Dive Brief:
- Target is trying out a faster delivery approach to win more consumer spending against speedier rivals.
- The retailer is using its newly opened sortation center in Minneapolis to trial a new Shipt delivery service feature that accelerates the last mile of delivery, according to a company press release on Thursday.
- John Mulligan, Target's chief operating officer, told CNBC that the company intends to open five more sortation centers this year and utilize Shipt to carry out deliveries in them.
Dive Insight:
Target is ramping up its shipping game following a fiscal year that saw digital fulfillment services grow three-digit percentage points.
The new method begins with store employees packaging items for delivery, and then a Target trailer will bring the packages to the nearby sortation center. Once the packages are at the sortation center, Target will use tools acquired from Grand Junction and Deliv to identify the best way to sort, route, deliver to local neighborhoods and subsequently to shoppers.
Improving online fulfillment is part of Target's $4 billion annual investment to bolster its operations over the next few years, the company told analysts and investors last month. The announcement came following tremendous digital sales growth throughout the 2020 fiscal year.
Sales through Target's digital channels grew by almost $10 billion in 2020 — a rise attributed to a 235% increase in its same-day services such as store pickup, curbside pickup and Shipt.
The big-box retailer acquired Shipt in 2017 for $550 million in cash just four months after buying same-day delivery company Grand Junction to expand same-day delivery for Target products. Target said at that time of the deal with Shipt it was one of the largest acquisitions in the company's history.
Since then, Shipt has become an important asset to Target as the pandemic continues to drive contactless fulfillment. During the company's most recent earnings call, Mulligan said Target sales on Shipt grew 300% due to the convenient capabilities it offered.
Target's attempts to make its delivery method more convenient may be to rival Walmart's two-hour service called Express Delivery and Amazon's one-day service called Prime Now.
"For years, Target has put our stores at the center of how we serve our guests. Our new sortation center builds on that model by helping us ship online orders with greater speed and lower costs, while making room for future growth," Mulligan said in a statement. "By adding Shipt to that operation, we're now testing how we can reach guests even faster with efficient local deliveries."
