Target to open mini Ulta Beauty shops within stores

In the latest remake of its beauty section, Target will open Ulta Beauty shops within its stores, bringing the cosmetics chain to more than 100 Target locations in the second half of next year.

The plan is to then expand to hundreds of more Target locations — and analysts said the move should strengthen both brands.

Ulta will offer the makeup, skin-care and hair products typically found within Ulta's large stores in a condensed, 1,000-square-foot "shop-in-shop" next to Target's existing beauty section.

The Ulta sections will be staffed by Ulta-trained Target beauty experts to consult with customers on products. They also will feature digital tools such as Ulta's "GLAMLab," which allows customers to experiment with different beauty products without physically trying them on.

"It's been a high-growth category for us for a number of years," said Target CEO Brian Cornell in an interview. "We are now doubling down on beauty and look at this as a way for us to accelerate our mutual growth in the category, drive incremental market share gains for both of our brands and continue to delight millions of guests across the country each and every week."

Wall Street reacted positively, with Ulta's shares increasing more than 7% Tuesday to close at $265.49 and Target's shares closing at $158.07, up 2% for the day.

The partnership will benefit each retailer in different ways, said Neil Saunders, managing director of GlobalData Retail.

"Over the past couple of years, Target's beauty business has been growing at a rapid clip thanks to store refurbishments and the addition of many new and innovative brands," Saunders said. "However, Target is still not perceived by many consumers as a specialist player in beauty and, as such, it has missed out on growth within the more premium part of the market."

The Ulta partnership should allow for the beauty business to grow in line with more successful Target departments.

The benefit for Ulta is increased exposure, he said.

That exposure was a driving force behind the partnership, said Mary Dillon, chief executive of Ulta Beauty.

"It's a very clear opportunity for us in that we'll have hundreds of new points of distribution, ways to reach new guests whether it's in stores or online," Dillon said. "The Target guest is pretty similar to the Ulta guest in many ways. They just go there a lot more often."

The partnership will likely help bolster Ulta's sales, which have suffered this year after it was forced to temporarily close its stores at the start of the pandemic.

By late July, all its stores had reopened. In its second fiscal quarter, however, comparable sales decreased more than 26% compared with an increase of more than 6% during the same time period last year.

Ulta has more than 1,200 stores across the country, and the Target partnership will not affect Ulta's real estate strategy for its stand-alone stores, according to an Ulta spokeswoman. The beauty chain announced earlier that it would permanently close 19 stores and is expected to open about 30 other new stores this year.

Ulta plans to open at least as many new stores next year.

Target in 2018 gave its beauty sections a top-to-bottom makeover with displays and customer service more like stand-alone beauty specialty stores. Target also added more new up-and-coming brands and gave specialized training to employees to offer more hands-on service and offer a product sampling program.

This is the first time Ulta has teamed up with another retailer, but Sephora has a similar deal with J.C. Penney department stores. Target also has experience partnering with other retailers. This holiday season, for example, it has a deal with FAO Schwarz for toys.

"Putting together two very focused and successful retailers is a threat to other beauty players," Saunders said. "Specialists like Sephora will be able to hold their own because of the strength of their brands and the underlying loyalty of their shoppers. However, department stores and drugstore chains — which have been losing customers for years — should think carefully about their response to this latest development."

The partnership could draw increased traffic and set the stage for an expanded relationship down the line, said Charlie O'Shea, a retail analyst for Moody's.

"Beauty is an important category for Target, and this tie-up with Ulta will enhance its product line in many ways, including broader assortment and higher-end merchandise," O'Shea said.

Even during the pandemic, Target's beauty sales have continued to grow. In Target's second fiscal quarter, the retailer reported a 20% growth in sales in beauty products.

Cornell said Target will continue to invest in physical stores and experiential shopping options as physical stores still matter and drive sales even while Target and other retailers have seen an explosion in digital sales.

"Stores still matter," Cornell said. "Guests are looking for a great in-store experience."

Nicole Norfleet • 612-673-4495

Twitter: @nicolenorfleet