1 Hidden Threat to Target's Retail Dominance

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Discount retailer Target (NYSE: TGT  ) has made a name for itself by collaborating with some of fashion's most admired designers. However, it hasn't been easy. Brick-and-mortar chains including Target, Wal-Mart and Best Buy (NYSE: BBY  ) have suffered lately because of increased competition from online retailers, such as  (NASDAQ: AMZN  ) . Differentiated merchandise has helped Target set itself apart from competitors -- that is, until recently.

Rival retailers are catching on, and a new partnership between Nordstrom (NYSE: JWN  ) and online marketplace Etsy promises to further disrupt the retail space. Etsy is an online platform that lets independent designers sell their homemade, one-of-a-kind goods to global shoppers on the Web. Today, Etsy has evolved to include Etsy Wholesale Marketplace.

A wholesale experience like no other
This is where Nordstrom comes into the mix. The upscale chain has agreed to be an Etsy wholesale buyer in hopes of offering its customers products they otherwise might not be able to find. Here's how Etsy's Wholesale Marketplace works: Sellers are vetted by Etsy and later linked with wholesale buyers from the likes of Nordstrom, West Elm, and other, smaller boutiques.

As a result, Nordstrom will have unique products that shoppers can't get from other department stores or big-box retailers.

Unlikely partnerships, like the national department store chain and Etsy, are a result of increased competition from online retailers. Smartphone apps such as's Price Check allow consumers to easily comparison-shop online. This is pushing retailers both big and small to find creative ways to get shoppers into their stores.

If you remember, Target launched a designer collection together with Neiman Marcus during the all-important December shopping season. Both Nordstrom and Target have struggled to find an edge in a market forever changed by Amazon. Nevertheless, Nordstrom hopes to reverse this by featuring limited-edition products from Etsy in its stores.

Target blazed a similar trail last year when it launched The Shops at Target. The ongoing design program brings specialty shops from around the country into Target stores to bring consumers affordable, limited-edition collections they can't find elsewhere.

The Shops at Target brings a boutique twist to the retailer's ongoing collaborations with world-renowned fashion designers including Diane von Furstenberg, Missoni, and Jason Wu. In the past, Target's exclusive lines from both Missoni and Jason Wu have sold out online and in stores in a matter of hours. This demonstrates that exclusivity works.

The retail experience is changing
Despite the early success Target gained through these exclusive fashion lines, Best Buy and other struggling retail chains were slow to catch on. To be fair, Best Buy gave the store-within-a-store model a go when it first introduced the mini-Apple stores format at the end of 2011. Sadly, not even Apple could save Best Buy from the battles it would later endure.

What became clear was that brick-and-mortars could no longer get by on low prices or brand recognition alone. The competitive landscape of the retail industry is changing and companies are being forced to either adapt or die a slow death.

Looking ahead, handcrafted home products from Etsy's vast array of independent designers should be a winning combination for Nordstrom. Especially thanks to Etsy's army of 850,000-strong artists and sellers. While we will have to see if Etsy's sellers can deliver at the scale and price this partnership demands, it's a proactive move on Nordstrom's behalf, nonetheless.

Why investors should care
This is revolutionary, not only for little ol' Etsy, but also for the retail industry at large. It is no longer enough for Target to rely on sporadic fashion collaborations. Instead, the winning retail stocks will be those that offer guests a mix of exclusive products, designer collaborations, one-of-a-kind merchandise, and other fresh incentives.

Ultimately, I think most analysts are underestimating what this could mean for Nordstrom in the future. The average consumer values one-off products that can't be found elsewhere online or otherwise -- particularly when these items are affordable.

As it stands, Target is revered as the place to shop for the latest fashions and home decor at reasonable prices. However, the Etsy-Nordstrom partnership could change this -- in the process bringing a younger demographic into Nordstrom's arms. I currently own shares of Target, but Nordstrom is becoming more and more appealing these days.

I suspect both Nordstrom and Target will be successful down the road, even as Amazon continues to shake things up in the retail space.

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