Target takes ownership of the e-commerce experience

While most view Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT) as the gold standards when it comes to e-commerce, Target (NYSE: TGT) has quietly made gains, and it is doing it in innovative ways.

“We created a ‘local guest experience’ battleground,” Arthur L. Valdez Jr., Target’s chief supply chain and logistics officer, told the audience during a keynote address on Wednesday at the Home Delivery World 2021 conference in Philadelphia. “That is how you [use goods in stores] to win that experience.”

Valdez said that 95% of Target’s online orders are fulfilled through stores, and the company is now the fourth-largest e-commerce grocer in the nation. With 75% of the U.S. population within 10 miles of one of its 1,900 stores, Target was already well positioned to grab market share, but its approach — from acquiring technology and routing firms, to owning its own delivery network — helps set it apart and has been a key that allowed digital sales to grow 150% in 2020.

“We had to first build out that fulfillment network in stores,” Valdez said, noting that Target needed to think about how it would sort e-commerce packages.

Its solution was to shift away from the traditional store replenishment model — floor-loaded truckloads that store employees would break down and distribute around the store — and instead pre-sort items at the warehouse level and send them to stores in containers with “directional put away in the store” instructions to speed the process.

“We needed to make sure we flowed inventory into stores more efficiently,” Valdez said.

Then, Target went a step further. The company has opened a sortation center in Minneapolis and plans four more in the Philadelphia, Houston, Dallas and Austin, Texas, regions. These sortation centers serve as a central pickup point for e-commerce orders, including same-day delivery.

“We do a linehaul sweep [of stores] multiple times a day,” Valdez said. “We are looking to get UPS (NYSE: UPS), FedEx (NYSE: FDX) and [Target-owned] Shipt to go to that facility.”

In the model, store associates pick and pack the orders and the linehaul truck transports the boxes — in the Minneapolis case it is from 45 area stores — to the sortation center where technology firms Target has acquired work to ensure the boxes are routed to the correct carrier for delivery.

Target utilizes Grand Junction and Deliv for this process. Grand Junction optimizes the delivery, helping identify the lowest-cost carrier and feeding this information to the sortation center. Deliv’s technology then determines, based on Grand Junction’s data, whether Target should deliver the package itself through its Shipt brand, or whether it should be outsourced to another carrier.

Valdez said Target is continually on the hunt for additional technologies that may further improve the process.

“We’ve had a lot of great success using our stores as an asset,” he said.

The results have shown in recent earnings reports. In the first quarter of 2021, Target grew total revenue 23% and digital revenue 50%, with revenue for same-day pickup and delivery services growing by more than 90%, while drive-up services revenue soared by 123%, Target said.

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Target takes ownership of the e-commerce experience

By owning the tech and even the delivery provider, retailer fulfills 95% of orders from local stores

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Brian Straight