How Target plans to grow its coveted third-party marketplace
In Target’s fourth-quarter earnings call March 4, the company’s executives laid out plans to grow its third-party marketplace, Target Plus, from more than $1 billion in gross merchandise value to more than $5 billion within five years. Even at $5 billion, Target’s marketplace would be relatively small — Amazon made $156 billion in net sales from third-party seller services last year, according to financial statements.
Amazon and Walmart have opened their platforms up to hundreds of thousands of sellers, potentially harming the customer experience on some transactions but, at the same time, exponentially increasing the number of sellers who may buy ads on the e-commerce websites. That, however, isn’t how Target is approaching growing its platform. Instead, Target’s marketplace remains invitation-only. Target’s strategy is to work with partners that complement its assortment and provide more options, especially in the home category where it can offer bulkier items that customers would not easily be able to load into their cars at stores.
“Target’s taking what I would call a shopper- and guest-centric view of this, not an advertising, revenue-maximization approach to it,” said longtime retail consultant Bryan Gildenberg, founder and CEO of Confluencer Commerce.
Target’s not the only one taking this approach. Best Buy, with its marketplace set to launch this year, is similarly aiming to provide a deeper assortment within the same kinds of categories it already offers.
“Rather than opening the doors to any seller, we’re focused on building relevance and trust by working with partners that complement our assortment and also help us provide more of the breadth consumers are looking for, ensuring we’re a strong option in categories where we wouldn’t otherwise have a big presence,” Rick Gomez, Target’s evp and chief commercial officer, said on the earnings call, using shirt brand Modern Lux as an example of a recent addition.
On the earnings call, Cara Sylvester, evp and chief guest experience officer, gave a look at the categories the retailer grew the most on the marketplace: Food saw more than 170% growth in gross merchandise value, essentials grew more than 60%, and home surpassed 40% in growth.
“Based on continued guest feedback, testing and iterating, we’ve been on a journey to scale up our marketplace offerings with a wider array of brands, price points and products in a logistically feasible and cost-effective way,” Sylvester said on the call.
This has been aided by the fact that last year, Target partnered with Shopify to onboard new brands including newborn apparel brand Caden Lane and True Classic, which sells T-shirts and apparel. “With our partnership with Shopify, we’re able to more quickly identify new and emerging brands for our marketplace, as well as onboard partners and products faster and easier than ever before,” Sylvester said.
As a whole, Target’s digital sales have more than tripled over the last five years, powering its marketplace and Roundel ad business, Jim Lee, Target’s evp and CFO, told stakeholders. The marketplace represented around 10% of its external search volume over the past year, according to Sylvester.
Additional marketplace growth may give more sellers the opportunity to enter what many may consider a Holy Grail.
“I don’t think we’ve seen any brands that we’ve talked to that say they are not interested in Target,” said Megan Potts, founder of Triforce Digital Partners, an agency that specializes in helping brands get placements on non-Amazon marketplaces like those from Target, Walmart, Wayfair and Home Depot. How to get into Target is “actually one of the top questions we get when we start talking to brands about their expansion outside of Amazon,” she said.
Potts said any apparel or home brand is very excited to get onto Target, as are those who sell toys and baby or personal care products like skin care or beauty care. In particular, brands that sell at partner Ulta but not through Target directly have been interested in finding a way onto the marketplace, she noted.
Target is actively looking for brands, according to Potts, but she cautioned that the retailer is very particular about who it brings on and that joining the platform takes lots of strategy. She said brands in home furniture, for example, will have to know how they are distinct from Costway or Target’s Threshold private label.
“If you can’t compete with Costway’s price points and your stuff looks exactly the same, Target’s probably not going to onboard you,” Potts said. “[Brands] absolutely should be looking at the assortment and asking themselves, ‘How am I differentiated from what is already here, and what does my data tell me on the opportunity?’
Sellers are also interested in Target Plus as a pathway to enter the retailer’s stores. True Classic CEO Ben Yahalom told Modern Retail that conversations to join Target’s marketplace led to the brand landing a deal to get its products carried in 460 locations. Potts warned, however, that it doesn’t happen immediately. Retailers see the marketplace as a way for retailers to test the success of products online before taking them into stores, she said.
“In this environment, what we see from a lot of brick-and-mortar retailers is they want digital proof,” Potts said. “If you’re not a national brand like Clorox, it’s not going to be that turnkey and that easy.”
Another challenge for brands trying to enter the fold is that Target’s data capabilities aren’t yet as built out as Amazon’s or Walmart’s, said Owen Carr, chief merchandising officer for Spreetail, an e-commerce accelerator for brands and manufacturers of oversized products.
He similarly said almost all of Spreetail’s brand partners are interested in Target, but, at times, some struggle to get the sales they want. He said while the expansion is a good step forward for Target, “the problem is that it doesn’t really help them on their data quality, data transparency or speed of shipping.”
For example, he said Target is behind in its ability to ingest shipping information from sellers, and that it’s not always clear to customers which items will ship in one or two days instead of four.
“With other leading marketplaces, there are tremendous amounts of data around traffic, item conversion and other specifics related to the customer’s journey through the website,” Carr said. “On Target, that data is hidden and not exposed. So, it’s hard for sellers to manage through all that, and to understand what levers we can pull to drive traffic to our listings and to increase their conversion, as well.”