Ulta Beauty Opening Inside Target: What Is the Impact for Real Estate Investors?

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There’s a running joke about shoppers walking into Target (NYSE: TGT) to buy milk and a couple of household cleaners and leaving $200 poorer. Fans of the superstore know how easy it is to go overboard on the shopping front with Target’s immense, varied offerings. But now, consumers will have even more reason to spend money at Target: The retail giant just announced a partnership with Ulta Beauty (NASDAQ: ULTA) to open makeup and skin care shops inside its giant stores.

Beginning in the second half of 2021, Target shoppers will find mini Ulta stores inside more than 100 Target stores. Ulta beauty products will also be available on Target’s website. Each Ulta shop within a Target store will feature about 1,000 square feet of cosmetics, hair care products, and fragrances. Shoppers will have the option to purchase Ulta goods in store, have them delivered same-day, or collect them via curbside pickup.

Best of all, Target shoppers won’t have to shop for makeup without guidance. Ulta plans to train Target employees to serve as beauty consultants.

A strategic move

Target hasn’t exactly been hurting for revenue. Though many retailers have struggled during the coronavirus pandemic, Target’s profits rose 80% in 2020’s second quarter compared to a year prior.

Being an essential business helped Target avoid store closures when nonessential businesses were forced to shutter earlier in the year. But let’s not forget consumers come to Target not only to buy groceries but just about anything, so those who shopped for food during the early stages of the pandemic were also able to browse their usual Target aisles for everything from makeup to leggings to toys for their stuck-at-home kids. So it’s not surprising Target fared well when so many retail chains struggled.

Ulta, on the other hand, was hit hard by the pandemic. Being a nonessential business, it had to shutter its beauty shops earlier this year. Once Ulta was able to reopen, the demand for its product waned, with about 70% of consumers scaling back on makeup use this year.

Given the number of people working from home, not socializing, and wearing masks that cover half their faces, it’s no wonder makeup sales dropped off. All told, Ulta Beauty saw its same-store sales decline by 26.7% year over year during 2020’s second quarter, and while they’ve gradually improved, Ulta still has some recovering to do. By teaming up with Target, Ulta can peddle its product to a wider audience and boost its revenue.

Target stands to benefit, too. Now more than ever, consumers need to do one-stop shopping to minimize trips outside the home and limit their COVID-19 exposure. And post-pandemic, customers are apt to appreciate the convenience of being able to shop for higher-end makeup and beauty products inside a Target store. As such, both Target and Ulta could really benefit financially by pairing up.

What’s in it for real estate investors?

At first glance, a Target and Ulta partnership may not seem all that newsworthy from a real estate investing perspective. But actually, this development is a positive one for those in this space.

Dozens of popular retailers have filed for bankruptcy during the pandemic, and many plan to close stores in the near term. Given the hit Ulta took earlier in the year, a Target partnership could improve the beauty retailer’s cash flow, preventing Ulta store closures down the line. And while Target isn’t exactly in danger of having to close stores, strengthening its position as a shopping center mainstay along with Ulta is good for investors who keep hearing about nothing but impending vacancies.

Furthermore, a Target and Ulta partnership paves the way for more Target superstores to draw in shoppers. That, too, spells opportunity for real estate investors and developers who need retail stores to open and thrive.