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Ulta Beauty Said to “Clean” Used Products to Resell Securities Class Action

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Ultra Beauty Sign on Brick Building

Would you buy used cosmetics or personal care products? Would you pay full price for them? The complaint for this securities class action alleges that Ulta Beauty, Inc. stores “cleaned up” returned products, resealed them, and put them back on the shelves, to be sold to customers as if they were new. The complaint says that the company’s failure to disclose this practice violates the Securities Exchange Act of 1934.

The class for this action is all persons who acquired Ulta securities between March 30, 2016 and February 23, 2018.

Ulta operates a chain of beauty stores that sell cosmetics, fragrance, skin and hair care products, and salon services.

The complaint quotes from a number of the company’s quarterly filings during the class period, claiming to train employees in a number of areas, including “guest service expectations,” saying, “Our learning management system allows us to provide ongoing training to all associates to continually enhance their product knowledge, technical skills and guest service expertise.” The statements in these sections give the impression of customer care as an important value.

Ulta’s website is even more explicit. As quoted in the complaint, it says, “Ulta Beauty’s policy does not permit the resale of used, damaged, or expired products. Our policies, training and procedures are aimed at ensuring that only the highest quality products are sold in our stores and online.” It also claims that sales staff are required to “catalogue and then properly dispose of any returned items that have been used, damaged or expired.”

But on February 9, 2018, news broke of a class action against Ulta that alleged that the company repacked and re-shelved returned items, so that they could be sold as new at full price. At this, the company’s stock fell by over 4%.

Even worse, on February 23, 2018, CBS News published a story claiming that a former Ulta Beauty employee felt pressured to resell returned items. It quoted her social media post as saying, “We were told by managers to repackage/reseal the item and put it back on the shelf” and that the store would “resell EVERYTHING” including makeup, hair care and skin care products, and hair tools. She also claimed that employees would clean a foundation stick with a Q-tip and then resell it.

Another employee said she saw others “cleaning” lip products and eye shadows. The article says she admits she did some of the restocking herself “because higher-level manager pressured the stores to keep the dollar amount for damaged or returned goods down.” After this, the company’s stock fell again, by almost 4%.

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