Target wants to get online purchases to customers’ doors even faster. Instead of sending packages through carriers, the trader will also benefit from the help of its own team of dedicated suppliers.
The new approach – tested in Target’s hometown of Minneapolis – will be supported by three companies that the retailer has acquired. It starts with picking and packing orders from store employees. The items are transferred from the back of the store to a sorting center several times a day. It will then use technology acquired by two companies, Grand Junction and Deliv, to group packages for the most efficient routes to the neighborhoods. Finally, workers under contract for Shipt, the same-day delivery service that Target bought in 201
Target’s strategy can help it compete better with larger and sometimes faster e-commerce competitors such as Amazon and Walmart. This is in response to customers’ expectations for speed, as they use on-demand services from Uber to DoorDash. And this is an alternative to relying solely on carriers such as United Parcel Service and FedEx, which have managed to jump in demand during the coronavirus pandemic and have responded in some cases by raising fees or limiting parcels.
“Delivery is the bulk of the cost of receiving a product per guest. Delivery is a large number,” Target Chief Operating Officer John Mulligan said in an interview. “We continue to work on better selection and optimization of our selection and optimization of batches [of packages] for the team – all this is really important – but the key to the whole game from our point of view is to improve this price of the ship. “
With the new model, Mulligan said Target could eventually gain more control over the customer experience and make e-commerce orders more profitable.
Target opened its first sorting center in the fall and will maintain all stores in Minneapolis-St. Pavel district until the end of April. She began testing shipts with Shipt from this facility in late March.
Mulligan expects the process to grow over time. Target plans to open five more sorting centers this financial year and use Shipt to deliver to and around them. He declined to share locations, but said the sites would be in dense urban areas, where multiple packages could be delivered to the same neighborhood.
Shipt has approximately 300,000 workers who already leave groceries and other items hand-picked for a customer who pays $ 99 per year or $ 9.99 per order. Now some of the same contract workers will leave boxes in the Minneapolis area. For customers, this will look and cost no different than the delivery made by UPS or mail.
It comes at a time when Target’s online orders are rising. Digital sales rose 145% in the last fiscal year, which ended January 30, compared to the previous year.
Its share price has also risen. Since the beginning of the year, the shares have risen by more than 16% to a market value of 102.57 billion dollars. It reached a 52-week high of $ 207.38 in early April, and the stock is not far below that level – even as the big box trader faces challenging comparisons next year.
Target is not the first to use contract workers for supplies. Amazon has Flex, and Walmart has Spark, a network of contract employees who use their own cars to deliver packages.
Andre Faran, Managing Partner and Consultant for the Postal and Parcel Industry at Accenture, said that almost every retailer is dealing with higher costs and higher customer requirements.
“What we are seeing is that consumers are expecting more and more,” he said. “The fast is getting faster. Where three days were acceptable, two days are now barely acceptable. People with [Amazon] Prime is already in use for the same day. “
To cope, companies are working on their supply chain, he said. Ideas include opening local execution centers to reduce the distance from which a purchase is needed, or using data and analysis to make deliveries in groups rather than as one-offs.
Over the past few years, Target has put stores – instead of giant implementation facilities – at the heart of its e-commerce strategy. Its goal is to bring the economics of online sales more in line with those that take place in stores. About 95% of its sales last year were in stores.
It also promotes same-day options called Drive Up and Order Pickup, which cover costs as the customer retrieves their own online orders in parking lots or stores. Target also has free two-day home delivery for online purchases worth $ 35 or more.
Mulligan said orders through these click-to-collect services are 90% cheaper than sending this product from an execution center. He said sending a package from a store, rather than an execution center, is 40% cheaper.
“We are starting with a place of favorable economy,” he said. “It’s just a way to keep improving speed, to keep improving costs, to create great value for our guests.”