What happened

Shares of Ulta Beauty (NASDAQ:ULTA) were looking sharp today as the cosmetics retailer jumped on a new partnership with Target (NYSE:TGT). Ulta will open more than 100 locations inside Target stores next year and sell through Target.com.

As a result, Ulta shares were trading up 7.8% as of 1:48 p.m. EST, while Target had gained 1.5%.

A mock-up of an Ulta-at-Target store.

Image source: Target.

So what

Calling it a "strategic, long-term partnership," the two companies said that the new Ulta Beauty at Target will offer established and emerging prestige beauty brands at Target stores and online.  The shop-in-stores will take up about 1,000 square feet and be located next to the beauty section.

Both companies have been among the rare retail winners in recent years and have excelled at omnichannel execution, reaching customers both online and offline, so the partnerships makes sense for a number of reasons.

For Ulta, it gives the discretionary retailer an easy way to add new brick-and-mortar real estate, drawing from a customer base at Target that likely has a significant overlap with Ulta's own customer base. Similarly, being featured on Target.com should also boost Ulta sales. 

For Target, beauty is arguably a weak spot for the retailer, compared to department stores with traditional cosmetics counters, and the Ulta partnership will help narrow that gap as well as acting as a driver for customer traffic to its stores. Target has partnered with other chains like CVS and Starbucks, both of which operate stores inside its stores, and clearly seems satisfied with that strategy.

Ulta CEO Mary Dillon said, "Ulta Beauty at Target reflects further evolution in our omnichannel strategy, rooted in unlocking the potential of our physical and digital footprints, creating more seamless shopping opportunities for our loyal guests and continuing to lead the beauty industry."

Target CEO Brian Cornell added, "The durable strategy we have built has made Target a top retail destination. The ease and convenience of our stores and fulfillment services provide broad reach and relevance for the curated brands our guests love."

Now what

While the partnership looks like a smart move for both companies, it's unclear how significant the bottom-line impact will be for Ulta. The company already has more than 1,200 locations, meaning it may need to open more than 100 new Ulta stores at Target locations in order to move the needle. However, the online partnership looks promising, and there's room for the partnership to grow, especially if it's successful. 

Ulta has struggled during the pandemic, and the Target partnership looks like a step in the right direction. It's not surprising to see investors cheering the news.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.