Inside Retail: ‘The surprising takeaway from Ulta’s new partnership with Target’

The original article which appeared on insideretail.com.au is available here.

written by Heather McIlvaine

After selling other brands’ beauty products for the last 22 years, online retailer Adore Beauty has finally launched its own skincare line, Viviology. 

Announced on Wednesday, Viviology is a six-piece cosmeceutical range that aims to make skincare simple, fun and inclusive. 

It was developed in collaboration with Melbourne-based dermal therapist James Vivian, and is available on Adore Beauty, as well as through a standalone website. Prices range from $35-55.

Adore Beauty founder Kate Morris said the decision to launch a skincare line was based on data. It marks the company’s first foray into private label.

“Skincare is the largest category by sales at Adore, and has been growing strongly as a global category for several years,” she told Inside Retail. 

“Our private-label strategy is one of identifying gaps or opportunities in categories that we know well, and is based on data collected from our deeply engaged community.”

Viviology will be marketed to all genders, Morris said, as men demonstrate increasing engagement with the skincare category. 

“We are seeing growth in that segment, albeit off a smaller base,” she said. 

She added that Adore Beauty is well-equipped to understand the types of marketing activities that will be most effective, thanks to its two-plus decades of experience in the beauty industry. 

“Viviology is run as a standalone brand, with its own brand manager. It has its own channels, website and marketing mix, which will be the approach for each private label brand,” she said. 

Benefits and pitfalls of private label

Viviology is just the beginning of Adore Beauty’s push into private label. Morris said the online retailer will continue to expand its offering over the coming months and years to include a mix of standalone brands, as well as house brands that leverage the Adore Beauty identity and potentially acquisitions.

“It’s generally a smart strategy to have a good percentage of your business be private label,” Rosanna Iacono, managing partner of retail consultancy The Growth Activists, told Inside Retail. 

Multi-brand retailers like Adore Beauty should aim to have 30 per cent of revenue come from private-label products, she said. 

A force to be reckoned with

News of the partnership has been met with praise from analysts, who see the two retailers as a force to be reckoned with.

“Putting together two very focused and successful retailers is a threat to other beauty players,” said Neil Saunders, managing director of GlobalData. 

“Specialists like Sephora will be able to hold their own because of the strength of their brands and the underlying loyalty of their shoppers. However, department stores and drug store chains – which have been losing custom for years – should think carefully about their response to this latest development.”

According to Saunders, Target and Ulta each stand to gain something they need from the partnership. For Target, it’s the perception of having a specialist offer; for Ulta, it’s the connection to younger customers and occasional beauty shoppers (it’s customers skew towards beauty obsessives).

Maddy Kulmar, co-director of Retail Oasis, told Inside Retail that this kind of mutually beneficial partnership is on the rise. 

“Normally we think of capitalism as [having a mindset of] ‘I have to take off someone in order to grow my business’, but Ulta Beauty and Target are proving this isn’t the case,” she said.

The main takeaway from their partnership is that “cooperation is the new competition”, she said.

“With so much thought going into whether retailers should be opening (or re-opening) physical stores on not, on the back of Covid, I think this partnership highlights the need to think about collaboration even when it comes to real estate,” she said.

The halo effect

And yet, partnerships sometimes go south. Kulmar noted that JCPenney and Sephora launched a similar shop-in-shop concept several years ago, which recently ended up in court after the department store chain tried to prevent Sephora from exiting its stores. 

But as a longtime admirer of the Ulta Beauty business, Kulmar believes Target will benefit from Ulta’s ‘halo effect’. 

“Ulta Beauty aren’t just the market leaders in beauty, they are also the thought leaders – always jumping onto new brands and products like Kim Kardashian West’s KKW Cosmetics, Kylie Cosmetics and ColourPop,” she said. “The same mindset is what’s driving them to extend into clean beauty and partner with like-minded businesses like Credo Beauty and TerraCycle.”

The retailer’s success, according to Kulmar, stems from the fact that it is “obsessed” with its customers and is hyper-attuned to the issues that matter to them. 

“They also take a strong position with global matters, think Black Lives Matter, voting, diversity and equality, not just because it matters to the company but also because it matters to their customer.”

Ulta Beauty recently posted a 26 per cent year-on-year decrease in comparable sales for the quarter ended August 1, due to the impact of store closures during Covid-19. Online sales rose 200 per cent in the same period.

But its most recent full-year earnings statement for FY19 included a 10.1 per cent increase in net sales to US$7.4 billion, a 5 per cent increase in comparable sales and a gross profit increase of 30 basis points to 36.2 per cent.

Target lifted its FY19 sales 3.6 per cent to US$77.1 billion, reflecting a 3.4 per cent increase in comparable sales combined with sales from non-mature stores. Revenue grew 3.7 per cent to US$78.1 billion, reflecting the 3.6 per cent increase in sales and 6.3 per cent increase in other revenue, and EBITDA grew 5.5 per cent to US$1.9 billion.