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Target (TGT) to Sell Beauty Unit Dermstore to U.K. Firm

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Target Corporation (TGT - Free Report) has agreed to divest its high-end online skincare subsidiary, Dermstore, to a British e-commerce firm THG Holdings, per media reports. The big-box retailer will receive $350 million in cash from the latest deal. THG Holdings expects the deal to receive antitrust clearance from U.S. regulators in January next year.

Target acquired Dermstore in 2013 when the company was looking to strengthen presence in the evolving beauty space. With more than 750 brands, Dermstore offers beauty and skincare products, and cosmetics subscription services via an online platform. Over the years, Dermstore has reinforced the retailer’s position in the beauty segment. In fact, Target is keen on expanding its market share with curated beauty assortments to cater to varied customer requirements.

Industry experts say that the Dermstore divestiture move might be related to the company’s recent partnership with Ulta Beauty (ULTA). Last month, Target entered into a strategic long-term partnership with Ulta Beauty. According to the deal, Ulta Beauty will open mini cosmetics shops inside Target. This "shop-in-shop" concept will be put in place across select Target stores and online. Additionally, consumers will be able to buy Ulta Beauty products on Target’s online platform.

Markedly, Ulta Beauty’s emerging and prestige beauty brands will be featured at more than a 100 Target stores from the second half of 2021 with plans to scale to hundreds more over time. Target will dedicate nearly 1000 square feet of its retail space for Ulta Beauty mini shops.

The pandemic has altered consumers’ shopping behavior, directing traffic predominantly toward off-mall locations. This has hindered the performance of several mall retailers. Consequently, players in the space have been teaming up to benefit from each other’s strategic locations, omni-channel capabilities and market presence. Target and Ulta Beauty’s latest alliance reflects the same. Also, Target and Levi Strauss & Co.’s partnership expands to 500 stores. We expect the discount retailer to benefit from these collaborations.

Meanwhile, Target is deploying resources to enhance omni-channel capabilities, introduce brands, refurbish stores and expand same-day delivery options to provide a seamless shopping experience. Notably, the company has been making multiple changes to its business model to adapt and stay relevant in the ever-evolving retail landscape. Management has been aggressively adopting strategies to enhance the shopping experience through miscellaneous channels. It is well equipped to serve shoppers, be it curbside pickup or delivery at home. Management is focusing on key categories such as Apparel, Beauty, Electronics, Essentials and Food & Beverage.


 

Encouragingly, this Minneapolis, MN-based company’s shares have surged 39.3% in a year, outperforming the industry’s 25.1% rally. Target currently has a Zacks Rank #2 (Buy).

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