Thursday, 26 Nov 2020

Target and Ulta Beauty Team Up

Ulta Beauty and Target are joining forces in a bid to jolt the prestige beauty business.

The retailers revealed they have created a strategic partnership to open 100 Ulta Beauty shops-in-shop in Target and on target.com in the second half of 2021.

Called Ulta Beauty at Target, the concept will feature established and emerging prestige brands in the makeup, skin-care, hair-care and fragrance categories. The in-store shops will measure about 1,000 square feet and be located next to Target’s beauty departments.

“Beauty is a category where we’ve invested heavily and grown fast,” said Brian Cornell, chief executive officer of Target, who was speaking via conference call with Ulta Beauty ceo Mary Dillon. “As we thought about what’s next, one retail peer came to mind. By bringing these two brands together, we will redefine the retail experience.”

“This is about two retailers embracing a time of change to lead and innovate,” said Dillon. “Both of our retail brands are coming from a position of strength, and we’re excited to come together to shape the future of beauty.”

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Dillon described the shop-in-shop concept as an “innovative extension” of Ulta, whose stores usually measure about 10,000 square feet. While she was not ready to disclose brands that will be part of the lineup, she said the plan is for a “curated assortment of established, indie and emerging brands.” There will also be consultation areas, to be staffed by Ulta-trained Target employees, as well as digital tools like Ulta’s proprietary GlamLab virtual try-on tool.

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Noting that nine out of 10 beauty enthusiasts were excited about the concept during focus groups, Dillon said the point of the deal isn’t necessarily to gain access to new shoppers but to gain a larger share of the overall beauty wallet.

“Our guests are very similar,” she said, of the Target and Ulta shopper. “This is more about new shopping occasions that we can capture. Beauty in our home format is a deep immersive experience. They learn, discover, shop and maybe spend time on services.

“Guests need to shop for other needs and there is a convenience need,” she continued. “This allows us to capture more share of wallet and drive more business to prestige beauty.”

“It’s highly incremental for both businesses,” agreed Cornell. “It’s an opportunity for the 30 million people who shop in our stores every week and the same number who shop online, to experience and engage with Ulta Beauty.”

Dillon said the partnership doesn’t change her previously stated goal of having 1,500 to 1,700 full-line Ulta stores in the U.S. There are about 1,200.

Historically, prestige beauty brands have been loath to expand into mass market retailers. CVS tried with Beauty 360, Walgreens/Duane Reade had the Look Boutique, and Amazon, too, has introduced numerous initiatives, but is yet to convince some of the sector’s biggest brands to come on board.

More successful was Sephora’s partnership with J.C. Penney, which it entered into in 2006. At its height, there were more than 550 Sephoras inside Penney’s locations; but the beleaguered lower-tier department store was struggling even before the pandemic and has been mired in bankruptcy proceedings since mid-May.

But timing is everything, and the Ulta-Target partnership comes at a critical time for a category that’s been hard hit by the coronavirus pandemic.

According to the most recent data from The NPD Group, third-quarter prestige beauty sales fell 17 percent to $3.7 billion. Although the decline was smaller than the quarter before, it still points to troubled times: Color cosmetics, the largest category in the market, fell 31 percent to $1.4 billion in sales and skin care fell 11 percent despite being one of the largest-selling categories of the quarter.

Ulta has felt that pinch, too. For the quarter ended Aug. 1, net sales fell 26.3 percent to $1.2 billion, down from $1.7 billion the year prior.

Target has fared better, though. In August, it reported one of its strongest quarters ever, with comp-store sales increasing 24.3 percent and profits surging 81 percent year-over year. The performance was helped by the retailer being labeled “essential” and thus able to keep its stores open throughout the pandemic.

Cornell and Dillon posited that meeting consumers on their own turf is the key to future growth. “We understand what it takes to be successful in prestige beauty,” said Dillon. “Understanding how to think about the brands and the experience they provide and to celebrate their stories — we can do that really well. We have proved to prestige we know how to do this.”

Target, too, has been upscaling its offer, opening a Disney shop-in-shop in select markets last year, for example, and adding Levi’s Red Tab to its clothing lineup. “Over the last five years, we’ve made great advancements in our in-store experience in new and remodeled stores, and invested in service and our teams,” said Cornell. “We have new brand partners who want to take advantage of the enhancements we’ve made in our stores and online,” he added, referencing the retailer’s same-day fulfillment capabilities and seamless integration between online and off-line sales.

Neither ceo would quantify anticipated sales of Ulta at Target, but Dillon noted, “The companies in retail that will win are constantly innovating and driving growth, but doing so through a consumer lenses.…We see this as a long-term growth opportunity for both Ulta and Target, one that will drive discovery and growth in prestige beauty.”

“We feel good about this,” said Cornell. “But beyond the numbers, we share common values. Both of our organizations are consumer-focused, we value our teams, we are active in our communities. It’s a great long-term win for both companies.”

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