Retail experts question Target’s reported test of factory-direct model embraced by Shein, Temu

Representatives for the retailer did not immediately respond to a request for confirmation of the news or comment for this story. The Bloomberg story said a Target spokesperson responded saying the company is always testing new ways to deliver products and services. “In all cases, we uphold the high quality, responsible sourcing and sustainability standards that Target is known for and that consumers expect from us,” the spokesperson said, per Bloomberg.

Longtime retail analysts and consultants told Modern Retail they don’t believe this is the answer to Target’s challenges in finances and perception. The company reported net sales of $23.8 billion for the three months ending May 3, down 2.8% from the same quarter a year ago.

“It was not only bad timing, but just really a major distraction at a time when Target’s been losing its footing and really needs to focus on some of the basics before it goes into something so far-flung,” said Spieckerman Retail president Carol Spieckerman, a longtime retail analyst, speaker and B2B strategist. “Target really is overdue to lay out a clear vision for how they’re going to be a player going forward, given all of this, and I just don’t think that bolting a factory-direct model onto their current platform is an answer.”

Mohamed Amer, a strategic management adjunct professor at Pepperdine University and a former communications executive for SAP who was focused on retail and consumer products, said the move would divert from Target’s reputation of having a well-curated assortment by instead offering cheap products from overseas. Instead of launching a factory-direct model, for example, Target could focus more on its collaborations with other brands like Kate Spade.

“It just didn’t make any sense,” Amer said. “It just seemed like they’re trying to solve a problem that doesn’t exist, while ignoring the problems that do. … Trying to do something like factory-direct that plays into competitor strengths just doesn’t make any sense to me.”

The right move at the ‘wrong time’

While Shein and Temu have built billion-dollar businesses through low-cost factory-direct shipping, much of their growth came prior to President Donald Trump’s elimination in May of the de minimis trade exemption, a nearly 100-year-old trade law originally crafted for U.S. tourists that allowed imports under $800 to enter the U.S. without tariffs or extensive documentation.

Temu’s number of daily active users in the U.S. dropped 52% from before the tariffs were announced in March to May, and Shein’s fell 25%, according to data reported by CNBC from market intelligence firm Sensor Tower.

“They’re picking a strategy at the wrong time,” Amer said. “Target is launching right into that regulatory environment that’s already damaged the category leaders.”

Owen Carr, chief merchandising officer for e-commerce accelerator Spreetail, said he guesses Target is trying to take share from Temu and Shein while they are down. “Maybe they sense that they’re on a more even playing field now because they have better inbound logistics and scale than Temu and Shein,” he said.

Amer said matching Temu’s and Shein’s capabilities in this space they had dominated for years would be difficult.

“They have a set of activities, processes, systems and people; they’ve established a certain level of expertise,” he said. “To copy the processes to get to the point, while at the same time trying to reignite the ‘Tar-zhay’ magic, is a waste of resources, time and money, and is such a distraction from what they need to be doing.”

Expanding Target’s e-commerce presence

The factory-direct model could drive more growth out of Target’s own online channels. In Target’s fourth-quarter earnings call on 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.

“Target may be looking at this as sort of a turnkey growth opportunity, where they can drastically expand their product offerings and do it in that value segment without having to build all of the infrastructure to make it happen,” Spieckerman said.

Carr said the move has the potential to bring in more traffic from low-cost players like Temu, Shein, Walmart and Amazon. As a seller on Target’s marketplace, he said he is not worried about the factory-direct products being a threat, as his company largely sells products priced at more than $100, not $10 or $15.

“The single biggest problem that we’ve experienced with Target online is traffic; they just do not have enough traffic to that site,” compared to Amazon or Walmart, Carr said. “If this factory-direct program can bring more traffic overall to Target, then we’re pretty bullish on it.”

But Carr questioned whether Target will invest enough into the new platform for it to be effective and said the company would have to be careful in how it brings together the selection of low-cost products with the rest of its assortment.

“I don’t see how Target’s going to marry together the identity of having their own low-quality, cheap goods store within their current store. If they can keep it somewhat separated and have the one be a traffic-driving engine for the main store, it could work,” Carr said. “We’re going to have to see; I think they’re going to need a lot of influencer marketing and social momentum to do it.”

It could also help the retailer be seen more as a value player. “It creates another value layer that I think Target has very much been trying to figure out, which is appealing to lower-income shoppers, having a much better value proposition and not being perceived as being more expensive than competitors,” Spieckerman said.

Still, as customers are already questioning Target’s values considering controversy around DEI and boycotts, she said such a model could be especially risky.

“Any problems with quality or delivery, or all of the different moving parts that can go wrong, they’re going to be laid at Target’s feet; Target will be blamed for that,” Spieckerman said. “I don’t know that Target needs to be going into another business model that is so rife with potential problems that would end up reflecting on Target negatively.”