Target clicks Shopify to add sellers to its external marketplace

Target and Shopify did not disclose financial terms or the length of the deal.

In an interview with CNBC, Cara Sylvester, Target’s director of guest experience, said Shopify will help the retailer find popular products and quickly make them available to online shoppers at Target. She said Target plans to bring several popular products discovered through Shopify’s offerings to store shelves.

Target’s marketplace creates a “halo” and “speeds up the whole business,” she said. Sylvester added that as it expands its online selection and adds eye-catching merchandise, customers are more likely to visit its website and make purchases from both marketplace and Target private label retailers.

The big-box retailer is trying to return to sales growth as consumers buy less discretionary goods and the discounter lags behind grocery competitors like Walmart. Target has reported four consecutive quarters of declining comparable sales, and overall sales have declined in three of the last four quarters.

The company is also struggling 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 leaders said in May that the retailer was on track to return to sales growth in the second quarter, but that was partly due to its weak year-over-year performance. Target said it expects full-year comparable sales to be flat to 2%, with adjusted earnings per share ranging from $8.60 to $9.60.

Target shares underperformed the broader stock market. As of Friday’s close, the company’s shares were up about 2% compared with a nearly 15% gain in the S&P 500. The company’s share price of $146.13 is also well below the highs it hit during the Covid pandemic years, when it hit $260.

Shopify could also benefit from an improvement. The company’s shares fell after it reported earnings in May and are down about 17% so far this year.

Target Plus has only a small share of revenues and sellers on other third-party marketplaces. Unlike Amazon, Walmart, eBay and others, Target allows brands to join by invitation only. According to Target, it has more than 1,200 retailers. Amazon has about 2 million sellers and Walmart has about 135,000 sellers, according to estimates from Marketplace Pulse, an e-commerce research tracker.

Target’s marketplace sells products like UnBrush, a detangling hairbrush that went viral on TikTok, and premium products like Ray-Ban and Coach sunglasses. It offers over 2 million products from brands such as Crocs, Ruggable and Timberland. The range covers many categories, including clothing, sports goods and home furnishings.

Target said its market has gained momentum. It said the number of sellers and products had more than doubled over the last calendar year.

The retailer does not share revenues earned through the third-party marketplace. Instead, it lumps it together on financial reports with “other income,” such as money earned from profit-sharing from Roundel’s credit card and advertising businesses. Other revenues amounted to $388 million, representing less than 2% of the $24.53 billion in revenues recorded in the most recent quarter ending May 4.

However, Sylvester said Target Plus is “one of the fastest-growing parts of Target’s business.”

Brands that join Target Plus also become potential Roundel customers. In the last quarter, the advertising industry grew by over 20%. Sylvester wouldn’t say how much of that came from ads bought by Target Plus sellers.

Third-party marketplaces have become a popular area in retail because they generate higher profits. Instead of purchasing goods from suppliers, retailers rely on sellers, who typically hold and own inventory. These sellers also face financial risk if customers don’t want the items or the products need to be discounted.

Retailers typically receive a cut of the sellers’ sales. In addition, they may charge fees for services such as fulfilling a brand’s online orders or selling advertisements for sellers’ products, such as sponsored search results.

Target does not offer fulfillment services, instead relying on Target Plus sellers to store, pack and ship their own merchandise.

Walmart, in particular, has ramped up its efforts in the marketplace, trying to fill a wide gap with Amazon and its dominant e-commerce platform. It acquires sellers and offers new services, such as the ability to ship bulky items such as garden furniture and kayaks. Walmart’s U.S. sales rose 36% in the first quarter and it now offers more than 420 million unique products, CEO Doug McMillon said on the company’s earnings call in mid-May.

Other marketplaces like TikTok Shop and Temu are also growing rapidly.