After reporting strong fourth-quarter and fiscal year 2021 earnings earlier this week, one of America’s largest retailers is setting its sights on delivery to grow even more.
Target Corp. (NYSE: TGT) has long been a staple of U.S. physical and digital retail, but up until last year, it hadn’t touched its logistics network in over a decade. The big box store added a pair of regional distribution centers last summer, but that was just an appetizer for this week’s main course.
Target announced Tuesday that it would be investing up to $5 billion to scale its operations in 2022, and logistics is at the center of the company’s strategy. The retailer will be opening four additional distribution centers, 10 sortation centers and about 30 new retail locations, with plans to renovate 200 existing stores with same-day online fulfillment, order pickup and returns capabilities.
Target’s FY2021 earnings report, released Tuesday, revealed that the company’s annual sales figures topped $100 billion for the first time in its history, and an influx of online orders was a big reason for that. Target’s digital business has nearly tripled in size over the past two years, driving $13 billion in digital growth in 2021.
More than half of that growth comes from the company’s same-day fulfillment services, which include its curbside Drive Up service, its Order Pickup service for in-store retrieval of e-commerce orders and Shipt, the company’s home delivery option borne out of its acquisition of the company of the same name in 2017.
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To keep up with all of those online orders, Target is finally looking to add to the distribution network that it hadn’t expanded for years up until last summer.
“Before last year, we hadn’t added a new regional distribution center in over a decade, even as our total sales grew 40% over that same time period,” Chief Operating Officer John Mulligan said Tuesday during the company’s earnings call. “It’s time to expand our network.”
As part of that expansion, Target has four new regional distribution centers in development with plans to build several more in subsequent years, adding to its network of 49 distribution facilities across 23 states.
Additionally, the retailer is building 10 sortation centers to enable same-day delivery capabilities to regional customers. One existing center in Minneapolis, for example, has been up and running for over a year and allows Target trucks to collect packages from its stores throughout the day and deliver them to the sortation facility, where they are organized by ZIP code and allocated to carrier partners for direct delivery.
Previously, online orders in Minneapolis were fulfilled and palletized out of the back rooms of stores, with just one daily pickup from the company’s carrier partners to send the goods out for delivery. With sortation centers being built around the country, Target customers should expect to receive online orders even faster.
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Target also informed investors that it would be adding about 30 stores to its network of more than 2,000 retail locations. The company also said it plans to remodel 200 of those locations to add more hold space and pickup areas for online fulfillment, piggybacking on the trend of brands repurposing their stores as dual retail and fulfillment spaces.
“We knew using stores as hubs would give guests more choice and convenience, while giving our operation more flexibility and capacity for future growth,” Mulligan added. “That was true prior to 2020 and could not have been more essential since that time.”
Yet another Target strategic initiative will see the big box retailer offering curbside pickup of Starbucks products through its Drive Up option, which will also begin to function as an in-person option for easy returns.
Target is doubling down on its e-commerce operation despite slowing growth for the company. For the year ended Jan. 29, digital sales were up 20.8% compared to 144.7% the previous year. Meanwhile, for the year ended Jan. 28, e-commerce sales were up just a single percentage point, versus 69% a year prior.
Still, Target anticipates mid-single-digit growth in total revenue and high-single digit growth in adjusted earnings per share in 2022 — both above analyst expectations.
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