Starting in August, Target customers will be able to walk into select big-box stores and buy premium brands of mascara, lipstick and hairspray that they typically only find at specialty stores or at the mall.
Ulta Beauty said Wednesday that it will open its first beauty shops inside of Target next month. The mini shops will feature an assortment of merchandise from more than 50 prestige brands for makeup, skin care and hair, including Clinique, Urban Decay, Tarte, MAC Cosmetics, Drybar, Jack Black and Ariana Grande.
Target will also sell the curated mix of products on its website.
The retailers said they will open more than 100 shops by the end of the year, with plans to grow to a total of 800 shops over the next few years. That means more than a third of Target stores across the country could eventually include a mini Ulta shop. Each shop will be about 1,000 square feet — roughly one-tenth the size of a typical Ulta store.
By putting a scaled-down, brightly colored beauty shop inside of Target, both retailers hope to attract new shoppers, deepen customer loyalty and encourage store trips.
Target must prove it can keep growing – even after gaining billions of dollars of market share during the pandemic – as it goes up against challenging year-over-year comparisons. Ulta Beauty, on the other hand, wants to introduce itself to a new customer base and seize upon the return of socializing, traveling and working at the office as more people trade face masks for lip gloss.
Target’s comparable sales, a key metric that tracks sales at stores open at least 13 months and online, rose 19.3% in the fiscal year that ended Jan. 30 compared with the year prior. Ulta’s comparable sales fell 17.9% in the fiscal year ended Jan. 30 compared with a year earlier.
Target’s shares are up 44% so far this year and touched an all-time high on Tuesday. Ulta is up 16% this year.
Target chief growth officer Christina Hennington said in an interview that she’s confident both companies will benefit and gain market share in beauty by opening the shops. She said the big-box retailer has a track record with other “shop in shops” inside of its stores, including one for Levi’s and Disney.
“We fully believe this will be incremental and in fact will drive traffic to both Target as well as drive traffic to Ulta as they introduce more guests to their brands and their experience,” she said.
Target announced the deal with Ulta in November, but has declined to share terms of the deal. On Wednesday, the retailers shared the list of featured brands, initial locations and fresh renderings, which show backlit makeup displays and prominent orange and pink signs.
At each shop, Target employees will be specially trained by Ulta to recommend beauty products. Customers can also try on makeup products with testers — a feature that may be temporarily shelved, depending on the status of the pandemic.
Ulta Beauty chief operating officer Kecia Steelman said the mini shops will have special displays and seasonal offerings, such as lotions or skincare products in the winter.
Yet they’re not the only retailers betting on beauty. Target’s rival, Kohl’s, struck a partnership with Sephora to open at least 850 shops in its stores by 2023. Target and Kohl’s are also trying to steal share from department stores’ beauty counters, makeup boutiques and direct-to-consumer brands. They often go head-to-head in other categories at suburban strip malls.
Jefferies retail analyst Stephanie Wissink said Ulta Beauty at Target is designed as “an appetizer-sized experience for Target shoppers” that’s intended to inspire a craving for the full Ulta experience.
However, she said working together will be “a delicate balancing act.” Instead of leasing space like Sephora at Kohl’s, Target has essentially paid Ulta for royalties. It is building the shops, staffing them and leaning on the beauty retailer’s relationships with prestige brands.
For the deal to work, she said three different parties must feel they have won: Target must use the elevated merchandise to drive sales in its beauty department and beyond; Ulta must woo customers who shop at Target’s mini store to its much larger stores; and prestige brands must feel like they are getting discovered by new shoppers who become loyal fans.
She said those relationships could be put in jeopardy if one seems like the clear winner. For instance, she said many Target shoppers could never go to Ulta’s stores or its website — or they could discover a beauty product they love and start buying it directly from that brand.
She said the replenishment purchases and where they happen will determine the partnership’s success.
“The three can jointly win — but I don’t think it’s going to be equal,” she said. “There are natural points of tension that are going to emerge and the consumer is ultimately going to dictate who wins.”
Source: Business - cnbc.com
