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Why company culture is the key to differentiation

Indianapolis – Circa June 2016: Ulta Salon Cosmetics & Fragrance Retail Location. Ulta Provides Beauty Products and a Salon I

Culture eats strategy for breakfast: this is a little proverb that gets thrown around rather carelessly sometimes, but it’s nothing but the truth. Through spending a lot of time with different retail businesses both here and overseas, it’s evident that great businesses, products and experiences are a direct result of great culture – not great frameworks or excellent market research.

We sometimes think differentiation must come from our positioning, product or purpose in the market – all informed by our research. But when you scratch the surface of this belief you can see just how flawed it is.

After all, we all look at the same intelligence (even when you think it’s bespoke, you are drawing upon the same database of consumers as your competitors). And from this intelligence we often create the same strategies (particularly as we are increasingly trained out of using our intuition in favour of the “where has it been done before” approach). Where differentiation is actually created is in how the strategy is executed – and by that I mean, the people.

It sounds so simple, and yet creating a culture where people enjoy working with one another, not against one another in favour of their KPIs or ego gratification, is difficult but not impossible.

A great example of a business that has done this well is the US cosmetics retailer Ulta. Unless you’re in the industry you may not have heard of them, but they are actually the largest beauty retailer in the US – yes, bigger than Sephora.

As a quick intro, they operate 1163 stores, they reported 11 per cent comps in 2017 (it was 15.8 per cent the year before); revenue of US$5.885 billion ($8 billion) and an active database of 27.8 million beauty lovers. Although they are definitely not perfect, what Ulta has done to create a differentiated culture involves a few key points.

1. The CEO is a customer

I know, crazy; yet this has become increasingly rare. Retail leaders often talk about walking their business’s stores, but that is very different to being a customer. When you’re a customer of the brand you work for, you understand the intricacies of the category and can feel when trends are changing on a very intimate and intuitive basis.

It also means you understand the employee culture needed in order to make the customer’s experience better. I was lucky enough to spend time with Ulta’s San Francisco store team earlier this year, where they raved about Mary Dillon (CEO since 2013).

They spoke openly about Dillon being a customer of the brand. In fact, when she does do more formal store visits around the country she treats them like shopping occasions – putting herself in the customer’s mindset (not hard when you are one).

2. They hire category lovers

Ulta is a specialist big-box retailer, and like others in this format it’s becoming more and more about service. (FYI: they offer in-store services like hair salon, brow and beauty services as well as an extensive product range – from chemist brands through to prestige).

In order to facilitate great service, you need the people that love the category (not someone that’s just there for the pay).  Based on our time spent with their team, it was evident that they love beauty – which makes them comfortable with any tricky questions thrown at them by customers because they themselves are invested customers.

To quote Dillon, “At the end of the day, you’ve got humans serving humans and really the more engaged and happier they are, the happier the guests are.”

3. Culture is the enabler of strategy

Just merely valuing culture – and showing your employees as well as investors that you see it as a core part of the business’s economic engine – is a huge leap forward. As a part of their strategic plan, Ulta lists that it “invests in talent that drives a winning culture”.

Ulta sees culture and people as the enablers of its way of doing business – in fact, culture is valued equally to operational efficiencies. Although we could argue it should be higher, the fact that it’s there is a huge start.

As a business whose biggest stores are physical and therefore needs service in order to drive traffic, this focus is necessary and has allowed Ulta to up its game (competing against Amazon and pure-plays) by investing heavily in experience. As a side note, Ulta’s “salon” customers are worth three times more and shop twice as much as a regular customer. So you can see the argument for investing in people and culture – not just getting merchandise right.

As the retail landscape continues to change, and competition in our market heats up with more international entrants; it’s important to start to place a larger value on people and the culture they operate within. After all, anyone can write a perfect strategy, but it’s behaviour and cooperation that will ensure its implementation. ensure its implementation.

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