As US retailers try to get more for their money in order to limit the number of physical locations and the area per store, beauty retailer Ulta is pursuing a rational expansion through the concept of "shops-in-shops" in an alliance with Target.
"Now, more than ever, is the time to innovate in retail," said Mary Dillon, CEO of Ulta, in a statement, adding that the partnership "reflects the further evolution of our omnichannel strategy." The idea is based on "realizing the potential of our physical and digital footprints, creating more seamless shopping opportunities for our loyal guests, and continuing to lead the beauty industry."
Under the motto Ulta Beauty at Target, the two partners will present the concept in 100 value-oriented retail stores in the second half of 2021. Hundreds more are set to open in the coming years, according to the two companies.
"Our guests have told us that they want to find prestige and exclusive beauty brands with all the benefits of shopping at Target," a Target spokesman told Adweek, explaining some of the reasons for doing business. “Ulta recently found almost nine out of ten beauty enthusiasts who shop at Target and Ulta Beauty. You are excited about the concept of Ulta Beauty at Target. We can't wait to deliver! "
But when Ulta enters this new expansion mode, rival Sephora takes an opposite approach. The cosmetics retailer announced plans to open 100 of its own stores ahead of the pandemic. Sephora's own business within a business has partnered with JCPenney which is currently emerging from bankruptcy. That agreement was stalled in 2006 with a temporary legal battle over reopening their stores within the JCPenney locations, although the disagreement ultimately persisted.
If the competitors sort themselves out, it could be an opportunity for Ulta to gain market share by adopting a more sophisticated strategy for physical deals.
"I think this is a win / win situation and I don't know why more retailers are out of stores," said Sucharita Kodali, a retail analyst with research firm Forrester. "It's a great way for the bigger business to get more inventory at a low cost and for the smaller business to get sales without investing in real estate."
The partnership gives Ulta access to a large new audience: only 21% of target customers also buy from Ulta, according to the equity research division at Cowen and Company. This includes commitment to the 75 million members of the department store chain's loyalty program.
In the meantime, Target will offer customers more convenience through the partnership. About 85% of Ulta buyers – including 35 million loyalty members – are already target customers.
"We believe this partnership will enable Ulta to be more involved and in the best possible position by 2020 as it will be present alongside major staple categories in 'America's Easiest Place to Shop," said Cowen's research team, led by the Retail analyst Oliver Chen.
The announcement comes at a time convenient for Ulta as Target is a major retailer offering same day fulfillment services such as drive-up, order pickup, and same day delivery, not to mention free shipping on qualifying orders.
As for the specifics of the store itself, Ulta Beauty at Target will be 1,000 square feet of space. The Ulta shops will be placed prominently next to the existing beauty areas within the Target locations. The Ulta stores will be manned by Target employees, although those employees are trained by the beauty supplier. The shop-in-shop will also contain the digital functions of Ulta, such as the virtual try-on tool GLAMlab.