The news: Target is testing a factory-direct shipping model that would enable it to offer lower-cost products to customers, per Bloomberg. The model, which lets suppliers ship products directly to shoppers, closely resembles the strategy used by Temu and Shein to keep prices low.

The rationale: Target is struggling to make its case to shoppers, many of whom are either losing interest in the retailer’s largely discretionary assortment or turning away entirely in protest of its about-face on diversity, equity, and inclusion (DEI). Borrowing Temu’s playbook would allow it to increase the range of affordable products it offers, primarily for apparel, household goods, and other nonfood items.

Our take: Unfortunately for Target, now is not the best time to increase its reliance on overseas suppliers. While the Temu-Shein model worked spectacularly well for several years, the conditions that fueled the retailers' growth—namely, the de minimis exemption and low tariffs—are no longer in place. Instead, retailers must now pay duties on low-value parcels originating from China in addition to tariffs; while the de minimis exemption remains for packages from other countries, a proposed law would eliminate it for all nations by 2027.

While Target might be able to pick up some sales from Temu as the latter turns away from the US, it will have to contend with stiff competition from Amazon, whose Haul marketplace also relies on the direct-shipping model.

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