By  on August 6, 2013

Target Corp. has put online beauty in its bull’s-eye with an agreement to acquire DermStore Beauty Group.

The Minneapolis-based big-box retailer is paying an undisclosed amount for the parent of DermStore.com, HairEnvy.com and Blush.com, which will continue to operate as a separate entity and be housed in its current El Segundo, Calif., offices. Earlier this year, Dan Obegi, chief executive officer of DermStore, told WWD that DermStore was on pace to generate at least $100 million in 2013 revenues and has become the second-largest beauty e-commerce destination in the U.S.

On Tuesday, Obegi said, “DermStore’s success was built on understanding the beauty market and catering to a shopper who’s seeking a wide array of prestige products, exceptional service and product expertise. Our customers have come to trust us to consistently deliver a quality experience and we are confident that this acquisition will benefit Target’s guests and expand Target’s online market share.”

Obegi will be president of DermStore.com, a wholly-owned subsidiary of Target, and report to Casey Carl, president of multichannel and senior vice president, enterprise strategy, at Target. Carl said, “There is no doubt that the online beauty industry is growing rapidly, and this unique opportunity enables Target to gain insight into the superior, online customer experience DermStore provides. Not only will DermStore’s 750-plus brands offer Target expanded breadth across the beauty and skin-care industries, but also access to exceptional content and helpful resources we know consumers want.”

Target’s purchase of DermStore is reminiscent of Walgreen Co.’s 2011 acquisition of Drugstore.com, Beauty.com and SkinStore.com in a deal valued at about $409 million. That acquisition allowed the drugstore chain to tap into the online expertise of the e-tailers it bought and gave it access to beauty brands they carried that weren’t available at Walgreens, while providing Drugstore.com and its related Web sites cash and the ability to grow by leveraging Walgreens’ extensive consumer base.

DermStore’s sales are a fraction of Target’s $2 billion-plus beauty business, but DermStore has demonstrated a digital prowess — it has built an in-house studio to make online videos and is perfecting those videos as sales tools, for example — that could enhance the Target customers’ Web experience. When Obegi talked with WWD previously, he foreshadowed the worth that DermStore could have for a brick-and-mortar retailer by saying, “For us to be competitive, we will have to have national retail. That could be from us acquiring a national retailer or a national retailer acquiring us or a partnership where we can do e-commerce for somebody and in exchange we will share inventory and customers. It’s not very long until all national successful retailers are going to have to be omnichannel.”

DermStore was started in 1999 by dermatologist Craig Kraffert, who sold the company to El Segundo-based Intelligent Beauty in 2008. Today, it features more than 26,000 stockkeeping units and about 70 percent of its sales are from skin care, with sales from cosmetics and hair-care products roughly splitting the remainder. Among the best-selling brands are Le Métier de Beauté, Eve Lom, Sanitas and Eminence in skin care; Klorane, Miss Jessie’s, Philip B and Julien Farel in hair care, and It Cosmetics, Face Stockholm, Ellis Faas and Jane Iredale in cosmetics.

The transaction is expected to close within 60 days. Target said DermStore would not make a material impact on its 2013 results. Wells Fargo Securities LLC is DermStore’s financial adviser, and Latham & Watkins LLP is its legal counsel.

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