Shownotes
Target is launching Target Beauty Studio with more than 1,600 products from 90 brands, including more than two-thirds that are brand new to Target.
But can this new beauty destination successfully fill the space left behind by Ulta? Chris Walton, Ben Miller, Michael Prendergast, and Ken Davidson debate whether Target's future in beauty depends on finding the next big brands, creating the right assortment, or proving that its merchandising team can still deliver.
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Transcripts
Headline number two to Target, which is launching Target Beauty Studio, a new beauty beauty destination rolling out September 10th across more than 600 stores and online.
Speaker A: Featuring over: Speaker A:Now, according to Modern Retail, Target Beauty Studio will carry skincare, makeup, hair care, fragrance, bath, body and nail products with rotating editors, picks and most loved features, a dedicated MIDI assortment and employees called beauty advisors offering personalized recommendations.
Speaker A:Several brands told Modern Retail that curated experimental format is what convinced them to sell at Target for the first time.
Speaker A:A haircare founder said the brand has done more than seven figures on Amazon, but this marks its first brick and mortar retailer.
Speaker A:While a skincare brand, clearstream has hit 50 million in sales last year.
Speaker A:And it's also making its first physical retail push through this launch.
Speaker A:We've got a 70 year old Italian skincare brand already sold at Macy's, Neiman Marcus, Bloomingdale's Ultra and Amazon.
Speaker A:That said, it was up 38% in sales last year and expects 60% growth this year, potentially doubling next year because of the Target launch.
Speaker A:So Michael, is Target Beauty Studio a legitimate means to comp the space Ulta left behind or do you expect choppy waters ahead for Target?
Speaker B:So it's a, it's a very interesting move to me on their part and I think one of the things that Target is super special about is providing brand names at great prices.
Speaker B:However, at times, especially in the apparel segment where they have brands that they may have licensed and brought in over time, they convert them to licensed models and then they convert them into their own private label.
Speaker B:And generally speaking, when they turn it into their own private label, the, the success is not as great as it was when it was the original step into a branded entity.
Speaker B:So you lose Ulta.
Speaker B:Okay, so that's a step away from a branded entity.
Speaker B:However, you bring in more micro oriented brands that are singles, single setup brands.
Speaker B:So I like that and I think that's an interesting opportunity for them and I actually think Target is best served when they do take more control over their merchant presentations, pricing presentations and promotional presentations.
Speaker B:However, will they have the fortitude to stick with the margin structure of these branded entities or, or will they automatically start to default and say we have enough capacity, we have enough purchasing velocity, we should be doing this on our own and therefore we can increment our margin 10, 20, 30 points.
Speaker B:So I think that's really the question of will they stick with the strategy and expand the strategy to offer brands to their customer base or will they get into sort of the old vortex of starting with brands and then incrementally which eventually turns into an exponential move into their own private label offering.
Speaker B:I think the Target customer wants brands, needs brands, and brands resonate with them.
Speaker B:But I think the jury's out on this one.
Speaker A:Yeah.
Speaker A:So, Michael, I think what I'm hearing, I'm just going to go to Ken next is, is actually, it's not as so much a format play, it's a merchandising play, which is really interesting.
Speaker A:So, Ken, what's your take on the story?
Speaker C:Yeah, I'm, I'm bullish on this one for a couple of reasons.
Speaker C:Okay.
Speaker C:Yeah.
Speaker C:So one is, so first of all, Target just really is a very good destination for beauty.
Speaker C:And they've done a nice job historically.
Speaker C:You know, they've got the right sort of customer profile, customer base for it.
Speaker C:You find, you know, the beauty industry itself is always on the lookout for new and increased ways of distribution, especially with the decline of department stores and things like that.
Speaker C:And the merchandising, what they're able to bring in terms of in store experience has traditionally been excellent.
Speaker C:So that's number one.
Speaker C:Number two, the Alta partnership from the outside was always a little curious because you never knew exactly how the economics worked.
Speaker C:And at the end of the day, retail margins aren't great.
Speaker C:And now if you have two players splitting the pie, if you will, there was all those questions there about, okay, in the long term, how is this going to run.
Speaker C:And then number three, to Michael's point, they're very, very good at, you know, new brand, new brand introductions, bringing in innovation and scaling it up.
Speaker C:Across the country.
Speaker C:Lots of suppliers, especially new suppliers, want to work with them for that reason.
Speaker C:And beauty, you know, it offers good margins, it's a good traffic driver.
Speaker C:And probably, you know, on the whole, you always want the new innovation.
Speaker C:The new trends is trend driven.
Speaker C:And so in the long term, Target doesn't have to worry too much about, oh, can we, can we private label a lot of this stuff?
Speaker C:Because it's really about the innovation cycle and getting those new brands in.
Speaker C:And so there'll always be something new at Target.
Speaker C:In fact, my daughter, you know, from what I can tell, they tend to use Target as the equivalent of the mall these days in sense of, you know, we, we used to go to the mall, they, you know, they go to Target.
Speaker C:And Target has been incorporating, you know, if you look at it, portions of kind of the old classic mall into the store and, and delivering a bit of that 360 experience.
Speaker C:And I think beauty is always going to be a core piece of that.
Speaker A:Chris, I can see you nodding and shaking at various times.
Speaker A:What's your, what's your read on this one?
Speaker D:Yeah, there's a couple nuance points.
Speaker D:I think, you know, Michael's points I probably more aligned with what Michael was saying as opposed to Ken, which I don't know why I'm disagreeing with Ken straight off the bat here at the show.
Speaker D:But at one point, the one point I would disagree with Michael is like, you know, beauty is a hard business to go into on your private label side too.
Speaker D:So the model that they use for the rest of the store is difficult in beauty.
Speaker D:I think where I disagree with Ken, though is I actually think, I actually think this is a really dangerous move, I think from a comp perspective and also potentially what it highlights in terms of the strategy of the merchandising team at Target.
Speaker D:So like my first inclination was the old saying, danger, Will Robinson, danger here.
Speaker D:Because let's not forget, Ulta is doing really well in the marketplace.
Speaker D:Like, like they their Last earnings report, 4% comp, 9% sales growth overall.
Speaker D:They beat analysts expectations.
Speaker D:Who needs who more in this relationship, Right?
Speaker D:And so last time I checked as well, Ulta was the comp driver that was singled out in many, many Target earnings reports last year and the year before.
Speaker D:So that is scary in and of itself.
Speaker D:And secondly, all the new brands Target's going after, like we're seeing that through not just in beauty, we're seeing that as a strategy throughout the store.
Speaker D:They're also hyping that up in grocery, as you know, Ben and I think talked about on your Grocery Talk podcast recently.
Speaker D:But new doesn't always mean sellable.
Speaker D:New just means new.
Speaker D:And generally speaking, these brands are smaller for a reason, because they're not ready for prime time.
Speaker D:And so I'm all for newness.
Speaker D:But if Target is using newness as its merchandising strategy, look out.
Speaker D:Because it doesn't take as a former merchant, it doesn't take a good merchant to pick something new.
Speaker D:Any merchant can pick something new.
Speaker D:A good merchant creates an assortment strategy.
Speaker D:A good merchant picks a assortment.
Speaker D:So I hope Target knows what it's doing here instead of just casting a slot with all these new brands throughout the store because that could be very dangerous and very markdown laden down the road.
Speaker A:You know what, Chris, I think there's some bits of that I agree with.
Speaker A:There's some bits I don't, but I'm quite bullish I'll tell you for why.
Speaker A:I think when you look at the images, there's the format.
Speaker A:So first of all, the kind of the store format, store operations piece, it looks good.
Speaker A:So I like what they've done with table.
Speaker A:I like giving attention to trending products and I think we've got to admit whilst Ulta as a business is doing well, some of those concessions were starting to look a bit tired.
Speaker A:So I think bringing some freshness to the store presentation is right.
Speaker A:Where I completely agree is with Michael that this is about the merchandising play and I think, you know, I think I said this on Grocery Talk yesterday, but I've been reflecting more overnight.
Speaker A:I think right now being a merchant in beauty at Target is one of the most exciting jobs you could have in retail.
Speaker A:Why do I say that?
Speaker A:Because beauty is so different as a category to five years ago when the Ulta partnership started.
Speaker A:It's all about not the big established brands that Target needed to buy and get the relationships with.
Speaker A:It's about finding trending things, it's about finding what's hot on TikTok.
Speaker A:It's about competing with TikTok shop rather than necessarily with other physical retailers.
Speaker A:The challenge of finding those products, as you said and Chris, bringing them into store, scaling them, getting ready, that's a huge challenge.
Speaker A:But that's also super exciting because you get this right, it lays down the foundation that says we are back as Target to be able to do trend forward merchandising because that's stage two in the recovery.
Speaker A:Stage one is sort the store ops out.
Speaker A:Stage two is take to everybody.
Speaker A:As Ken mentioned, this is the place to go.
Speaker A:You've got to get it.
Speaker A:They've lost the eye of that but this is the opportunity to get it back.
Speaker A:What do you think, Ken?
Speaker C:I totally agree, Ben.
Speaker C:I mean I think yeah, the two things in what you said, Chris.
Speaker C:So number one, it is true, you know, there's no guarantee of success but if I'm going to bet on a merchandising team to get it right and to find the right brands and get them in store and get the scale and cover the cost of the turnover and so forth, I'm betting on that Target beauty merchandising team.
Speaker C:So I'll take the bet with you on that one and then on the Ulta piece, yeah, it's tricky.
Speaker C:None of us knows what goes on on the inside and maybe Target was happier with the deal than Ulta.
Speaker C:We don't know exactly, you know who.
Speaker C:So the Target may have not had a choice or.
Speaker C:Or just indeed decided they wanted to go their own way.
Speaker C:But I think if you're going to bet on, you know, beauty at Target, I'll put my money there.
Speaker D:All right, well, I get the last word on this one then, because I think you're.
Speaker D:I think you're betting on the legacy of Target's merchandising team, the legacy reputation of Target's merchandising team versus the actual merchandising team and the credibility they should deserve given the last three or four years of business.