Target (NYSE:TGT) recently launched Target+, a new online marketplace for third-party sellers. This isn't surprising, since Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) offer similar platforms for third-party sellers. The key difference is that Target plans to curate its marketplace with a rigorous screening process.

Unlike Amazon and Walmart's marketplaces, which any seller can join, sellers can only join Target+ if they're invited. The platform's current sellers include Mizuno, SVSports, Kaplan Early Learning Company, Serenity Health & Home Decor, and Music123. Target plans to add additional sellers of home goods, toys, electronics, and sporting goods gradually.

The exterior of a Target store

Image source: Target.

By inviting retailers and carefully curating their products, Target can avoid the headache of policing its marketplace for offensive content, product quality issues, and customer service problems. Amazon, for example, is often criticized for letting third-party sellers peddle politically charged and racist products, and failing to stop sellers from selling knockoff goods. And Walmart faced several controversies regarding offensive T-shirts sold by some of its third-party vendors last year.

Target's approach is responsible, but it could dramatically limit the number of products on Target+. Target likely considers that a necessary sacrifice, but could it cripple the platform's ability to challenge Amazon, Walmart, and other online platforms for third-party sellers?

Why Target is launching a third-party marketplace

Like Amazon and Walmart, Target is integrating products from third-party sellers into its own online product searches.

Target has a much smaller e-commerce presence than Amazon and less than half as many U.S. stores as Walmart, so tethering third-party sellers to its ecosystem could give it a much-needed boost. Target's customers will also get the same perks -- including a 5% discount for REDcard members, free shipping, and in-store returns -- for both Target and Target+ orders.

Some of Target's own products were previously sold on its first-party marketplace but shipped from third-party vendors. However, with the introduction of Target+, products will be directly purchased and shipped from third-party vendors.

Tiny parcels in a miniature shopping cart sitting on a laptop keyboard

Image source: Getty Images.

Customers notably can't search for Target+ products separately. This indicates that Target's own products will likely be prioritized over third-party goods.

Rick Gomez, Target's chief marketing officer and digital officer, stated that Target+ would give shoppers "easy access to even more great products by partnering with best-in-class specialty and national brands that will help guests save and get more done in just one stop to Target.com."

Another piece of Target's e-commerce strategy

Target's digital comparable sales growth has accelerated significantly over the past two quarters thanks to the expansion of its digital ecosystem.

Metric

Q4 2017*

Q1 2018

Q2 2018

Q3 2018

Total comp sales growth

3.6%

3%

6.5%

5.1%

Digital comp sales growth

29%

28%

41%

49%

Revenue growth

10%

3.4%

6.9%

5.6%

Data source: Target quarterly reports. Chart by author. Year-over-year growth. *Includes an extra week.

These efforts include improvements to its website and app, the launch of its Restock next-day essentials delivery service, the expansion of its Drive-Up pickup service, free two-day shipping options, and same-day deliveries with Shipt.

The introduction of Target+ complements those efforts and widens the company's moat against Amazon and Walmart. However, all those efforts are also weighing down its operating margin.

TGT Operating Margin (TTM) Chart

Target Operating Margin (TTM), data by YCharts.

Certain strategies might relieve some of the pressure on its profit margin. For example, Target could reduce its e-commerce expenses by passing on more order fulfillment costs to third-party sellers on Target+. The expansion of its Drive-Up pickup service, which has consumers resolve the "last mile" issue by themselves, could also cut Target's delivery expenses.

Will this move the needle for Target?

Launching a third-party marketplace, especially a tightly curated one, probably won't move the needle for Target's e-commerce business on its own. However, it reflects Target's shrewd expansion of its e-commerce ecosystem, which is showing impressive resilience in the face of tough competition from Amazon and Walmart.