among customers earning more than $100,000, helping propel the company to a market capitalization of $1 trillion.
Ulta’s Radical Idea
Ulta Beauty was founded in Bolingbrook, Illinois, in 1990, at a time when the beauty industry was rigidly segmented. Prestige brands like Lancôme and Estée Lauder were locked behind department-store counters, while mass-market staples such as Revlon and CoverGirl were relegated to drugstore aisles. Ulta’s founders challenged that divide. Their insight was simple: Consumers already shopped across price points—and they wanted a single destination that reflected how they actually bought beauty.
The model took hold quickly. Ulta scaled by opening large-format stores across the country, primarily in strip malls, many anchored by in-house salon services like haircuts and facials. Growth accelerated after the company went public in 2007.
From 2010 to 2020, Ulta tripled its store count to roughly 1,200 locations, while revenue climbed from about $2 billion to nearly $7.4 billion—an impressive feat in a decade when many peers were shrinking. The surge was driven by a rare alignment of factors: consumers increasingly mixing mass-market and high-end beauty, a booming beauty industry with new brands popping up daily, and a disciplined store rollout that favored underserved suburban markets over expensive shopping centers.
Ulta’s broad appeal has been central to that success. While Sephora, its closest competitor, built its identity around a tightly curated assortment of roughly 300 high-end brands, Ulta pursued a more democratic strategy, offering around 600 brands spanning mass-market and luxury. It also operates roughly twice as many U.S. stores as Sephora.
That breadth makes Ulta equally compelling to brands. “Ulta gives us the scale to recruit new customers,” says Sabeen Mian, president of the company behind Grande Cosmetics and Lilly Lashes, both sold at Ulta. “Compared to more narrowly positioned prestige retailers, Ulta offers a broader aperture: more doors, more shopping frequency, and more opportunities to convert curiosity into long-term loyalty.”
In Ulta’s 1,500 stores, shoppers can find dozens of products priced under $20, bolstered by frequent promotions and famously generous coupons that reinforce the sense of value. “They reach everybody in America,” says Sucharita Kodali, retail analyst at Forrester. “They’ve got so many stores, and many are colocated with grocery stores and other mass merchants.”
Ulta has also been investing in its high-end offerings. It’s the exclusive retail partner for Beyoncé’s new haircare brand, Cécred, which sells $31 shampoo and $44 hair oil, as well as Rihanna’s Fenty Skin Body, which sells $30 body wash. According to a recent earnings call, these were among the most successful product launches in Ulta’s history. While the company doesn’t publish data about customer incomes or market share gains by demographic, it has boasted that its premium brands have been flying off the shelves.
The Lipstick Index
Steelman argues that Ulta’s founders were right all along. “If you open my makeup bag, you’d see everything from NYX to YSL,” she says. “This is how the consumer is shopping today.”
That mix becomes especially powerful during an economic downturn. Ulta’s emphasis on value attracts cautious shoppers across income levels. More broadly, the beauty industry tends to be insulated from economic downturns. In fact, some categories of beauty products tend to sell better in times of recession.
In 2001, following the dot-com crash and the attacks of 9/11, Estée Lauder Chairman Leonard Lauder noticed that sales of high-end lipstick surged. He dubbed the phenomenon the “lipstick index”—the idea that consumers cut back on major purchases during economic stress but still allow themselves small luxuries. A $48 Chanel lipstick can feel like a reasonable consolation prize when a $1,200 designer wallet is out of reach. “It’s an easy, low-ticket, indulgent purchase,” says Kodali.
Economists debate whether the lipstick index is a reliable recession indicator. But Steelman says she sees the behavior firsthand: Shoppers of all income levels are still willing to indulge occasionally. Compared with the cost of travel, home renovations, or new furniture, even luxury beauty feels manageable.
Ulta’s success suggests something deeper is going on. Today’s consumers aren’t shopping to signal status or buy into a lifestyle. In an uncertain economy, they’re shopping to maintain control. Ulta’s shelves let them do exactly that—trade down and trade up in the same visit, adjusting in real time. Shoppers can save on mascara, redeem a coupon, and still leave with a Dior lipstick that feels indulgent without being irresponsible.
Steelman is leaning into that emotional calculus. “In the world we’re in, which is just so heavy,” she says, “Ulta is a place where you can experience what makes you happy.”