Ulta Beauty will “pause” expansions of its Target shop-in-shops this year, CEO Kecia Steelman said Thursday.
“In joint partnership with Target, we’ve made the decision to really lean into the 600-plus stores that are open this next year and really look at ‘How do we continue to drive efficiencies and leverage the learnings that we’ve had to really unlock value for both of us collectively together?’” Steelman said in response to an analyst's question at JPMorgan’s 11th Annual Retail Round Up Conference.
The move will allow Ulta Beauty and Target to focus on “improving,” and creating “even greater value,” she added, noting Ulta Beauty hasn’t announced plans for the shop-in-shops beyond 2025.
Target currently operates 610 Ulta Beauty shop-in-shops, which sell prestige cosmetics in a dedicated 1,000-square-foot Ulta Beauty-branded section within Target. The partnership, first announced in 2020, began with 100 store openings in 2021. In 2022, they expanded the partnership with a goal to reach 800 locations. They’ve opened at least 100 every year since, including 101 last year.
While then-CEO Dave Kimbell ended Ulta Beauty’s Q4 2023 earnings call looking ahead to future shop-in-shop expansions, on its Q4 2024 call last month, Steelman, on her first call as CEO, made no forward-looking statements about the partnership. Steelman, who worked at Target for 12 years until 2005, including as a lead store merchant, has spearheaded the partnership since her promotion from chief store operations officer to COO at Ulta Beauty in 2021.
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The agreement follows a royalty structure, with Target owning the inventory and staffing the shop-in-shops, then-CEO Mary Dillon said in 2020. Ulta Beauty’s income from Target’s royalties is reported as “other revenue,” a bucket also including credit card income and loyalty point redemptions. Target royalty income was cited as a driver of other revenue growth in seven of the last eight earnings calls since Q3 2022, until the past two quarters, when other revenue declined year over year, and there was no mention of Target royalties.
The shop-in-shops were intended to expand Ulta Beauty’s reach to both current and new customers, add more members to its loyalty program, and grow spend per customer, Dillon said when the deal was announced. Target, largely offering mass cosmetics in its beauty section, could establish a foothold in prestige cosmetics in turn. Both benefit from consumers linking their Ulta Beauty Rewards and Target Circle loyalty accounts to earn loyalty points on shop-in-shop purchases. Four million shoppers had linked their loyalty accounts, Steelman said last August.
Last month, after several underwhelming quarters for Ulta Beauty, Steelman unveiled a turnaround plan called Ulta Beauty Unleashed. This year, the retailer plans to double down on online sales with a new invitation-only e-commerce marketplace, while also opening 60 new stand-alone stores and expanding to Mexico and the Middle East.