In South Africa, we are used to large retail groups operating across multiple economic profit pools. Shoprite is a grocery retailer at heart, yet it is rolling out pet store and clothing concepts. Pepkor is talking about opening a bank. And for Cell C, powering the mobile virtual network operators (companies with distribution networks who want to sell airtime and other connectivity products) is big business.
Everyone is tripping over everybody else in South Africa, as our market isn’t big enough for retailers to stay in their lanes.
The enormous US market has niches that can be scaled into. Retailers can focus on particular categories with sufficient growth runway and competition to keep them on their toes. Being big in even one reasonably important state in the US makes you sizeable. Being a national chain makes you powerful.
In the past week, we saw updates from two such monsters: Ulta Beauty and Dick’s Sporting Goods. They have zero overlap in product categories (as the names would suggest), but they both give us insights into how American shoppers are being serviced by specialist retailers.
For context to their size, Ulta Beauty’s market cap is nearly $24bn, while Dick’s Sporting Goods sits at more than $17bn. If we focus on Ulta Beauty for simplicity, that’s a market cap of R400bn, or more than 2½ times the size of Shoprite at about R150bn. Yes, a leading US beauty specialist is multiple times larger than the biggest private sector employer in South Africa. The US is a big place.
In specialist retail, having the right product mix on the shelf is beyond critical. When you have behemoths such as Amazon, Costco and Walmart to compete against, you have to bring something different to the mix to attract people to your store (whether online or in person).
Ulta Beauty guides that about 20%-30% of growth comes from “newness” — its term for fresh products in the range. This indicates how competitive the beauty market is, as new product launches are needed to win the attention of consumers. Making space for newness requires a commitment to ongoing stock-keeping unit rationalisation, so underperforming products simply cannot be kept.
A leading US beauty specialist is multiple times larger than the biggest private sector employer in South Africa. The US is a big place
The value of shelf space is also observable at Dick’s Sporting Goods, which has removed 30% of the styles on the shoe wall. That’s significant churn, freeing up working capital tied up in weak inventory. Retail is all about efficiencies.
The importance of maximising every dollar is heightened by Dick’s Sporting Goods’s acquisition of Foot Locker, a footwear and apparel retailer in need of a turnaround. First announced in May 2025 (when tariff risks were heating up), the deal caused a catastrophic drop in Dick’s Sporting Goods’s share price. Though it has recovered from the worst of the lows, it’s still trading about 10% below the pre-deal price.
Ulta Beauty also isn’t afraid to do acquisitions, choosing to enter the UK market rather than buy a broken retailer in the hope of rescuing it. Ulta Beauty’s acquisition of Space NK was only a £300m deal, much smaller than the $2.4bn Foot Locker deal at Dick’s Sporting Goods. This might explain why Ulta Beauty’s share price kept moving higher in 2025 despite the announcement, as it took a far more measured risk.
But the recent share performance tells a totally different story, with Ulta Beauty trading 25% off the 52-week high. The market is worried about the operating margin, along with the guidance for comparable store sales to grow between only 2.5% and 3.5% in 2026.
Over at Dick’s Sporting Goods, where the share price is 17% off the 52-week high, the group excluding Foot Locker is expected to achieve comparable store sales growth of 2%-4%. Foot Locker is expected to manage growth of only 1%-3% in 2026.
Recent volatility aside, Ulta Beauty is 50% higher over 12 months and Dick’s Sporting Goods is down 3%. There’s a clear winner here, with the market preferring the simpler of the two business stories. Both are trading at an earnings multiple of 20. Though Dick’s Sporting Goods is only six months into the turnaround of Foot Locker, this risk-off environment is likely to keep favouring the more organic story at Ulta Beauty.
But perhaps the bigger question is whether a saturation of the US market and this weaker consumer environment is going to force more US-based retailers to take a gamble and leave their lane. This generally doesn’t end well for investors, as far too many South African retailers have proved.
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