Target (TGT) is stepping up its head-to-head competition with beauty retailers, saying this week that it had added 40 new beauty brands, including items that are "clean" or are plant-based.
The move arrives six months after Target partnered with Ulta (ULTA) on store-within-a-store locations at some Target locations in a much-hyped deal.
But that partnership has not stopped the chain from developing its own Ulta-like line of beauty products — and perhaps gaining insight into what sells for their competitor, given that the workers at those Ulta pop-ups are Target employees using Target technology to ring up and track sales trends.
Target Aims For More Diverse Customers
Diversity also appears to be one of the next moves in the Target playbook.
The company has come under withering criticism in recent years for its practice of allowing some of its stores to lock up hair products or cosmetics traditionally used by Black people or people of color.
Target did not respond to a request for comment on whether that particular practice will continue.
Now, however, Target has added 20 Black-owned or Black-founded beauty brands in an effort to increase the number of cosmetics or skincare products that appeal to consumers, similar to competitors Sephora and Ulta.
Since 2020, Target said it increased its Black-owned and -founded assortment by 65% and previously said it would spend $2 billion with Black-owned businesses by 2025 and increase the number of Black-owned brands.
Beauty Competition Heats Up
The competition is heating up among retailers selling skincare products and cosmetics. Sephora now has a partnership with Kohl's, which is also located in shopping centers, while Target has chosen Ulta.
Target has been increasing its cosmetics and skincare offerings for several years as consumers gravitate toward products that include fewer chemicals and are plant-based instead.
Sephora planned to open more standalone stores in 2020 until the global pandemic put a stop to their plans. For 2021 the company told Retail Dive it sought to open 60 to 70 individual stores.
"The question is: How many of the Kohl's shoppers who didn't have access to beauty inside of Kohl's walked four doors down to the Ulta store in the same strip-center, parked in the same parking lot?" Wissink said.
"How many of the Target customers shopped at that Ulta store? So some of that analytics work is still being done and we don't know yet what the fallout is going to be."
Can Target Take On Ulta?
Analysts said that Target sought the partnership with Ulta because its stores already offer hundreds of products.
"Target didn't do the deal with Ulta out of desperation, their beauty business is actually quite strong, it still is quite strong," said Steph Wissink, a managing director at Jefferies, according to an article in Retail Dive. "Target was establishing itself as a real desirable location to shop mass beauty."
In the past, Ulta often sought retail locations where the other businesses had either a Target, T.J. Maxx or Kohl's because of the additional shoppers that could walk over looking for products and because of the lack of cosmetics in those stores, Wissink said.
But shoppers have largely shifted to buying cosmetics and hair care products from retailers at shopping centers and spending less time in malls. Retailers have noticed the change.
Can Multiple Brands Win This War?
While a clear winner could take years to emerge, most brands involved in this type of expansion will benefit immediately because of the increased exposure to more shoppers and the potential for more sales.
"Well, who wins are the brands because the brands now just gained all this incremental distribution — and they get to sit back and watch the battle," Lauren Bitar, head of insights at RetailNext, told Retail Dive.
Target has also expanded the cosmetics and skincare department in its stores and also revamped its design to mirror the look and feel of competitors, like Sephora and Ulta. But that may not be enough to lure brand-loyal shoppers.
"They're not going to have their full assortment in those spaces, their footprints are smaller than their full-line store," said Larissa Jensen, vice president and beauty industry adviser at the NPD Group.
"The other thing is Ulta has hair salons in their stores. You're not going to necessarily get that in Target obviously. So the full store experience versus the store-within-store, I think, are different enough."
Competition By The Numbers
For now, Target looks set to have the deepest war chest for a beauty battle, with a market capitalization of $102.55 billion as of the close of trade on Monday.
That number includes its entire inventory and assets, however, and is not broken down into the retailer's beauty offerings.
After that, Ulta Beauty has a market cap of $19.79 billion, which LVMH, which owns Sephora, has a $410 billion market cap. That includes luxury brands like Moët, Hennessy and Louis Vuitton, giving it insight into how luxury shoppers buy.
