Marketplace strategies in retail often follow predictable patterns. Open platforms seeking maximum seller participation, minimal curation, and scale above all else. Ulta Beauty took a decidedly different approach with their marketplace initiative, prioritizing brand authenticity and category adjacency over rapid expansion. The results, as Josh Friedman, SVP of Digital and E-Commerce revealed, have exceeded expectations on both quantitative and qualitative measures.
In returning to Omni Talk for his second interview, Friedman provided updates on a marketplace concept he’d previously discussed in development. Now live with 150 brands and already planning to graduate digital sellers into physical stores, Ulta’s marketplace demonstrates how thoughtful curation can drive performance that justifies accepting slower initial growth.
The Digital Mezzanine Concept
Friedman introduced Ulta’s marketplace using an architectural metaphor that captures their strategic intent. “We wanted to build what we call the digital mezzanine for all these other categories,” he explained, referencing the elevated intermediate floor that provides additional space without expanding a building’s footprint.
The metaphor works on multiple levels. Just as a physical mezzanine expands usable space while maintaining the main floor’s character, Ulta’s digital marketplace extends their assortment into adjacent categories without diluting the core beauty offering that defines their brand. The “main floor” remains focused on traditional beauty and cosmetics, while the digital mezzanine houses complementary categories like wellness, grooming, and beauty tech.
This architectural thinking reflects customer demand patterns Ulta observed over time. “Our guests ask us all the time if they can buy other things that are adjacent to the beauty category,” Friedman noted. These requests came frequently enough to validate marketplace expansion but fell outside traditional beauty boundaries enough that dedicating physical shelf space seemed suboptimal.
The adjacent category focus deserves emphasis. Ulta isn’t using their marketplace to expand beauty assortment. They are already strong in that space. Instead, they’re strategically extending into related categories where customer interest exists but physical store economics don’t support dedicated inventory. Wellness products, grooming tools, and beauty technology represent natural extensions that serve existing customers without requiring them to shop elsewhere.
The Invite-Only Strategy
Perhaps the most distinctive element of Ulta’s marketplace approach is their invitation-only model. “We do not open up to sellers, distributors, only the ones that we reach out to and we invite in,” Friedman stated clearly. This represents a significant departure from marketplace platforms that prioritize seller acquisition and rely on algorithms or lightweight vetting to manage quality.
The rationale centers on authenticity protection, particularly critical in beauty categories where counterfeit and diverted products create substantial consumer risk. “We thought that was really important for us to make sure that our guests felt confident that everything we were selling on ulta.com was authentic and exactly what they were hoping for,” Friedman explained.
This confidence matters enormously in beauty retail where product authenticity directly impacts safety and efficacy. Customers purchasing skincare, cosmetics, or wellness products need assurance that they’re receiving genuine items from authorized sources. By maintaining tight control over seller admission, Ulta protects both customer safety and brand reputation.
Friedman acknowledged the trade-off explicitly: “We probably could be moving a little faster if we didn’t have some of those standards, but we think it’s important.” This reflects mature strategic thinking, recognizing that marketplace success requires more than seller count or GMV growth, particularly for established retailers with strong brand equity at stake.
The invite-only approach also enables Ulta to pursue specific brands and categories that align with their digital mezzanine vision. Rather than reacting to seller applications and trying to filter for fit, Ulta proactively identifies brands that serve customer needs in adjacent categories and invites them to participate. This creates a curated marketplace that feels like a natural extension of Ulta’s brand rather than a separate, loosely affiliated platform.
Pre-Holiday Launch and Execution
Launching marketplace capabilities before the holiday shopping season represents significant risk. The peak period drives disproportionate annual revenue while also creating maximum stress on operations, fulfillment, and customer service. Adding new marketplace complexity during this window could magnify problems.
When asked about the timing, “Are you insane?” Friedman offered a telling response: “We launched it before the peak freeze, remember? That’s kind of all that matters in retail.” This reflects the industry practice of implementing major technology changes before inventory and system freezes that prevent changes during peak selling periods.
By launching early enough to stabilize the platform before peak demand, Ulta gave themselves runway to identify and resolve issues while transaction volumes remained manageable. This disciplined approach to release timing demonstrates operational maturity that many retailers lack.
The execution delivered results beyond Friedman’s initial expectations. “We’re seeing results that are both quantitative beyond our expectations and really the qualitative results too,” he reported. On the quantitative side, “99% of our brands are actively selling and moving” inventory, an extraordinarily high percentage suggesting strong product-market fit and effective merchant selection.
Return rates, often a concern with marketplace items where retailers have less control over product quality and fulfillment, came in “well below our expectations so far.” This validates both the seller vetting process and the adjacent category strategy. Customers are finding products that meet their needs and maintaining them rather than returning them.
In-Store Returns Integration
One operational decision deserves particular attention: Ulta’s choice to accept returns for all marketplace items in every physical store. “We now take returns for all of our marketplace items in every store to make sure that’s easy and convenient for our customers,” Friedman revealed.
This capability, which “we weren’t even necessarily planning” for launch, demonstrates the operational integration retailers need to deliver true omnichannel experiences. Many marketplace models create friction by requiring customers to return items through different channels than core inventory. This inconsistency signals to customers that marketplace purchases carry second-class status.
By accepting marketplace returns in-store, Ulta eliminates this friction and sends a different message: marketplace inventory is Ulta inventory, supported with the same return policies and convenience as directly purchased products. This consistency matters enormously for customer confidence, particularly for beauty and wellness products where customers may want to try items before committing.
The operational complexity shouldn’t be understated. Accepting marketplace returns in-store requires systems integration to track items that Ulta never physically possessed, processes for handling return disposition with third-party sellers, and associate training on policies that differ from traditional inventory. That Ulta implemented this capability speaks to their commitment to customer experience consistency.
The Test-and-Learn Graduation Path
Perhaps the most strategically significant element of Ulta’s marketplace approach is using the digital platform as a testing ground for physical store expansion. “You’ll start seeing some of our marketplace sellers graduate into our brick-and-mortar channel this year,” Friedman announced.
This graduation path transforms the marketplace from simple assortment extension into strategic innovation engine. Rather than risking physical shelf space on unproven categories or brands, Ulta can test them digitally, gather performance data and customer feedback, then make informed decisions about brick-and-mortar expansion.
The approach delivers multiple benefits. First, it reduces inventory risk by validating demand before committing to physical stock across a store fleet. Second, it provides brands with a lower-barrier entry to Ulta’s ecosystem. Many emerging brands lack capacity to supply hundreds of stores but can manage digital fulfillment. Third, it creates a performance-based pathway where successful marketplace sellers earn physical distribution through demonstrated results rather than negotiation.
For customers, this graduation path means discovering products digitally then finding them in stores as popularity warrants. For brands, it represents a clear value proposition. Marketplace participation is potentially a pathway to broader Ulta distribution.
This test-and-learn approach also protects Ulta’s physical stores from assortment bloat. Rather than dedicating shelf space to experimental categories or unproven brands, stores can maintain focus on core beauty offerings while the digital mezzanine provides expansion space for exploration.
Strategic Implications for Retail Marketplaces
Ulta’s marketplace approach offers several lessons for retailers considering similar initiatives. First, marketplace strategy should reflect existing brand positioning and customer relationships rather than blindly copying Amazon’s open-platform model. Ulta’s invite-only approach makes sense given their brand equity and customer expectations around authenticity.
Second, adjacent category expansion through marketplaces can drive incremental purchases without cannibalizing core business. By focusing on wellness, grooming, and beauty tech rather than expanding beauty assortment, Ulta serves customer needs while protecting relationships with core beauty brands.
Third, operational integration matters enormously for customer experience. The in-store returns capability Ulta implemented eliminates marketplace friction that undermines customer confidence. Retailers should view marketplace inventory as requiring the same service standards as directly purchased products.
Fourth, the test-and-learn graduation path transforms marketplaces from assortment tactics into strategic innovation platforms. Using digital performance to inform physical expansion decisions reduces risk while creating clear incentives for marketplace seller participation.
Finally, accepting slower growth to maintain quality standards can deliver superior long-term results. Ulta’s 99% active seller rate and below-expectation return rates suggest their curated approach is working better than rapid expansion with loose quality controls would likely achieve.
Looking Ahead
With 150 brands live and “a few new categories coming up,” Ulta’s marketplace is clearly in expansion mode. But the expansion appears disciplined, i.e. adding categories that serve the digital mezzanine vision rather than pursuing growth for its own sake.
The graduation of marketplace sellers into brick-and-mortar represents the most intriguing development to watch. Which categories and brands earn physical distribution will signal which adjacent spaces Ulta views as strategic long-term opportunities versus experimental extensions. It will also demonstrate whether the test-and-learn approach delivers better physical store performance than traditional buyer-driven assortment decisions.
For the broader retail industry, Ulta’s marketplace success validates alternatives to open-platform approaches. Thoughtful curation, category adjacency focus, authenticity protection, and operational integration can drive marketplace performance that justifies accepting slower scaling. As Josh Friedman’s updates demonstrate, sometimes the retailers who move more deliberately end up moving more effectively.
Be careful out there,
– Chris, Anne, and the Omni Talk team
P.S. To see our full lineup of past 5 Insightful Minute conversations, head here.
Omni Talk® is the retail blog for retailers, written by retailers. Chris Walton and Anne Mezzenga founded Omni Talk® in 2017 and have quickly turned it into one of the fastest growing blogs in retail.