“More than ever before, now is the time for innovation in retail,” Mary Dillon, chief executive of Ulta Beauty, said in a statement. “This partnership is an amazing way to further reimagine guest experiences with a partner who shares our company values. We are thrilled to bring our beauty expertise, unparalleled assortment and digital innovation to life in a new channel.”
The announcement comes at a particularly challenging time for the industry. Though Target has outperformed in the pandemic landscape, many well-known brands have struggled. An October Salesforce survey found that 63 percent of consumers said the way they obtained goods and services “transformed” in 2020, with more shoppers turning to online shopping and prioritizing convenience. At least three dozen retailers and restaurant companies have entered bankruptcy this year as the pandemic “accelerated” the fall for many, according to CB Insights.
Neil Saunders, managing director of GlobalData Retail in New York, called the deal a “recipe for success” as it brings together two top-performing brands with footholds in different parts of the beauty market. While Target has been boosting beauty offerings, it hasn’t excelled in the premium market, which is Ulta’s core focus.
“The benefit for Ulta is increased exposure,” Saunders said in an email to The Washington Post. “Ulta is an incredibly successful retailer and before the pandemic was posting great growth. However, it has weaker penetration among younger shoppers and those that purchase beauty only occasionally. Target can deliver both of these audiences to Ulta.”
Many consumers have cut back on beauty purchases in the remote-everything landscape, as widespread unemployment led to tighter discretionary spending. Before the pandemic, in-store shopping accounted for about 85 percent of beauty product purchases, one McKinsey study from May found. The study projected that global beauty industry revenue would decline 20 to 30 percent this year amid shutdowns and business restrictions.
Ulta, which relies more on in-store traffic than online sales, was forced to shutter hundreds of stores in mid-March. The company said profit tumbled 95 percent, to a little more than $8 million, in the fiscal quarter ended Aug. 1, while sales fell 26.7 percent, to $1.2 billion. All stores were reopened by July.
Target has seen a windfall during the pandemic as shoppers flocked to its curbside and online services. Last quarter, the Minneapolis-based retailer’s online and in-store sales rose more than 24 percent, driving profits up 80 percent to more than $1.7 billion.
“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,” Moody’s vice president, Charlie O’Shea, said in comments emailed to The Post. “This is yet another meaningful example of the creativity the larger brick-and-mortar players are utilizing in their efforts to ensure increased store and website traffic.”
The deal mirrors Sephora’s arrangement with J.C. Penney, which has buoyed J.C. Penney’s business in a tough time but couldn’t keep the retailer from falling into bankruptcy amid cratering sales. Earlier this year, J.C. Penney filed a lawsuit against Sephora to keep the company from exiting its business agreement prematurely while stores were shuttered during the pandemic’s first wave. The case was settled after the companies agreed to “mutually beneficial revisions,” both said in a statement.