Ulta Beauty, Target Ending Shop-in-shop Partnership by 2026
After months of speculation, Ulta Beauty and Target Corp. are breaking up.
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The two publicly listed companies said they have mutually agreed not to renew the Ulta Beauty at Target shop-in-shop partnership when the current agreement concludes in August 2026. Until then, the Ulta Beauty at Target experience will continue in Target stores and on target.com.
The shop-in-shop debuted in 2021 to much fanfare, but it has struggled in recent years with intense competition from Sephora's partnership with Kohl's and more recently Amazon's push into prestige beauty.
In its most recent earnings call, Kohl's said it will continue to invest in Sephora, a key growth category for the retailer, opening 105 Sephora small format shops in the spring, which completes the full chain rollout of Sephora at Kohl's.
'Sephora has been a huge success for Kohl's, and in just four years, we successfully launched over 1,100 Sephora at Kohl's shops and built nearly a $2 billion beauty business. In Q1, Sephora delivered another quarter of positive sales, with net sales up 6 percent and comparable sales up 1 percent,' said Jill Timm, Kohl's chief financial officer, in a May earnings call.
While Kecia Steelman, Ulta Beauty's chief executive officer and president, has been less vocal regarding the competition, her predecessor Dave Kimbell had described it as fierce.
'There have been more than a thousand new points of distribution in prestige…so the competitive environment continues to intensify,' Kimbell said last year. 'I've been with this company for 10 years. I've seen a lot of different versions of competition and it's always been competitive. But there's certainly some dynamics going on right now that are somewhat unique.'
The Ulta shop had expanded to 610 Target stores, each occupying approximately 1,000 square feet. Ulta and Target were planning on around 800, but earlier this year they hit pause and ultimately decided to end the partnership.
'Our partnership with Target was one of many unique ways we have brought the power of beauty to guests nationwide,' said Amiee Bayer-Thomas, chief retail officer at Ulta Beauty. 'As we continue to execute our Ulta Beauty Unleashed plans, we're confident our wide-ranging assortment, expert services and inspiring in-store experiences will reinforce our leadership in beauty and define the next chapter of our brand.'
'We're proud of our shared success with Ulta Beauty and the experience we've delivered together,' added Rick Gomez, executive vice president and chief commercial officer of Target. 'We look forward to what's ahead and remain committed to offering the beauty experience consumers have come to expect from Target — one centered on an exciting mix of beauty brands with continuous newness, all at an unbeatable value.'
Ashley Helgans, an analyst at Jefferies, said while not a major financial driver for Ulta, the collaboration helped margins and brand reach.
She believes Ulta will refocus on broader brand strategy, including digital and international initiatives.
Indeed, Ulta will be launching an online marketplace later this year, after acquiring British beauty retailer Space NK. It is also bringing Ulta to Mexico and the Middle East later this year.
As for Target, it's been a trying time for the retailer, which has seen its stock drop by more than 24 percent over the last five years and is due for leadership change.
Brian Cornell, who has led the retailer as CEO for 11 years, committed in September 2022 to stay at the helm for 'approximately three more years,' putting him on track to leave soon.
CEO switch overs all spur change and can bring their own complications, especially for a business as large as Target.
During his tenure, Cornell has been busy, ramping up same-day delivery at Target and linking up with big names through the Ulta push and other brand hook ups, like the one that brought Levi's famed 501 jeans to its stores.
He also navigated the chain through the pandemic, but has been caught up in some culture war disputes — from the Pride Month apparel that was pulled after some pushback to the decision to pivot away from diversity, equity and inclusion initiatives in favor of a 'belonging' strategy.
Along the way, the business wavered and the much larger Amazon and Walmart gained ground. Target's comparable sales shrank by 3.7 percent in 2023 and bounced back only somewhat last year with a 0.1 percent gain before falling again in the first quarter.
Beauty has been a relative bright spot, with the category's total sales rising 5.1 percent to $13.2 billion last year.
In March, Gomez told investors that Target's beauty business had nearly doubled since 2019.
'Amazing in-store presentation and a great digital experience, our partnership with Ulta Beauty and our assortment that includes some of the leading brands in the industry have combined to make Target an undisputed beauty destination,' Gomez said.
'We are not resting on our laurels. That's why we just announced the addition of 2,000 new products to our assortment, 90 percent of which will be priced under $20. That includes an expansion in our offering in brands like EOS, Knicks, Native, Elodea, Camille Rose, and the addition of nearly 50 new brands like Bubble and Days, plus more newness within Ulta Beauty at Target to further cement Target status as a go-to for all things beauty.'
The Ulta-shaped hole in Target's beauty department now has the retailer shaking up another part of its business in a world that's already moving faster by the day — from the latest tariff news to fresh worries over consumer economics.
Jefferies' Helgans predicted that Target's focus on beauty could make it a big rival to Ulta.
'Many of the brands featured within the shop and shop are sold on Amazon, and Ulta has noted brands with increasing points of distribution. We see the possibility of Target becoming a greater competitor to Ulta as they continue to build out and improve their own beauty assortment, and currently have a 74 percent store overlap. We believe that Target has been able to leverage its learnings from the Ulta partnership to enhance its beauty offering across its fleet, not just stores with Ulta.'
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