Target to make same-day delivery push with Shipt acquisition

Discussion
Image: Shipt
Dec 14, 2017
George Anderson

Target is serious about same-day delivery. Yesterday, the retailer announced it has agreed to acquire Shipt, the online same-day delivery platform, for $550 million in cash. Shipt hires local shoppers to fulfill online orders from physical store locations.

With the deal, Target expects to offer same-day delivery to customers through roughly half its stores by early next year. The majority of its stores will offer the service before the start of the 2018 holiday season.

In the beginning, the retailer’s customers will be able to purchase groceries, electronics, home and other products with plans to expand into other products and categories over time. Target said it would offer same-day delivery on all major categories by the end of 2019. Customers who pay a $99 annual fee will receive free same-day shipping from Shipt in markets where the service is available.

“We laid out an ambitious strategic agenda in early 2017, which included a focus on giving our guests a number of convenient ways to shop with Target, whether it’s ordering online and picking up in one of our stores, driving up to pick up an order, or taking advantage of services like our new Restock program,” said John Mulligan, Target’s chief operating officer, in a statement. “With Shipt’s network of local shoppers and their current market penetration, we will move from days to hours, dramatically accelerating our ability to bring affordable same-day delivery to guests across the country.”

Under the deal, Shipt will be a wholly-owned subsidiary of Target while continuing to operate independently. The company uses 20,000 personal shoppers to fulfill orders for same-day delivery for a variety of retailers in more than 72 markets around the U.S. Working with Target will enable Shipt to achieve the scale needed to further expand across the country.

“We’ll continue growing our marketplace and membership base, working with a variety of retailers to drive scale and efficiencies,” said Bill Smith, Shipt’s founder and CEO. “We look forward to introducing Target guests to the convenience of our same-day delivery services, with the level of personal attention only Shipt can provide.”

DISCUSSION QUESTIONS: What will Target’s acquisition of Shipt mean for the two companies? What will it mean for those that compete with Target and Shipt?

Braintrust
"Target's broad assortment should ultimately allow it to compete with Prime Now, and owning the last mile is always a good idea."
"It is not a foregone conclusion that consumers will pay a premium for same-day delivery. This is a risky bet for Target..."
"This is a win/win for sure. For the rest of the industry, this increases the stakes and makes same-day or 24-hour shipping a minimum standard."

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16 Comments on "Target to make same-day delivery push with Shipt acquisition"


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Paula Rosenblum
BrainTrust

Definitely a two-thumbs up. Target’s broad assortment should ultimately allow it to compete with Prime Now, and owning the last mile is always a good idea.

I don’t know how Amazon will deal with its Instacart contract, but perhaps that’s what the 2019 date is all about.

It turns out it is really more profitable to ship locally and avoid all the packaging associated with air freight.

One thing I have learned in my life is that a.) no market is infinite and b.) other companies rise to the challenge that a disruptor brings. Amazon was the disruptor — Target and Walmart are responding, each in their own way. And Best Buy has re-found its groove as well.

Rumors of a “retail apocalypse” are just overstated. The market shifts. And that’s a beautiful thing.

Bob Amster
BrainTrust

As we have seen in a number of other sectors, this type of complementary acquisition allows — in this case — Target to be in the professional shipping business almost overnight. It is a win/win situation.

Charles Dimov
BrainTrust

It is interesting to see so much acquisition of innovative shipment providers happening in the retail space. We seem to be coming back to a vertical integration phase in retail (where individual large retailers are trying to do it all). In that respect, the question is, will it stick?

For consumers this is a bonus. Target is definitely doing the right thing by offering customers yet another option for their shopping and fulfillment. From that perspective, it is a good move to make Target an even more attractive go-to destination for a shopper’s wants and needs.

Time will tell whether the vertical integration plays are here for the long term.

Tom Dougherty
BrainTrust

Yes, this is something Target should definitely do. In today’s retail environment, you must have same-day delivery to compete. However, it does NOT create preference. All it does is level the playing field for Target. Now its brand must work to create preference. Without it, Target’s not gaining any ground. It’s running in place.

Kim Garretson
BrainTrust

If you are curious about what the next Shipt-like acquisition deals will be in 2018, check out the portfolio of companies held by Shipt’s venture capital firm and its partner Ian Sigalow. Ian is one of the leading trends spotters and investors in these emerging consumer trends.

Ken Cassar
BrainTrust

It is not a foregone conclusion that consumers will pay a premium for same-day delivery. This is a risky bet for Target, but a necessary one given Amazon’s dominance and Walmart’s recent surge.

Seth Nagle
BrainTrust

Shipt has been aggressively expanding throughout 2017 making this acquisition the perfect gift for both companies. Now Target can continue to compete with the Amazons and Walmarts of the world and focus on building out the users experience and Shipt can continue growing their brand through creative marketing strategies with their new partner.

With Shipt now under Target’s umbrella and Instacart slightly under Whole Foods’, grocers must be getting nervous regarding their home delivery partnerships as they continue to build out their omnichannel offerings.

Neil Saunders
BrainTrust

Target’s plan to acquire Shipt signals a clear intent to capture a much larger slice of the online grocery market. This is a sensible and logical move for a number of reasons.
 
First, it gives Target the infrastructure and operational capacity to grow its market share in the online grocery channel. This is currently a segment where Target underperforms — a position that is not sustainable given the increasing popularity of buying food online.
 
Second, bolstering growth in grocery allows Target to improve sales volumes which are necessary to support economies of scale and margins. This has become particularly important because of Target’s focus on low prices.
 
Third, and perhaps most importantly, the new platform will allow Target to offer same-day delivery on a wide selection of non-food items. This makes the grocery service more attractive to consumers, and will also increase the profitability of the Shipt business model.

Byron Kerr
Guest

Great win for Target to allow them to compete against Amazon’s push for same-day delivery across 8,000 cities and Walmart’s push for curbside delivery.

I believe certain big box retailers (Target, Best Buy, Walmart) are starting to separate from the pack with strategic investments (internally and via acquisition) to expand their reach to consumers and compete more efficiently, and effectively, against Amazon.

It makes you wonder if last-mile delivery will turn into a bigger threat to UPS/FedEx than is currently being discussed.

Max Goldberg
BrainTrust

Consumers want fast delivery and Target is moving in that direction with the acquisition of Shipt. Not only will Target benefit by increasing its own sales, but it will be able to learn a great deal about what consumers are buying from other retailers, and will try to turn that data into increased Target sales.

Ed Dunn
Guest
1 month 3 days ago

This is a horrible, misinformed and bad deal that reeks of Webvan and I will predict we will see a $550 million write-down by Target in the near future. I’m shocked, as if no one even bothered to fully understand why Webvan failed in the first place.

There is absolutely nothing proprietary, no barrier to competition and a zero-sum game on margins. Personal shopping is a commodity and a utility like dog walking and will only have value on the macro-economic level in a local region.

Ricardo Belmar
BrainTrust

Great move by Target, two thumbs up on this one! Buying Shipt puts Target well on their way to developing a competitive answer to Amazon Prime and Prime Now loyalty through Target’s REDcard. Coupled with their recent launch of mobile payments via their app, Target has been somewhat quietly positioning themselves very competitively against Amazon and Walmart. While the others have pushed a constant flow of press releases and other announcements, Target is clearly thinking about their customers and how to improve the experience.

Target needed a way to enhance their grocery segment and delivery may be the answer they need. As they add other product categories the convenience factor of shopping with Target will increase tremendously for consumers.

With Shipt, Target is gaining a way to own the last mile, something Amazon’s own logistics have been driving for some time. I’d say this quite convincingly places Target in everyone’s sights as a top retailer in the battle with Amazon.

Phil Chang
BrainTrust

This takes Target up a notch and brings more convenience to the shopper. Shipt gives the consumer the ability to stay home, but still brings them the Target experience via personal shoppers. This is a win/win for sure. For the rest of the industry, this increases the stakes and makes same-day or 24-hour shipping a minimum standard.

Richard J. George, Ph.D.
BrainTrust

This deal puts Target firmly into the viable “final mile” business. The only question is the extent to which Shipt will continue to operate independently. The Amazon/Whole Foods deal will change the landscape for Instacart. I see the same dynamics happening with Target/Shipt. I think the management at Instacart may see this as a real opportunity to take share from Shipt.

Mohamed Amer
BrainTrust
For Target this deal makes the company a genuine player in the same-day delivery game. While the Shipt model uses their own app or web front-end and offers free delivery for orders over $35 while charging slightly different prices from those in stores, my understanding is that Target is offering free delivery with an annual membership fee of $99. It is also not clear if Target guests will go through the Shipt app, through the Target online store or both as more products become available for same-day delivery. What Target gets immediately from this deal is an army of 20,000+ personal shoppers, multi-year experience in the store-to-door delivery space and a whole lot of data about the products purchased and expectations people have for same-day deliveries. Convenience and speed are the keys in today’s retail environment. Across almost any customer segment you find that, outside of the actual experience derived from the products you purchase, time is the key to unlocking the make-or-break relationship a retailer has with its customers. In grocery, a customer can… Read more »
James Tenser
BrainTrust

Target’s decision to buy Shipt may amount to putting the delivery cart before the fulfillment horse.

While it’s a bold step, rapid store fulfillment and delivery is not without peril. Will shoppers be willing to pay the tab for this costly form of service? Will in-store fulfillment allow for a high-level of reliability and confidence? Taking an order is easy; delivering on the promise is hard.

I can’t endorse this decision until I feel assured that Target has a firm grasp on store-level inventory optimization — and the ability to port real-time, store-item availability data into the online/mobile ordering interface. Shipt has no particular expertise in this area. It will fall to Target to make the connectivity happen.

Despite these concerns, I like where Target is attempting to go with its acquisition of Shipt. It’s great to see them jump into the competitive fray with other market leaders.

wpDiscuz
Braintrust
"Target's broad assortment should ultimately allow it to compete with Prime Now, and owning the last mile is always a good idea."
"It is not a foregone conclusion that consumers will pay a premium for same-day delivery. This is a risky bet for Target..."
"This is a win/win for sure. For the rest of the industry, this increases the stakes and makes same-day or 24-hour shipping a minimum standard."

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