Why In The World Would Ulta Pause Its Target Expansion?

Summary

Omni Talk Retail Podcast Episode Summary

Title: Why In The World Would Ulta Pause Its Target Expansion?
Release Date: April 18, 2025
Hosts: Chris Walton and Anne Mezzenga

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Introduction

In the April 18, 2025 episode of Omni Talk Retail, hosts Chris Walton and Anne Mezzenga delve into a significant development in the retail beauty sector: Ulta Beauty's decision to pause its expansion within Target stores. This move has stirred conversations across the industry, raising questions about the underlying reasons and implications for both brands.

Ulta's Expansion Pause: The Announcement

Chris opens the discussion by referencing Ulta Beauty's recent announcement to halt its expansion plans with Target. "Ulta Beauty's new CEO Keisha Steelman... would hold steady at its roughly 610 Target shop-in-shop locations this year," Chris states (00:00), citing information from Retail Dive.

Immediate Reactions and Initial Analysis

Mike responds with surprise, indicating that the decision feels unexpected given Target's reported performance in the beauty sector. "Something definitely feels amiss. You know, I think that's without a doubt," Mike remarks (00:50). He contrasts this with Target CEO Brian Cornell's positive remarks during their earnings call: "We had an outstanding year in beauty. We saw nearly 7% sales growth and share gains," Mike, 01:09.

Contradictory Signals: Target’s Performance vs. Ulta’s Decision

The hosts explore the seeming contradiction between Target's robust beauty sales growth and Ulta's decision to pause expansion. Mike questions the sustainability of Target's performance, especially considering declining store traffic. "Target's traffic falling off an absolute cliff in February," Mike points out (01:20), suggesting that macroeconomic factors and Target's DEI (Diversity, Equity, and Inclusion) stance might be influencing Ulta's strategy.

Leadership Influence: Keisha Steelman's Role

Chris highlights the role of Ulta's CEO, Keisha Steelman, in this strategic pivot. "She just took the reins as CEO a few months ago... coming into role at Ulta," Chris notes (03:01). Given Steelman's previous experience at Target, her decision to pause expansion may reflect a nuanced understanding of the current retail landscape and Ulta's operational priorities.

Strategic Implications for Ulta and Target

The conversation delves into the broader implications of Ulta's decision. Mike draws an analogy comparing Target to the character Mike Dexter from "Can't Hardly Wait," suggesting that Target might be losing its retail appeal. "I feel like Target is becoming the Mike Dexter of retail now," Mike analogizes (02:59). This metaphor highlights potential challenges Target faces, which Ulta might find concerning enough to reconsider further expansion.

Economic Uncertainties and Market Conditions

Chris and Mike discuss the "perfect storm" of factors contributing to Ulta's cautious approach. These include an uncertain economy, fluctuating store traffic, and recent remodels of Target stores to accommodate Ulta’s presence. "Let's pause, let's not invest a bunch of money right now," Chris asserts (04:00), emphasizing a strategic hold to navigate current challenges.

Unprecedented Nature of the Pause

Mike and Chris acknowledge the unprecedented nature of Ulta's decision within Target's history. "I cannot [remember a time Target has paused their expansion]," Mike admits (07:21), underscoring the significance of this move and its potential ramifications for the retail partnership.

The Future Outlook

Concluding the discussion, the hosts ponder the future trajectory of both Ulta and Target. Mike suggests that the situation is "more about Target than it is about Ulta," indicating that Target's overall health is a pivotal factor (08:23). Both agree that the coming months will be crucial in determining the outcome of this strategic pause.

Notable Quotes

• Chris [00:00]: "Ulta Beauty's new CEO Keisha Steelman... would hold steady at its roughly 610 Target shop-in-shop locations this year."

• Mike [00:50]: "Something definitely feels amiss. You know, I think that's without a doubt."

• Mike [01:09]: "We had an outstanding year in beauty. We saw nearly 7% sales growth and share gains."

• Mike [02:59]: "I feel like Target is becoming the Mike Dexter of retail now."

• Chris [03:01]: "She just took the reins as CEO a few months ago... coming into role at Ulta."

• Mike [07:21]: "I cannot [remember a time Target has paused their expansion]."

Key Takeaways

1. Strategic Reevaluation: Ulta Beauty's decision to pause expansion with Target signals a strategic reevaluation amidst changing retail dynamics.

2. Leadership Impact: The influence of Ulta's new CEO, Keisha Steelman, and her prior experience at Target play a crucial role in this decision.

3. Market Conditions: Declining store traffic and economic uncertainties are significant factors influencing Ulta's cautious approach.

4. Unprecedented Move: This pause is unprecedented in Target's two-decade history, highlighting potential underlying issues within Target's retail strategy.

5. Future Prospects: The relationship between Ulta and Target remains uncertain, with future developments to be closely watched by industry observers.

Conclusion

This episode of Omni Talk Retail provides a comprehensive analysis of Ulta Beauty's strategic pause in expanding within Target stores. Through insightful discussion and expert commentary, Chris and Mike shed light on the multifaceted factors driving this decision and its potential impact on the broader retail landscape. Listeners gain a deep understanding of the complexities involved in such strategic partnerships and the delicate balance between growth ambitions and operational prudence.

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Note: All timestamps correspond to the provided transcript and are used to reference specific points in the discussion.

Transcript

[Chris]

Ulta has announced that it's pausing its stop, shop and shop, not stop and shop, which you could also do, but it's pausing its shop and shop expansion plans with Target, according to Retail Dive. Ulta Beauty's new CEO Keisha Steelman, told an audience at JP Morgan's annual Retail Roundup conference last week that the beauty retailer would hold steady at its roughly 610 target shop and shops this year. The news comes after the two retailers opened 101 Ulta Beauty at Target locations in 2024 and and that back in Q2 last year, Stillman said that Alta was still on track at that point to meet their 800 store commitment with Target. Chris, I have to know, what do you think here about Alta's decision to pause this expansion at Target? And what does this tell you about that relationship?

[Mike]

Ooh. Oh man. And yes, we're starting off a little spicy. Starting off. Yeah, why not April 16th podcast off spicy. It's after tax day, so why not let's get a little hot under the collar to start out. Well, my big take here is that something definitely feels amiss. You know, I think that's without a doubt.

[Chris]

Yeah.

[Mike]

Because I look and here's why I look back at Target's earnings call, because I was kind of like, I thought they talked about beauty performing pretty well and they did. Here was a direct quote from Target CEO Brian Cornell right out of the get go in that earnings call. And I counted it, folks, in the sixth paragraph of his 24 paragraph opening prepared remarks. That's how early it was. He said, quote, we had an outstanding year in beauty. We saw nearly 7% sales growth and share gains. End quote. I'm like, say what? Like, and, and Ulta's pausing. So how does, how does that jive? And like, I just don't get it. I'm dying to hear what you think too. But, but it does make me wonder. It makes me wonder a few things. So first of all, how was that sales performance that he quoted weighted against the front end of last year versus the back end? Because Target's back end has not been that great. Number two, the numbers I've seen from our friends at Placer AI recently show Targets Traffic just fought. Sorry, sorry. Targets traffic. Traffic. What the hell is traffic at Targets Traffic falling off an absolute cliff in February. Now, I haven't seen the March numbers yet, but you know, that's particularly, you know, it's correlated with their DEI stance. And so God knows what Ulta is seeing from a traffic perspective. And Ulta is probably looking at this as well as all the other macroeconomic economic factors that are playing into things and saying, like, I. We just. We just don't want to make investments right now in this. And. And, sorry, Target, like, you're just not showing us what we need to see from you to say, hey, we want to invest in 200 more stores roughly with you. So. So that can't be good for Target because that means some of the comp sales that they were counting on from this rollout is not going to happen. And, you know, Target, as we talked about on the show, growth and comp has been hard to come by, so. And it's sort of the best analogy that I can make. I think you're going to love this. Remember the movie Can't Buy Me Wait? You remember Can't Hardly Wait?

[Chris]

Remember the Can Hardly Wait? Yes.

[Mike]

Can't Hardly Wait. I Can't Buy Me love. Can't Hardly Wait. You remember that movie Mike? You remember Mike Dexter? Mike Dexter was like, the cool guy. And then Jennifer Love Hewitt dumps him. He's like the bee's knees. He's dating her, and then he's left for the entire movie just wandering around the party looking absolutely pathetic. And I feel like Target is becoming the Mike Dexter of retail now, potentially, with saying, like, you know, we're not going to go with you.

[Chris]

They're going Dexter Spade, which is kind.

[Mike]

Of like a Kate Spade, is kind of like, yeah, okay, whatever. You know, they've got the pea catchers on the aisle. Like, what's going on? Like, I don't want Target to be the Mike Dexter of retail. But anyway, what do you think? And so I told you I was going to start off hot. I did. I tried to bring the analogy.

[Chris]

You brought it all. And how I'm going to tie this together is still a mystery to me. So stick with us, folks. I. Look, I'm not too surprised. I mean, just given what you said in traffic alone. I mean, Ulta and Sephora are neck and neck trying to gain share in as many locations as they possibly can right now. And I think for me, it's really looking at Keisha Steelman. She just took the reins as CEO a few months ago, and she's a tried and true ops leader. I mean, she also worked at Target herself before, you know, coming into role at at Ulta. And so I trust that she's making a move here that's looking out for what's best for Ulta and the operations that they're doing inside those Target stor. And my guess is it's just, you know, it's a perfect storm of, of things happening all at once. I think it's an uncertain economy, lower football. And also, you know, maybe she just wants to give a little more germination time to some of these concepts too. Like they just rolled out a bunch more in 2024. Like, this is, this is a big. Right, right. And so I think that maybe it's just like, let's pause, let's not invest a bunch of money right now and just keep, keep it on going and then dealing with the issues that may be arising positive and negative out of this. And let's just be really strategic and thoughtful about it. And I think the last part that I'll add, especially in a beauty category, Chris, I'm wondering how much the impact of a brand that's not doing well in popular culture right now and among some audiences that are big beauty supporters and big beauty spenders.

[Mike]

I'm wondering, where are you going with this? Wow.

[Chris]

I'm wondering what, I'm wondering what's happening in terms of, you know, I mean, I, I look at just the posts that have been or the comments that have been made on our Target posts alone, and I can only imagine what's happening to Target and right now and what, what feedback they're getting from people. And maybe it's just Ala saying, like, hey, let's like, let some of this settle before we start going big and we wrap our brands together so closely. So I, those are just a few things that I think could be swirling around in the background. Ultimately, I think it's, it's its traffic to the stores and whether or not this is really going to continue to make an investment for Ulta. But I think that some of those other things are also playing a factor.

[Mike]

Wow. Wow. Okay, so a couple, a couple, a couple of questions for you in tort. So you interviewed Keisha Steelman at Shop Talk Fall. Right. You last year on stage.

[Chris]

Yes. Yep.

[Mike]

Yep.

[Chris]

Right before she took the CEO role. Yes.

[Mike]

I can't remember, was she in charge or did she oversee the Target rollout?

[Chris]

She did.

[Mike]

She did. Right?

[Chris]

Yeah.

[Mike]

So this is a big deal because she's, it's not like she's the new CEO saying, I want to reevaluate this. You know, I'm going to come in, you know, carte blanche, stop everything till I get a sense of what's going on. No, she's been intimately connected with this rollout for a long time. So that makes this News even bigger to me when you read between the headlines.

[Chris]

Right, I agree.

[Mike]

Yeah.

[Chris]

Yeah. Especially like I said, given her background, like, I think she's everyone that I've talked to that's worked for her. It said that she's, you know, a no BS kind of person. Like either it's working or it's not. And we course correct immediately if it's not. And so that's, that's where I think, like you're. You're really looking at some, some big calls here from Keisha about where the direction of the company is going and what's best for Alta. So.

[Mike]

And, and the other. Yeah, no, and the other question I want to ask you to and was, can you ever remember a time in the history of Target with its brand and its brand cachet where someone has announced a rollout and then said we're going to pull back and not go forward with this? I cannot.

[Chris]

Not that I can think about the.

[Mike]

Top of my entire 20 year history of being intimately involved with that brand.

[Chris]

Yeah, I mean, this is a huge undertaking as well. I mean, we're talking about complete remodels of stores and things to support this. So I think, you know, this is really a unique case, but I think.

[Mike]

That I have all the time. That's all the time. I think the remodel level.

[Chris]

Not to the level, particularly if Ulta and location.

[Mike]

Not for Ulta. No, not for Ulta. And the cost for Ulta too. But. Yeah, but people are coming in and remodeling those stores all the time and paying for the remodels all the time. But to your point. Yeah, right. Yeah. Ulta just doesn't see the value in it. So crazy. Wow.

[Chris]

Yeah.

[Mike]

Wow.

[Chris]

Either way, not good news for Target right now on top of everything else they're dealing with. Not the news that you want to be going out at this time.

[Mike]

So hopefully something so net net. This story is more about Target 2 than it is about Ulta. Do you think that's because of our Minneapolis bias or do you think that's really the case? I think it's actually really the case. I do. We try not to be biased on this show as much as possible.

[Chris]

Yeah, I. I would say it's more about what's happening with Target than. I think you're right. I think it's more about what's happening with Target and Alta's response to it.

[Mike]

Yeah. Wow. Fascinating. Fascinating discussion. God, it's going to be fun to watch this year play out.