Target and Ulta Beauty are parting ways.
The discount department store giant and the largest U.S. specialty beauty retailer on Thursday said they are not renewing a partnership they struck in 2020 during the pandemic. Under that agreement, Ulta began rolling out shops, at 1,000 square feet, within Target stores in 2021. Ulta has those shop-in-shops at about 600 Target stores now.
Both Minneapolis-based Target and Ulta, headquartered in Bolingbrook, Illinois, said they mutually agreed to end their affiliation when the current agreement expires in August 2026. Until then, the Ulta shops at Target will continue to operate and the beauty retailer’s merchandise will be available at Target.com.
“For 35 years, Ulta Beauty has revolutionized how people experience beauty — bringing together an unmatched assortment from mass to luxury — and our partnership with Target was one of many unique ways we have brought the power of beauty to guests nationwide,” Amiee Bayer-Thomas, Ulta chief retail officer, said in a statement.
The news comes as embattled Target is trying to boost its lagging sales and has faced controversy and consumer boycotts over its sale of gay pride merchandise and its corporate diversity, equity and inclusion policies.
“Perhaps neither chain needs each other as much as it once did,” Neil Saunders, a retail analyst and managing director at analytics firm GlobalData, posted on LinkedIn. “Target can do creative things in beauty itself, and Ulta can continue to expand organically via its own stores. However, this will be widely viewed as yet another stumble in Target’s recent run of setbacks.”
Target and Ulta pulling the plug on their relationship isn’t the first time such a partnership has been scuttled, but under different circumstances. Sephora, an Ulta rival owned by luxury conglomerate LVMH Moët Hennessy Louis Vuitton, since 2006 had shop-in-shops in hundreds of J.C. Penney stores. But then Sephora struck another deal to put its shops in Kohl’s stores instead, letting its affiliation with J.C. Penney wind down and expire in 2022. J.C. Penney had filed for Chapter 11 during the pandemic, in 2020.
Store-in-store craze
In recent times, there’s been a flurry of arrangements where a retailer has placed outposts within the stores of other chains. For example, Target still has Disney stores within its walls, and eyewear retailer Warby Parker is also opening up shops at the discounter. Sephora launched shops throughout Kohl’s store fleet. Babies R Us is also putting shop-in-shops into Kohl’s locations. And department store icon Macy’s has Toys R Us shops.
For a company such as Ulta or Sephora, coming into a Target or Kohl’s allows it to expand its footprint and reach a broader group of shoppers. Target has nearly 2,000 stores while Ulta has about 1,500. For Target and Kohl’s, store-in-store partnerships can create foot traffic and bring in new types of customers looking for cosmetics, in some cases luxury brands. On earnings calls, Kohl’s executives have credited Sephora with drawing in younger shoppers, who would then often buy goods beyond cosmetics.
On paper, the Ulta-Target “collaboration had all the ingredients for success — and, in its early days, our data shows it did help Target gain sales and market share in beauty, particularly in the prestige segment,” Saunders said in his post. “However, execution has fallen flat. The Ulta areas in Target have become increasingly messy, they suffer from inadequate staffing, and are often cordoned off from the rest of the store by retractable belt barriers. Persistent low-stock levels have further diminished the experience.”
It’s “also fair to say that the number of Target customers trading up in beauty has flatlined; a reflection of customer losses and economic pressures,” according to Saunders.
Target and Ulta didn’t respond to emails from CoStar News seeking comment on his remarks.
Foreshadowing in April
When Target and Ulta announced their agreement, they described it as a strategic long-term partnership “set to redefine beauty experiences.” The initial rollout in 2021 called for Ulta installations at more than 100 Target stores, near that chain’s own beauty departments, that year. The deal during COVID lockdowns gave Ulta a sales outlet because its stores were forced to close but Target could stay open as an “essential” retailer.
Sephora’s partnership with Kohl’s gives the beauty chain more of a spotlight than Ulta gets at Target, according to Rudy Milian, president and CEO of retail consultant Woodcliff Realty Advisors.
“The Sephora shop-in-shops are given prominent branded storefronts, which is quite valuable to Sephora,” Milian said in an email to CoStar News. “Ulta branding is not featured on the exterior of Target stores, and does not give Ulta the value that CVS, for example, receives for having their pharmacies inside Target stores or Sephora receives from Kohl’s. We will see what lessons Target has learned about shop-in-shops when it rolls out new Warby Parker shop-in-shops this year.”
In April, Ulta hinted that its affiliation with Target would not be long-lived. Ulta CEO Kecia Steelman said the company was pausing on debuting any additional Target locations.
“We’ve made the decision to really lean into the 600-plus stores that are open this next year and really look at how do we continue to drive efficiencies and leverage the learnings that we’ve had to really unlock value for both of us collectively together,” Steelman said in a report by trade publication Retail Dive.
Target is set to report its second-quarter earnings next week. It has been hit by tough competition from rivals such as Walmart and Amazon, and higher-income shoppers are even trading down to the dollar-store chains. In the first quarter, it posted net sales of $23.8 billion, 2.8% lower than last year. Comparable sales decreased 3.8%, reflecting a comparable-store sales decline of 5.7% and comparable digital sales growth of 4.7%.
As for the future of its cosmetics business, Target said it “will continue to curate a differentiated beauty assortment and new experience for its tens of millions of weekly shoppers, featuring a compelling lineup of essentials and unexpected finds, engaging product trial events, and a commitment to affordable prices.”