Retail

Target is inviting retailers to its website — taking a different approach than Walmart and Amazon to grow online

Key Points
  • Mizuno sneakers and some other brands may soon be using Target.com to sell their products directly to you.
  • Target is changing how it adds third-party sellers to its website, hoping the move will improve profits.
  • The retailer is actively approaching brands.
Sporting goods retailer Mizuno is now a third-party seller on Target's website.
Source: CNBC

Mizuno sneakers and some other brands may soon be using Target.com to sell their products directly to you.

Target is beginning to work with more third-party sellers, but it's taking a much different approach than its bigger rivals Walmart and Amazon in doing so.

Target is actively reaching out to brands — both national and specialty brands — on an invitation-only basis to ask them to sell on its website. It says it's planning to partner with companies in certain categories, like sporting goods and toys, where it's seeing high shopper demand. For comparison, the barriers to entry to become a third-party seller are much lower on Walmart.com and Amazon: brands fill out an application requesting approval to sell there.

The pivot for Target comes as many bricks-and-mortar retailers are trying to figure out how to make their e-commerce businesses more profitable. Typically, hefty shipping fees, returns and other expenses make it more costly to add customers on the internet than in stores. But working with more third-party sellers is one approach companies are taking to pass on some of those costs. In the case of Target's new initiative, called "Target +," its third-party sellers will be responsible for shipping and other costs.

"We see this as a long-term opportunity to drive profitable growth," said Rick Gomez, Target chief marketing officer and chief digital officer. "This is intended to be a very curated and select group of products and brands. ... We are reaching out to the brands we want."

This invitation-only approach could also help Target avoid some of the PR blunders that Walmart and Amazon have faced over controversial merchandise ending up on their websites. Walmart last year, for example, sparked outrage on social media when a third-party seller sold a shirt that read "Impeach 45," referring to President Donald Trump. Walmart eventually pulled the merchandise. Because of the size of their platforms, it's been harder for Walmart, Amazon and even eBay to monitor all of their third-party sellers — and what they're selling — online.

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Over the past few months, Target said, it's been working with a handful of brands including sporting goods retailer Mizuno, educational toy maker Kaplan and keyboard company Casio to test this approach to third-party retailing. It said other areas like home goods, electronics, musical instruments and outdoor gear may be added as third-party sellers.

"We are selecting these categories based on guest research ... what people are searching for [on Target.com]," Gomez said.

Aside from helping boost profitability, this should also help Target continue to grow its online sales.

The company has for the past four years reported digital sales growth of more than 25 percent. And though that's largely pleased analysts and investors, Walmart had e-commerce growth of 40 percent last year. Walmart has been adding items to its website through acquisitions like that of Moosejaw, tie-ups with other retailers like Lord & Taylor and making the terms of its agreements with third-party sellers more flexible.

While Target has been pouring more money into its stores — both remodeling existing locations and opening new ones — it looks to also be focused on building a better website this year. The rollout of "Target +" is one example. And Gomez said the platform is just in its "early stages."

Shoppers buying items via "Target +" will still get 5 percent off when they use a Target credit card and free shipping, the company said, and Target will be accepting returns of items purchased from third-party sellers in its stores.

When Target reports fourth-quarter and full-year earnings on March 5, Wall Street will be monitoring for growth in the retailer's e-commerce business. During the holidays, Target said online sales were up 29 percent. Though that growth often comes at a cost, Target has said it expects pressure on margins to lessen in the future.

For the fourth quarter, Cowen and Co. analyst Oliver Chen expects Target's gross margins to be 25.7 percent, declining 40 basis points from where they were a year earlier. Target's gross margins declined 91 basis points, to 28.7 percent, during the third quarter.