Target looks to elevate its ship-from-store operations

Discussion
Source: Target
Apr 19, 2021
Tom Ryan

Target is testing a new method of delivery that involves picking up merchandise in stores and sorting them at nearby mini-distribution centers for carriers in order to increase speed and reduce costs. The retailer is also exploring the use of its Shipt delivery service for last-mile drop-offs.

Target’s stores fulfill the majority of digitally-originated sales, which management has said allows improved product availability, faster fulfillment times, reduced shipping costs and supports same-day fulfillment options, such as Order Pickup, Drive Up and Shipt delivery. Target’s e-commerce sales surged 145 percent last year.

Target has staged a new test of the new delivery method in Minneapolis, where a sortation center opened last year to serve most of Minneapolis-St. Paul. Five more centers are planned this year.

Online orders are collected multiple times a day from nearby stores and sent to the sortation center, where proprietary technologies obtained from the acquisitions of Grand Junction and Deliv “determine the most efficient way to sort, route and deliver to local neighborhoods,” according to a company blog post.

The Minneapolis center has served as a central pickup location for multiple carriers but the use of Shipt is a new initiative. Shipt drivers could serve as an alternative to UPS and FedEx as those carriers have been increasing fees or limiting parcels amid surging online demand. Amazon.com and Walmart already use contracted delivery drivers.

John Mulligan, COO, 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.”

Mr. Mulligan told CNBC that the new model helps resolve the problem of packages piling up in stores due to the surge in online orders, while efficiencies at the center makes e-commerce orders more profitable.

“We continue to work on picking better and optimizing our pick and optimizing the batches [of packages] for the team — all of that is really important — but the key to the whole game from our perspective is to improve that ship cost,” he said.

Target has said shipping online orders from stores is 40 percent less expensive than from a warehouse.

DISCUSSION QUESTIONS: Does Target’s new online order fulfillment test program sound promising to you? What challenges may the model present in tackling last-mile delivery?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I don’t see it unless it’s for general merchandise only. Then, it’s Amazon Lite."
"Customers want the human to human physical shopping experience, the touching of products, the impulse buying and the freedom to simply have the ability to go in store."
"I question if adding a new layer of process to the “ship-from-store” predecessor makes any sense. Target is talking about a shipment processing center that has no inventory."

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15 Comments on "Target looks to elevate its ship-from-store operations"


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Rick Watson
BrainTrust

Same-day is last year. The new standard is 15 minutes. Retailers that can invest and keep up will offer it. Others will find service providers. Target has been investing against this goal for seven or eight years with the same leadership. It’s really astounding. John Mulligan is a visionary who kicked it all off. Brian Cornell recognized it by elevating someone like John, who was interim CEO right before Brian took the job.

Bob Amster
BrainTrust

I question if adding a new layer of process to the “ship-from-store” predecessor makes any sense. Target is talking about a shipment processing center that has no inventory. Why not put inventory in it and call it a fulfillment center? They must have worked the numbers. It is not obvious to me.

David Naumann
BrainTrust
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
16 days 51 minutes ago

I was thinking the same thing Bob. Moving product an extra time increases costs. It appears that the problem Target is solving for is the lack of space in the backrooms at stores to accommodate the high volume of online orders.

Neil Saunders
BrainTrust

With online orders still surging at Target, this initiative will help the business manage volume better and be more efficient with the delivery network. It also sounds like Target is testing building out its own end-to-end fulfillment operation, similar to Amazon. This will reduce costs and increase flexibility. Target will likely be selective in locations where this is employed, looking first for areas where orders are high and there is a solid population density, but this is a great next step in Target’s multichannel push.

Paula Rosenblum
BrainTrust

Well, this is a page out of the old (very old) specialty store playbook. We used to ship “garbage loads” of clothes to de-consolidators and they would sort them by store and deliver.

It carries costs for grocers though: 1.) Time – it adds time to the process unless Target builds a ton of them in neighborhoods 2.) Cost – not to be a a jerk, but how will they keep cold product cold? This has always been an issue for me, and is even a problem without the intermediate distribution center. And sorting bottles on a sortation system is an old, old problem. They break.

I don’t see it unless it’s for general merchandise only. Then, it’s Amazon Lite.

Richard J. George, Ph.D.
BrainTrust

The problem of goods piling up in stores is a real one. Plus the final mile costs can be prohibitive. The challenge for brick-and-mortar retailers is who owns the shipping process and, therefore, the customer? While outsourcing may have some financial benefits, the opportunity to control the process and the relationship with the customer can provide significant differential advantages to Target. The key for Target and similar retailers is to aggressively pursue logistical control of its products, not develop patchwork responses to the final mile issue.

Suresh Chaganti
BrainTrust

We will see a lot of evolution. Retailers will strive to deliver in the time it takes for someone to get up, go to the nearest store and get what they need. Depending on where customers live, for some it could be 15 minutes, for others it could be 45 minutes.

We should expect retailers to have neighborhood distribution centers. In India for instance, a local grocery shop with just 500 to 1,000 square feet is extremely common. Does it make sense to have one per subdivision, that gets replenished once a day? Probably. There are a lot of lessons to be learned from other countries in terms of retail adoption. I can see technology and process innovation going together.

Gene Detroyer
BrainTrust

My impression of this initiative was the same as Bob Amster’s.

If I understand what was described, product goes from the stores to the sortation center, then if it is a store pick-up, back to the store.

I must believe that a company as operationally savvy as Target sees this as a short-term solution. The part I like is that they are not picking and sorting in the store — a convoluted process that I did not understand and still don’t.

What sounds promising is Target’s ability to eliminate all picking activity from in-store and convert these sortation centers to mini-destruction centers.

Venky Ramesh
BrainTrust

While many of their peers are focusing on service (15-minute to two-hour delivery), Target seems to be focused on cost and efficiency, which is not bad per se. What they need to watch out for is they don’t lose market share to their competitors while chasing costs. I believe what the industry needs is a membership service like Amazon Prime or Walmart+ which allows the retailer to provide their best service with the customer paying for them.

Dave Wendland
BrainTrust

On the plus side, Target is determined to improve the availability of items within local markets and supporting multiple methods of getting it to their guests. They seem to be out in front of many of their competitors.

On the negative side, as others have mentioned, moving the items from a store to a redistribution center will add handling costs. Redesigning physical store space to accommodate fulfillment of higher-moving items will become imperative to remain price competitive and hyper-efficient.

Ricardo Belmar
BrainTrust
My sense is this process is solving for very specific issues that seem to be confounding matters at the store level. Primarily, this means removing the volume of merchandise picked and packed for shipping from the store via traditional carriers. These are boxes of products, which we know have dramatically increased in volume during the pandemic and are now taking up valuable back-room space at each Target where they need to reserve more space for same-day deliveries and drive-up pickup. By moving these shipments out of the store for delivery, the store can focus on the picking and packing, and fulfillment of digital orders that must be handled exclusively at the store. Shipped products, while picked and packed at the store, do not need to take up space while waiting for carriers (or Shipt delivery) – that can be relocated to sortation centers. I suspect these will be deployed over time at regions where the shipping volume is too high for a store to handle without impacting the same-day services the store needs to focus… Read more »
Scott Norris
Guest

This is a good take — Target has several DCs in the Twin Cities that DTC orders could also be sourced from, and not every store location has the same inventory profile. (I could shop the mini location in Dinkytown, the classic layout in the Quarry, or the SuperTarget at T1 in Roseville, all within 5 minutes of each other, for instance.) These mini-consolidation nodes are likely blending what would have been two or more Shipt trips into just one, while using the DC-to-store transportation network’s available capacity (backhauls, for instance.) This isn’t a solution for small markets, but it’s profound for bigger metro areas, where the entire city is effectively the DC.

Lee Peterson
BrainTrust

Two things: the long tail of e-commerce; how do you fill that from a store? According to Amazon, that’s 18 percent to 20 percent of orders. Do you stock that in store? Pretty much can’t without large capital expense, so, how does that work? Long tail = longer? Something to figure out yet IMO.

Secondly, that aside, having ordered from our “local” (within five miles) Target and received goods in less than 20 minutes, that’s really hard to beat! And the word of mouth PR they’re getting from that is extraordinary. So, all in all, with that big plus combined with the fact that the long tail needs to be solved in the meantime, their model is worth looking at across the retail spectrum. Positives outweigh the negatives by far.

Liza Amlani
BrainTrust

Target’s new online order fulfillment test program does sound very promising from the “guest” perspective. Faster delivery to your customer is always better.

This is what the customer wants right now BUT as more people get vaccinated, many will want to head back to physical stores.

Customers want the human to human physical shopping experience, the touching of products, the impulse buying and the freedom to simply have the ability to go in store.

No doubt, many customers will have permanently adjusted to a new way of living and shopping — this solution will be helpful to meet their demand.

In the long term, would this discourage people from coming into the store? Will Target miss out on the opportunity to capitalize on impulse buys and upselling if people don’t visit the store?

Kai Clarke
BrainTrust

Yes. Expanding its order online fulfillment will increase Target’s reach, their shipping strength, and overall fulfillment as they seek to better establish themselves as a strong player in the last-mile delivery space and online ordering.

wpDiscuz
Braintrust
"I don’t see it unless it’s for general merchandise only. Then, it’s Amazon Lite."
"Customers want the human to human physical shopping experience, the touching of products, the impulse buying and the freedom to simply have the ability to go in store."
"I question if adding a new layer of process to the “ship-from-store” predecessor makes any sense. Target is talking about a shipment processing center that has no inventory."

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