Target Ends Ulta Deal As Shop-In-Shops Face Strategy-Or-Stopgap Moment

Forbes

2 days ago

A Week That Changed The Shop-In-Shop Narrative
Three headlines in rapid succession this month have shifted the conversation around shop-in-shop strategy: the Target x Ulta split, Claire's bankruptcy, and the Best Buy × IKEA launch. Together, they mark a turning point for the model, away from blanket expansion and toward disciplined, results-driven partnerships. It also highlights that shop-in-shops are not a fix for underlying weaknesses but can work when the synergy is clear.The Rise Of Shop-In-Shops
Retailers have long used shop-in-shop partnerships to boost traffic and broaden assortments, but the format surged between 2020 and 2022. Target, Kohl's, Macy's and others have leaned into in-store boutiques from recognized brands, hoping to spark visits and incremental sales. Early results were promising. Hosting a popular brand often lifted traffic and softened slower periods, leading some analysts to call the format the next evolution of the department store.
By 2023, though, results were mixed. Partnerships drove growth in select categories but rarely fixed broader performance issues. Target and Kohl's, despite high-profile collaborations, still faced sluggish sales. The question became whether the trend had peaked.
The model wasn't new; Sephora's 2006 debut inside JCPenney proved a lifeline for its beauty business, but its post-pandemic revival was rapid. Kohl's struck deals with Amazon for returns and with Sephora for beauty. Target rolled out Disney and Apple shop-in-shops, plus Levi's in apparel. Lowe's piloted Petco sections. Macy's revived Toys 'R' Us via in-store toy shops.
Momentum was fueled by necessity. Retailers emerging from lockdowns needed fresh reasons to get shoppers back in-store. Partnerships offered new categories without having to build internal expertise, and investor reaction was often positive. Early data backed the excitement: Target credited in-store partners with 'pivotal' contributions to 2022 growth, noting that Disney shop locations saw higher traffic. Kohl's reported high-single-digit sales lifts in Sephora locations. These wins drove a rush to replicate the model, until uneven execution and shifting strategies started to reveal its limits. But as the initial excitement faded, retailers discovered that borrowed credibility has its limits.
Why Borrowed Brand Power Has A Shelf Life
Retailers from JCPenney, Kohl's, and Macy's to Target have leaned on shop-in-shops to boost traffic, with mixed outcomes. Macy's partnership with Toys 'R' Us brought attention to its toy aisles but hasn't halted share erosion. JCPenney's long-running Sephora alliance ultimately unraveled when Sephora shifted to Kohl's, showing how quickly credibility can move with the partner.
Sephora at Kohl's saw rapid early growth, generating strong consumer excitement and reaching $1.8 billion in annual sales in 2024. As the partnership expanded nationwide, sales momentum slowed, with comparable beauty sales in Kohl's stores growing just 13% year-over-year in Q4 2024 and net Sephora sales increasing only 6% in Q1 2025. This deceleration marks a shift from the explosive gains seen in the initial rollout to more moderate, mature growth as most stores now offer Sephora.
Even well-matched partnerships can stall. Target's recent breakup with Ulta is the latest reminder that shop-in-shops are no cure-all. Ulta continues to grow in its own channels, but the Target tie-up hit limits as store overlap capped expansion and inconsistent execution diluted the prestige experience.
Across these examples, one constant emerges: brand adjacency can open doors, but without operational discipline and sustained relevance, the initial lift fades.
When More Stores Can't Save A Failing Business Model
Claire's bankruptcy shows that a wide shop-in-shop footprint cannot offset deeper structural weaknesses. Despite a presence across Walmart, Kohl's, Macy's, and more, the accessories retailer was already overextended and struggling with slowing mall traffic, higher interest rates, and tariff pressures. Competition from faster-moving rivals like Lovisa added further pressure.
The additional floor space improved visibility but did not translate into long-term viability. By the time it filed for bankruptcy, its second in recent history, Claire's faced heavy debt, store closures that could reach 1,100 U.S. locations, and a fading brand proposition. Its trajectory illustrates how the shop-in-shop model can broaden reach but is ineffective without strong underlying brand health and a sustainable business model.
The Best Buy x IKEA Formula: When 1+1 Actually Equals 3
Some partnerships start with a clear, mutual value proposition, and Best Buy x IKEA is one of them. Best Buy's strength in appliances and smart home technology pairs naturally with IKEA's kitchen planning and design expertise, offering customers a more complete solution. The in-store format lets shoppers visualize and plan an entire kitchen, then seamlessly add appliances to their purchase.
The rollout is intentionally slow and regional, beginning in select markets to test integration and refine the customer experience before scaling. This phased approach allows the partners to fine-tune operations, from cross-trained staff to digital planning tools, and to ensure the merchandising feels seamless between brands.
Although it's too early to call the collaboration a success, it stands out for having a built-in rationale for cross-selling and a customer journey that feels cohesive from the outset, qualities many past shop-in-shop ventures have lacked.
The Target x Ulta Split: More Than A Target Story
It may be tempting to frame the Target x Ulta breakup this month as another casualty of Target's ongoing challenges, the signs were there months ago. Back in April, Ulta had already slowed its rollout within Target, citing uneven returns and operational friction in certain locations. For Ulta, international expansion and new market entries now promise higher growth potential. For Target, the exit clears space to double down on its own beauty strategy, much as it did when it replaced its Barnes & Noble shop-in-shops with its own in-house book department. The breakup isn't just about one retailer's performance, but underscores a key truth: the most resilient partnerships are those that evolve with market and brand strategies.
Why Walmart Chose to Build Rather Than Borrow
Target's pivot mirrors a move its largest competitor has already made. Walmart bypassed outside beauty partnerships entirely by launching its own 'Beauty Bar' concept, designed to elevate the category from within. The initiative reflects a broader strategy of owning customer experience end-to-end, controlling merchandising, branding, and margin without splitting the category spotlight. While shop-in-shops can create buzz and bring in new customers, Walmart's approach suggests that in-house development may offer more control, consistency, and long-term brand equity, particularly in categories with strong repeat purchase behavior.
The Executive's Guide to Partnership Due Diligence
For retail executives, the difference between shop-in-shops and shop-in-slops comes down to rigorous due diligence on several critical factors:
Shop-in-shops can deliver early traffic lifts, but incremental gains often taper off once the novelty wears off. Saturation of locations, especially in overlapping markets, can limit growth potential. Without regular refreshes, customer engagement can fade quickly.
Each partner brings its own growth goals, operational standards, and merchandising strategies. If these diverge over time, as with Ulta shifting focus to international markets while Target faced broader category challenges, the partnership's relevance can erode.
The performance of the host retailer heavily influences the outcome. Even if the shop-in-shop brand is thriving elsewhere, weak foot traffic, poor execution, or inconsistent service in the host environment can undermine results.
While attaching to a strong brand can temporarily boost credibility, it does not replace the need for a distinctive in-house value proposition. Relying too heavily on an external partner risks weakening the host's own brand equity.
Partnerships should be structured with clear off-ramps. Retailers that have successfully transitioned, like Target replacing Barnes & Noble with its own book department, use the experience and category insights gained to build internal capabilities.
Aligning supply chains, staff training, and merchandising processes is critical. Poor fit between partners can lead to inconsistent execution, harming both brands. Issues in the Kohl's x Amazon partnership have been heavily covered.
Shop-in-shops work best when the categories naturally complement each other, creating cross-selling opportunities (e.g., Best Buy × IKEA) rather than forcing unrelated adjacencies.
Partnerships increasingly need to extend beyond physical space. Integrating loyalty programs, digital try-ons, or unified customer data can drive deeper engagement and measurable ROI.
The Verdict: Strategy Or Stopgap?
The retail industry just witnessed a master class in strategic discipline. The Target x Ulta wind-down shows that even headline partnerships have a shelf life if they cannot adapt. Target announced its Warby Parker collaboration in February, months before publicly ending the Ulta partnership in August.
The new partnership will integrate digital booking and try-on tools into a physical retail setting, targeting markets underserved in optical. This collaboration will test whether Target has learned to architect partnerships for longevity rather than repeat the execution issues that plagued the Ulta relationship. Other retailers are taking different approaches entirely.
Walmart chose to build rather than buy credibility. Best Buy x IKEA, while promising on paper, remains in its pilot stage and is still a concept to watch rather than a proven win. Meanwhile, Claire's collapsed under the weight of partnerships that looked impressive on paper but couldn't fix fundamental flaws.
For retail executives, the message is unmistakable: The era of shop-in-shops as a quick fix is over. What remains are the hard choices that separate strategic partnerships from costly distractions.
The winners will be those who treat these ventures like any other major investment with rigorous due diligence, clear success metrics, and the courage to exit when the numbers don't add up. Losers will find themselves trapped in partnerships that drain resources while competitors build proprietary advantages. Because in retail's new reality, borrowed credibility has an expiration date, but strategic discipline never goes out of style.
The question every CEO should ask isn't "Should we do a shop-in-shop?" It's "Can we afford not to have this capability in-house?" The companies that answer honestly and act decisively will own their categories while competitors are still shopping for partners.