Target (NYSE:TGT) and Ulta Beauty (NASDAQ:ULTA) recently announced they were partnering up to open approximately 100 Ulta "mini stores" inside Target stores, a deal reminiscent of Target's deal with Walt Disney (NYSE:DIS) in 2019. On the surface, it's not completely clear who will get the most out of this deal, but for Target, it's yet another move toward working with well-known leaders in different segments.
On the Nov. 11 edition of "The Wrap" on Motley Fool Live, Host Jason Hall asked Motley Fool Contributors Brian Feroldi and Danny Vena who the biggest winner will be. Check out the video below for their takes on who wins.
Jason Hall: Target and Ulta Beauty just announced a deal to open more than 100 Ulta mini shops inside of Target stores. This is similar to a deal that Target and Disney announced late last year to open a smaller number of Disney stores inside of Targets. I think on the surface, this looks like it's probably great for Ulta Beauty. But what about Target? What do you think, Brian?
Brian Feroldi: Definitely a good deal for Target. Same way them offloading their pharmacy to CVS was a great deal for them there. What does Target want? Target wants you to walk into the store. That's how Target wins. Are people going to Target specifically for beauty products? I don't know, but I would guess not, or at least not in the same way. I would think that beauty is something that people shop for while they're at Target, as opposed to a reason to go to a Target in the first place. Why have they allowed Starbucks to be in there, Disney to be in there, and CVS to be in there? Because you go to Target now for those things and what do you do when you're there? You also shop for other things.
That's the reason they want these things in the stores. So beefing up their beauty section, which is a repeat purchase business that a lot of beauty enthusiasts are very brand specific, this makes total sense to me. If you can make Target a closer destination for you to get your needed beauty products, and here's a rendering of what it's supposed to look like by the way. Maybe you buy beauty products, Target probably takes a cut, or at least gets revenue from renting out their store space. I don't know what the deal work out there. But then you shop for laundry detergent, and cat litter and spinach and all the kinds of things that you buy when you're in a Target anyway. That's why they're doing it. They want more foot traffic and I think it's going to work out for both companies.
Jason Hall: I do not buy cat litter from Target. I don't have a cat. So there's a logical reason why I don't. Danny Vena, what do you think? Is this good for Target or is this just going to drive empty traffic?
Danny Vena: I actually talked about this. I guess it was about a year ago when they talked about adding the Disney stores in there and I think it's good for both. In the case of Target, I think Brian is exactly right. The guy just stole my thunder. But he's smarter than I am, so he gets to do that.
Jason Hall: (Laughs) No. He just went first.
Brian Feroldi: (Laughs) Yeah, that's correct. Which means if people were voting, they would vote for what you're saying even though I said it first.
Danny Vena: Right. Anything Target can do to increase foot traffic or keep people in the store longer, is a net benefit to them. So if they get them to stay in the store longer because they're stopping to pick up a Starbucks, if they stay in the store longer because their kids are going to drag them over to the little mini Disney store in there, or if the women who are the primary shoppers happen to spend a little extra time at the Ulta Beauty counter while they're there, that's a benefit to Target because the longer in the store, the more chance it is that, first of all, they're going to pick up something anyway. But secondly, that they might make some impulse purchases. They might see something that they might not have been planning to purchase that they end up buying anyway. So yeah, I think it's a benefit for both.
Jason Hall: It's not a horse race between the two, but I think this is definitely very, very good for Ulta Beauty. They announced a lot of store closures over the past six months or so as they've tried to rightsize things and then the impact of the pandemic. I think this is a great way for them to maintain physical presence in markets that may not make sense to have a full multiple thousand square foot Ulta store, but a 1,000 square foot Ulta Beauty in a Target might make a lot of sense.
Here's what it tells me. I think the big thing it tells me is that you think about the loss of J.C. Penney and some of these other really large big-box department stores that have lost so much relevance. It tells me there's still parts of them that are appealing and that's these branded stores within stores. I think especially in the health and beauty category, there's still a lot of demand and a lot of interest for that. So I think it is a smart move. Actually, we probably won't see what it adds to the bottom line for these companies. I doubt they break it out. But I think it's a net good for consumers. There's no doubt about that.