Nearly 100 sellers hawk 250,000 products through Target Plus marketplace

On the hunt for an electric guitar, golf clubs or a high-end camera for a gift this holiday?

Target probably isn't the first retailer that comes to mind for those items. However, it now sells an expanded selection of those products online through a third-party marketplace it launched earlier this year called Target Plus.

While still quite small compared with the much larger marketplaces of Amazon and Walmart, Target Plus has signed up nearly 100 sellers that are hawking more than 250,000 products on Target.com.

"Although it is relatively new, Target Plus is an important initiative in our journey to profitably grow our dot.com business," said Rick Gomez, Target's chief marketing and digital officer. "We will continue to build out Target Plus, but we're going to do it in a really thoughtful, disciplined way."

Sellers on Target Plus include athletic brand Mizuno; an online subsidiary of Guitar Center, and Kaplan Early Learning Co., maker of educational toys. Items sold by Microsoft, Sonos and Christmas Central, some of which ran Cyber Monday promotions on Target.com, have been particularly popular during the holidays, the company said. It declined to break out marketplace sales.

But Gomez said Target isn't looking to become a place to buy everything, instead continuing to build a brand that stands for curation. With Target Plus, the retailer has picked product categories that complement its own million-plus assortment online and that customers have been searching for on Target.com. Of course, sporting goods, musical instruments and toys also happen to be categories where national retailers of those products have been floundering or gone out of business, including Sports Authority and Toys 'R' Us, leaving a void in the market.

While retailers have generally found it challenging to make online sales profitable, some have latched onto online marketplaces as a more lucrative way to grow online. Third-party sellers cover most of the costs such as holding the inventory in their own warehouses and shipping items to customers, while the host site typically takes a 5% to 15% commission on the sale. In the process, retailers in effect turn their websites into an expanded online shopping mall. Target, like Amazon, also offers advertising products for an extra fee.

"This is part of a broader industrywide movement toward establishing ecosystems very much modeled after what's happening in China," said Toopan Bagchi, a former Target executive who is now a senior adviser at Minneapolis-based Navio Group, nodding to the likes of online giant Alibaba. "Everybody is looking at how to become a service provider as much as a retailer, with multiple brands or retailers on their platform."

Target started down this path with the 2017 acquisition of Shipt, a same-day delivery service used by various retailers such as CVS, Petco, and Hy-Vee, he said. So the marketplace is one more way that Target can monetize its assets — in this case the large amount of traffic that comes to Target.com — in another way.

Target and other retailers are chasing the big kahuna, Amazon, which has 3 million active sellers worldwide that sold $200 billion worth of products on its marketplace this year, according to New York-based research firm Marketplace Pulse. The marketplace now accounts for more than half of Amazon's retail sales volume, according to estimates. In fact, it's grown so large and become so dominant that it has led to some antitrust concerns.

At the same time, Amazon — as well as marketplaces more generally — also have come under increased scrutiny for selling counterfeit, unsafe or otherwise unsavory products. With fairly lax requirements to become a seller on Amazon, some people have managed to even sell items salvaged from the trash on Amazon's marketplace, according to a Wall Street Journal story published last week. In response, Amazon tightened its rules to explicitly prohibit the sale of discarded items.

Walmart has an application process to join its marketplace. But Target is being even more selective, specifically inviting sellers it wants to have on its marketplace because of their product assortment and to make sure they don't besmirch the retailer's brand.

"We've taken a very different approach than many of the competitors," Target CEO Brian Cornell said this fall. "We're not opening this up to thousands of new vendors with millions of new items because we want to make sure our guests can trust Target and the reliability of the products we're offering."

Target has the "most thorough vetting process in the industry," Target's Gomez added, and continues to closely monitor sellers after they come on board, kicking off vendors if warranted.

Juozas "Joe" Kaziukenas, founder of Marketplace Pulse, said keeping Target Plus by invitation only is initially a wise approach for Target, even though it will keep it from growing to the size of other marketplaces.

"They have not been in the business of marketplaces for long," he said. "Opening their doors on day one to everything that is out there has the risk of ruining the customer experience on Target. The next thing you know, it would be a completely uncontrollable catalog of randomness."

Still, he said, he's a bit confused about why Target decided to build a marketplace since most of its online growth is coming from same-store delivery and store pickup, which do not include marketplace items.

"I think it's going to be challenging for Target to make this marketplace grow if they can't figure out how to integrate it into the rest of the Target experience," he said.

Target has worked on integrating the marketplace in other ways. For example, customers who buy marketplace items can still get free shipping and 5% off if they are RedCard holders. Shoppers also can return marketplace items to stores.

One of the other big marketplace challenges is ensuring a good customer experience, Kaziukenas said. For example, sometimes items on a marketplace have spottier product information or pictures of lesser quality than the products a retailer sells directly on its own website.

That's one of the reasons Best Buy in 2016 shut down its online marketplace in the U.S. The Richfield-based electronics chain's marketplace offered an expanded array of accessories such as phone cases and chargers.

Best Buy also didn't see as much value in it because 70% of the marketplace items overlapped with Best Buy's own inventory, said company spokesman Jeff Shelman.

"And it created confusion among buyers who thought they could return those items to our stores," he said, adding that the marketplace accounted for significantly less than 1% of Best Buy's domestic revenue.

Interestingly enough, the same year that Best Buy killed its online marketplace in the U.S., it also launched one in Canada. Today, Best Buy's Canadian website has about 1,000 vendors selling items such as strollers, furniture, sporting goods and other recreational items through its marketplace. The Canadian market, though, is much different from the U.S. because its e-commerce landscape is less developed, and the country has fewer national retailers.

Andy Heddle, who previously ran Best Buy's U.S. marketplace and now works at marketing firm VMLY&R, said that Best Buy's divergent experiences show that context really matters in deciding whether a marketplace makes sense.

"They just have to have a purpose," he said.