Target (NYSE:TGT) scooped up DermStore.com earlier this week in what many investors viewed as a move to beef up its beauty and skin care offerings. However, the acquisition does more than merely extend Target's reach into this fast-growing retail segment. Specifically, it's a way for the discount retailer to improve its e-commerce business.
Skin in the game
Under the terms of the deal, the online skin care company will become a subsidiary of Target, though it will continue to operate under the leadership of its current CEO, Dan Obegi. The companies didn't disclose an amount for the transaction. However, this isn't the first time Target has invested in an online business.
In March, the retail chain added two online cooking and kitchenware sites to its growing collection of dot-coms. Target's decision to buy Chefs Catalog and assets of Cooking.com underscore the retailer's dedication to increasing its online sales. "These strategic transactions provide us a great way to address this growing opportunity [online cooking solutions] and will offer expanded online options for our guests," explained Casey Carl, president of Multichannel for Target.
Target's e-commerce channel has been a work-in-progress since the retailer ended its 10-year reliance on Amazon nearly two years ago. Until 2011 Amazon managed Target's website, shipped Target products to customers and conducted online returns and customer service for the brick-and-mortar retailer.
Online and in charge
Cutting ties with Amazon meant that Target customers' data could no longer be accessed by the world's largest online retailer. Additionally, building out its own platform allowed Target to better control its Web experience. These moves laid the groundwork for Target's recent acquisitions. Nevertheless, the discounter still has a lot to aspire to in the online arena.
It's not even one of the top 10 largest online retailers in the United States today, despite generating annual retail sales of $72 billion last year. Moreover, Target is currently the 18th largest online retailer in the U.S., according to InternetRetailer.com. However, integrating e-commerce sites such as Cooking.com, DermStore.com, and DermStore's hairenvy.com and blush.com should help Target grab a larger chunk of online retail sales down the road.
Obegi says he's confident that Target's purchase of DermStore Beauty will expand the retailer's online market share. This should be music to investors' ears, particularly with domestic e-commerce sales on track to reach $261.6 billion this year, according to Forrester Research.