Best Buy boosting online offerings with third-party sellers this summer

Best Buy is adding third-party sellers to its website later this year, dramatically increasing the number of products it offers for sale online.

For the Richfield-based retailer, it’s a low-risk, high-reward way to compete with Amazon and other online outlets.

“This will allow us to bring our customers access to much more expansive assortments and new categories without needing to own the inventory,” CEO Corie Barry told analysts on an earnings call Tuesday.

Traditional retailers are increasingly opening their websites to outsiders, much the way Amazon has to offer millions of products from sellers around the world. Walmart opened its digital “marketplace” in 2009 and makes money from referral fees when third-party products sell on its website.

“We analyzed the impact new digital marketplaces have had on other retailers, and these case studies support our conviction in incremental [earnings] expansion,” analyst Jonathan Matuszewski at Jefferies wrote in January.

Minneapolis-based Target has offered space on its website for third-party sellers since 2019 and recently announced plans to grow its Target Plus marketplace.

Third-party digital sales amounted to $1 billion for Target last year, and the retailer has plans to grow those marketplace sales to $5 billion in 2030. The company expects new brands like Peloton, Daily Harvest and Honest Baby Clothing to “attract guests and expand offerings,” according to a news release.

Target brings in vendors by invite only, similar to the approach Best Buy will use.

“All potential sellers will go through a vetting process so we can ensure our customers receive the positive experience that they would expect at Best Buy,” Barry said on Tuesday’s call.

Amazon, on the other hand, offers an open marketplace with few barriers to start selling on the world’s largest e-commerce platform.

Low standards for entry introduce risk to the business and the consumer, said Chris Tang, associate dean at UCLA’s Anderson School of Management. There are disputes about the degree to which Amazon is liable for the products sold on its platform, opening it up to costs for recalls and returns.

Because many of Best Buy’s products are big-ticket items — like XXL TVs that cost $2,000 to $3,000 — handpicking offerings and providing tailored support is a hallmark of the retailer’s business model that is hard to replicate with an open marketplace.

“They’re experts, curating what kind of products they need to carry and how to put it together into a full-service package,” said Hyunjoo Im, retail and consumer studies director at the University of Minnesota. “The price may not be the lowest, but I know for sure that the product is safe.”

Best Buy previously opened its website to select outside sellers from 2011 to 2016. About 200 sellers were participating before the initiative ended, reportedly due to low sales and customer confusion around returns.

Chris Walton, a Target alum and co-founder of Red Archer Retail, said better software and the growth of retail media — a retailer advertising itself to customers on its own website or in its stores — makes the timing ripe for a Best Buy marketplace relaunch.

“It has been a winning strategy for many, many retailers, namely Walmart, for both item extensions and profit growth, fueled by more retail media dollars,” Walton wrote in an email. “The only major obstacle for any marketplace, at this point, is handling the customer service side of the business post-purchase — this requires new processes and procedures to be developed."

A refined approach to the third-party marketplace has proven successful since Best Buy launched it in Canada in 2016. Third-party sellers now account for 25% of orders shipped on BestBuy.ca, according to Jefferies. A U.S. marketplace could account for 14% of online sales by the end of the decade, according to the investment bank’s research, and commissions would boost Best Buy profits starting this year.

In the U.S., Best Buy will focus more on new products and offer multiple versions of the same product.

“I think what we’ve learned from Canada is that there is a demand to go deeper into the assortment,” Barry said. “We can see that in customers who are searching our website and looking for a broader selection or looking for a broader quantity of products, and we just don’t have them there.”

A search for laptops on BestBuy.ca nets more than 12,000 results. In the U.S., 1,200 listings pop up.

Barry said even when accounting for competition with products Best Buy sells itself, the plan is profitable. Best Buy plans to open the marketplace this summer.

“It is still early in the process, and we are pleased with the strong interest from sellers, and believe it indicates a promising launch,” Barry said.

Former student reporter Caleb Fravel contributed to this report.