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Ulta Beauty (ULTA) Stock Dips as Amazon-Violet Grey Rumors Heat Up

On Wednesday, shares of Ulta Beauty ULTA are falling, down about 3.5% in midday trading after rumors are floating about that Amazon AMZN is considering a partnership with high-end beauty e-commerce site Violet Grey.

Similar to Ulta and its key rival Sephora, Violet Grey is a multi-platform beauty business that is comprised of a website, a digital magazine, and brick-and-mortar store located on Melrose Place in Los Angeles. But what makes the company stand out is its focus on curation.

Founder Cassandra Huysentruyt Grey and her team have collaborated with top makeup artists and skincare experts to curate the “best of the best” when it comes to beauty products, as well as essential beauty tips, tricks, and inspiration. Grey is inspired by the glamour of Hollywood, and the brands on the company’s website reflect this: Tom Ford, Chanel, Dior, La Prairie, Charlotte Tillbury, among many others.

The beauty industry has long been considered the one retail area that is “Amazon-immune.” With many beauty products, especially makeup, customers still feel the need to go to a physical store to test those products out before they make any new purchases.

Investors, however, may just be overreacting. BMO Capital analyst Shannon Coyne wants us to remember that one, the deal is not set in stone and two, there is very little overlap between the brands that Ulta and Violet Grey carry. This, here, is important. While Ulta does carry some luxury beauty products, the company is more known for their mid-level, department store, and drugstore brands, like Benefit and Clinique. The potential Amazon-Violet Grey partnership would hurt Sephora more, which carries many of the same brands as Violet Grey does.

Coyne also points towards Ulta’s incredibly popular loyalty program, high-performing website, and mobile app, noting that these three divisions will likely “provide cover” should Amazon decide to enter the beauty market.

Rumors of Amazon becoming a viable beauty threat began in earnest about a month ago, and shares of Ulta have dropped about 14% since then. This is on top of all the other Amazon news, from scooping up Whole Foods Market WFM to selling Nike NKE product on its website. ULTA is currently a #2 (Buy) on the Zacks Rank, and is set to report its next quarterly earnings on August 24 after the bell.

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