Ulta Beauty closes deal to open hundreds of stores in Target stores

Target and Ulta Beauty on Tuesday announced an agreement to open makeup and skin care stores in hundreds of Target stores across the country.

Target CEO Brian Cornell said that starting in the second half of next year, shoppers will find a smaller version of an Ulta store in more than 100 Target stores and on its website.

Each shop-in-shop will be approximately 1,000 square feet with more than 40 beauty brands and a rotating assortment of products ranging from hair care and perfumes to lip gloss. Customers can shop in person or use Target’s same-day services, such as curbside pickup or door-to-door delivery by Shipt, to get their beauty purchases online.

Ulta will train Target employees as beauty consultants.

Ulta shares rose about 8% in pre-market trading on Tuesday, and Target shares rose about 1%, after the companies broke the news.

Cornell and Ulta CEO Mary Dillon told CNBC they see the strategic partnership as a long-term deal that will grab customer attention and increase sales. They declined to share the length or financial terms of the deal, but said they would expand Ulta Beauty at Target to hundreds of more stores over time.

As the coronavirus pandemic shakes the retail industry and buying behaviors, Dillon said retailers are “embracing a period of change to innovate and lead.”

With the deal, Target will gain a unique traffic engine in a fast-growing merchandise category, while Ulta will gain visibility on store shelves and on a website that has expanded its reach during the pandemic.

Both companies will gain a wider audience. Together, they have more than 100 million active loyalty program members through Target Circle and Ultamate Rewards – of which more than 33 million are from Ulta.

Target was able to keep its nearly 1,900 stores open throughout the global health crisis as an essential retailer, selling everything from groceries to pillows.

The retailer’s profits jumped about 80% in the second quarter compared to the same period a year earlier. Its curbside pick-up service, Drive Up, increased by more than 700% in the three-month period. And the company said it attracted 10 million new digital customers and gained $ 5 billion in market share in the first half of the year.

While many competitors struggled, Target had strength, even in the discretionary categories. Its sales of beauty products increased by more than 20% in the second quarter.

Ulta, on the other hand, has been hit hard by store closings. Same-store sales for the beauty retailer fell 26.7% in the second quarter year over year, but gradually improved. Comparable sales, which are made up of sales in stores that have been open for at least 14 months and its e-commerce sales, fell 37% in early May, but recovered slightly and fell 10% in July when most of its 1,264 stores have been reopened. .

Sales of beauty products have been tough across the industry during the pandemic. Americans have fewer social outings and work remotely instead of dressing up for the office. About 70% of consumers have reduced their use of makeup this year, according to the NPD Group.

However, some categories like skin care and hand soaps have grown in popularity, with buyers focusing on relaxation and personal care, the company found. Sales of hair products, for example, increased 11% in the third quarter, as customers purchased hair masks and hair dye.

“We see two stories unfolding for beauty – one of stagnation and the other of recovery,” Larissa Jensen, beauty industry advisor at NPD Group, said in a report.

At Ulta, Dillon said sales reflected “a desire to take better care of us at home,” as customers purchase items like face masks and DIY nail supplies or hair care.

Cornell said Target’s deal with Ulta “will build on the momentum we have in the category and the investments we’ve made for years in beauty.”

“It’s a very important category,” he said. “We continue to believe this will be a high growth category.”

The partnership between Target and Ulta is not the first of its kind. JC Penney and Sephora struck a similar deal in 2009 to add a makeup and beauty store concept to department stores. However, the struggling department store lost market share as Target gained it. Penney filed for bankruptcy protection in May.

At Ulta Beauty at Target, Dillon said customers will find an “organized assortment of established and emerging premium beauty brands.” Buyers will also see a pandemic-inspired addition: a virtual tool from Ulta called GlamLab that allows customers to safely try on makeup digitally, instead of sharing lipstick and shadow palette samples to eyelids with others.

Cornell and Dillon said the companies are working together to identify which stores will get the stores first and that their beauty dealers will help choose the brands and products featured.

“It will be spectacular,” Dillon said. “The target guests won’t miss it. They’ll see that something new is happening, and I think they’ll want to jump in and participate.”