The Winners And Losers Of The Target And Ulta Partnership

Big news this week as beauty retailer and experiential leader Ulta partnered with Target to bring over 100 beauty shops into the big box retailer’s doors in 2021. The 1,000 square foot shops will feature a different selection of brands, prestige vs. mass, and Ulta will in turn train Target employees to be experts in prestige beauty selling. Ulta brings an enhanced shop-in-shop experience, not only in-store but even on the target website and mobile app, where there will be a separate section for Ulta products.

“This matchup brings Ulta Beauty’s coveted prestige beauty assortment, category expertise, and guest loyalty together with Target’s high-growth beauty business and the ease and convenience of our industry-leading fulfillment services,” said Target CEO Brian Cornell.

This is a massive partnership that will very much disrupt the beauty industry and their shopper’s habits. Beauty is a key trip driver and competition has been fierce. Seemingly everyone is investing more deeply in beauty from grocery stores like H-E-B and Meijer, drugstores like CVS, and of course department stores like Macy’s and Neiman Marcus.

So who wins and who loses here with the big Target and Ulta partnership?

The Champion - Ulta!

Ulta is the biggest winner here. They get access to a mass market shopper, can build their brand at key locations without the full cost of standing up a store, all while Sephora withers in its JC Penney strategy. Shoppers exposed to Ulta mini-shops will be exposed to new brands and venture on to want the full Ulta experience. Because Target’s focus has been mass beauty, shopper expectations will be low. Ulta will dominate attention and build its brand in a new audience, even stealing share from mass brand spend.

The Winners - Target And Mass Beauty Shoppers

Target will likely do well too. By offering a premium experience, Target may retain more shoppers, driving additional trips that are likely to result in other purchase throughout the store. However, while beauty is a higher margin category, spreading it around between Target, Ulta and the brands may prove difficult. Purchases may be redirected from Target’s owned beauty experiences, and they may lose some traffic to local, full-fledged Ultas. It maybe a mixed blessing.

These risks may be outweighed by Target being able to offer more premium products online for same day delivery, a convenience prestige beauty shoppers lack until now. So of course, the final winner is the Target shopper getting fast access to new categories of beauty products with more convenient options at a discount to other premium outlets.

The Losers - Department Stores, Malls, Mass Beauty Brands, Sephora and MAC

With beauty a key battleground category, the competition will be at a loss - most notably mid-market and discount departments stores like Macy’s and Nordstrom. Global Data’s Neil Saunders said, "department stores and drug store chains — which have been losing [customers] for years — should think carefully about their response to this latest development." That’s putting it lightly. Big box retailers have taken more share from department stores than Amazon have, and beauty was one of the more resilient categories… until now. This also means less mall traffic, when malls need it most.

The highly respected Neil Saunders also thought that Sephora had a strong enough brand to withstand the brand expansion of Ulta. He may be right, but 100 stores is nothing to sneeze at compared to Sephora’s 400 stores in the US and MAC’s 150+. Ulta is a customer loyalty innovator, and while Target will work to encapsulate this experience in their own loyalty programs, the brand exposure will definitely bleed into Ulta trips for the full experience, where they may get hooked. This of course depends on the quality of the execution by Target, but aspirationally prestige beauty shoppers now have their gateway drug.

Meanwhile Mass Beauty brands like Coty and Johnson&Johnson are also losers here. A premium offering is encroaching on their home court advantage and may sway shoppers at a time when brand loyalty is at an all time low. Whether premium products can cause significant shifts with value-driven shoppers at Target is yet to be seen, but the bet here is that they can.

The Spectators - Grocery, High End Brands

Grocery stores investing deeply into beauty renovations and upgraded experiences surely took notice as well. While grocery stores may lose some traffic to Target for beauty sales, which may cannibalize some trips, it should be small given how low Target’s share of grocery may be. Target has just 3% share of the grocery market compared to Walmart’s 26%, even as Target is investing more deeply to compete.

And of course, prestige beauty brands may see some market share gain, but also risk their brand equity being diluted by being featured at Target to a value-driven shopper. Adjacency and environment matters. The store designs and sales associate training may mitigate this, but corporate DNA is very strong. To quote a political and beauty reference, this may be putting lipstick on a pig.

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