Kline Speculates on the Success of Target's DermStore.com Acquisition

In a post on Kline & Company's Kline Blogs titled "Newly Acquired DermStore.com to Serve as Target’s Dotcom Laboratory," Kline's industry manager for consumer products Karen Doskow notes how this foray into the digital realm will affect Target—and the beauty industry.

She writes, "Target’s announcement of its intent to purchase DermStore.com, the prestige skin care e-tailer, furthers the brick-and-mortar giant’s strategy to learn how to reach upscale consumers within selective high-growth markets via the Internet. Earlier this year, the retailer purchased both Cooking.com and CHEFS catalog, affording it with cross-channel opportunities and a solid foray into the upscale housewares market, the accrued experience of which will likely be parlayed into its own website and in-store housewares offerings. It is expected that Target will employ similar leverage with this new acquisition.

"Dermstore.com is recognized for offering its customers a tantalizing shopping experience through a balance of well-chosen prestige and professional beauty and skin care lines, in-depth information about products and benefits to consumers, excellent customer service, and seamless transactional prowess. Target can use DermStore as a laboratory to grow its online beauty business and possibly enhance the in-store shopping experience for 'guests.'

"Target’s experience with upscale lines has been mixed. Its joint venture with Neiman Marcus during the holiday period last year was deemed a major disappointment. In sharp contrast, Target has enjoyed huge success with its fashion designer partners, such as Missoni, who design ambitious apparel addressing both the Target shopper profile and pocketbook. However, it seems unlikely that premium, physician-dispensed brands carried by DermStore.com, such as Obagi, SkinMedic, and SkinCeuticals, will find their way onto Target shelves any time soon. If Target decides to take an in-store approach with DermStore.com, they may risk the resistance of these brands wishing to protect their exclusivity in doctors’ offices and spas. As a precedent, in 2006, when Sephora began opening mini-stores within J.C. Penney department stores, some of the more exclusive lines opted out to keep their coveted prestige aura.

"It should be interesting to see how Target uses the expertise it is gaining with the purchase of DermStore.com. It is safe to bet that the DermStore.com portal will be linked to Target.com or vice versa just as Walgreens links its Drugstore.com with Beauty.com," Doskow concludes.

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