Target turns towards Shopify to add new, trendier brands to its website.
Starting Monday, the Minneapolis-based discounter said businesses that work with Shopify can apply to join Target Plus, its third-party marketplace. Some of Shopify’s customers are smaller or emerging brands that use the e-commerce platform to build and operate a website.
Target and Shopify did not disclose the financial terms or duration of the transaction.
In an interview with CNBC, Cara Sylvester, Target’s chief customer experience officer, said Shopify will help the retailer discover hot items and make them quickly available to Target’s online shoppers. She said Target plans to put some popular items discovered through the Shopify deal on store shelves.
Target’s market creates a “halo” and is “an accelerator for the entire business,” she said. Sylvester added that as the company expands its online assortment and adds eye-catching products, customers tend to visit its website more frequently and purchase from both marketplace sellers and Target’s own brands.
The big-box retailer is trying to return to sales growth as consumers buy fewer discretionary products, with the discounter lagging behind grocery rivals like Walmart. Target has posted four straight quarters of declining comparable sales, and its overall sales have fallen in three of the last four quarters.
The company has also struggled to grow its e-commerce business. Target’s digital sales rose 1.4% in the first quarter, the first such increase in more than a year.
Company executives said in May that the retailer was on track to return to sales growth in the second quarter, but that was due in part to its weak year-over-year performance. For the full year, Target said it expects comparable sales to range from flat to up 2%, with adjusted earnings per share in the range of $8.60 to $9.60.
Target’s stock has underperformed the broader stock market. As of Friday’s close, the company’s shares were up about 2% compared to the S&P 500’s nearly 15% rise. Its stock price of $146.13 is also well below the highs that it reached during the years of the Covid pandemic, when it exceeded $260.
Shopify could also use a boost. Shares fell after the May earnings release and are down about 17% so far this year.
Target Plus represents only a tiny fraction of the revenue and sellers of other third-party marketplaces. Unlike Amazon, Walmart, eBay and others, Target allows brands to register by invitation only. It has more than 1,200 sellers, according to Target. Amazon has about 2 million sellers and Walmart has about 135,000, according to estimates from Marketplace Pulse, an e-commerce research tool.
In the market, Target’s website offers items such as UnBrush, a detangling hairbrush that went viral on TikTok, and high-end products, such as Ray-Ban and Coach sunglasses. It offers more than 2 million branded products including Crocs, Ruggable and Timberland. The assortment covers many categories, including clothing, sporting goods and home decor.
Target said its market has grown. It said the number of its sellers and products more than doubled in the last calendar year.
The retailer does not distribute revenue generated through its third-party marketplace. Instead, it groups it in its financial filings with “other income,” such as money from credit card profit sharing and its advertising business, Roundel. These other revenues totaled $388 million, representing less than 2% of the $24.53 billion in revenue reported in its most recent quarter, which ended May 4.
Still, Sylvester said Target Plus is “one of Target’s fastest-growing lines of business.”
Brands that join Target Plus also become potential Roundel customers. Advertising activity increased by more than 20% in the last quarter. Sylvester would not say how much of that came from ads purchased by Target Plus sellers.
Third-party marketplaces have become a popular sector in retail because they tend to generate higher profits. Instead of purchasing merchandise from suppliers, retailers rely on sellers who stock and typically own the inventory. These sellers also assume financial risks if customers don’t want items or if products need to be discounted.
Retailers typically receive a cut of sales from sellers. Additionally, they may charge for services, such as fulfilling a brand’s online orders or selling advertisements, such as sponsored search results, for sellers’ products.
Target does not offer fulfillment services, but instead relies on Target Plus sellers to store, package and ship their own merchandise.
Walmart, in particular, has been ramping up its market efforts to try to close the wide gap with Amazon and its dominant e-commerce platform. It’s recruiting sellers and offering new services, like the ability to ship large items like patio furniture or canoes. Sales in Walmart’s U.S. market grew 36% in the first quarter and now total more than 420 million unique items, CEO Doug McMillon said during the company’s mid-term earnings conference call. may.
Other marketplaces, such as TikTok Shop and Temu, are also growing rapidly.
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