MINNEAPOLIS – Every day, hundreds of drivers park at a delivery center in Target’s hometown and load the trunks of their personal cars with packages to deliver to customers.
Soon, the big-box retailer will have similar centers and gig workers in three more places – two in the Greater Chicago area and one near Denver – to get online orders faster and for less money. lower fees. The new malls are part of a growing push among retailers including Walmart to make e-commerce more profitable as shoppers spend online and expect purchases to arrive within a day or even hours.
Since starting testing at its Minneapolis facility in late 2020, Target has added five similar hubs where ready-to-go packages are sorted and grouped together to create dense delivery routes. . The other three restaurants are expected to open by the end of January.
“Our goal is to meet guests where they are, when they want, how they want to be,” CEO John Mulligan said in an interview. “And so if they want us to ship something to their home, we want to make that as efficient as possible.”
E-commerce currently accounts for only 20% of Target’s sales, with more than half of that coming from same-day services like curbside pickup and the rest from door-to-door delivery. However, because of labor and shipping costs, those sales are less profitable than when shoppers go to Target stores, take the item off the shelf, and take it home.
Like other retailers, Target has been trying to reduce the cost of fulfilling online orders – a new imperative for retailers amid rising fuel prices.
Its delivery hubs, known as sorting centers, take boxed online orders from stores twice a day. Packages arriving in the same town or vicinity are batched together to get more items into the hands of the customer the day after the order is placed. An increasing number of sorted packages are then delivered by contract workers driving Shipt, a delivery startup Target was purchased in 2017. Some are also arranged and distributed by national shipping partners, such as FedEx – usually to more distant addresses such as major city areas or other states.
Over the past five years, Target has turned the back rooms of the store into a warehouse, where employees pick and pack most of the orders. It acquired Deliv and Grand Junction, two companies whose software helps determine which stores complete online orders and design dense delivery routes. The devices now also help guide some employees to the best routes to get items from store shelves.
However, with growth came new challenges. Packages began to pile up in the back room, and employees had to wait for national carriers to pick them up every day. Service providers had to stop between regions. For example, trucks must collect packages from 43 stores and a fulfillment center in Minneapolis before the sorting center opens – which takes more time and labor.
Target’first sorting center in Minneapolis was built in a former Sears warehouse. Packages from the hub are delivered by more than 2,000 Shipt drivers or shipping partners. The center started delivering 600 packages per day and now has a delivery capacity of 50,000 packages per day.
With the three new centers, Target will have nine sorting centers — more are expected in the coming years, Mulligan said. Along with Minneapolis, its centers are near Atlanta, Philadelphia, Dallas, Austin, Texas, and Houston. In the first quarter, they processed 4.5 million packages.
Mulligan said Target is still trying to determine how far the sorting centers will reduce shipping costs. In March, he said Target had reduced its average digital fulfillment cost per unit by more than 50% over the past three years.
Ultimately, he said, the company wants to shorten the distance packages travel by having desired items at stores near customers.
Target is also testing a new concept at its Minneapolis location: Some Shipt drivers are using delivery vehicles that can hold eight times as many packages per route.
Other retailers are also working to make e-commerce more profitable. Outside building high-tech application centers, Walmart To be use its stores as warehouses and employ contract workers to deliver packages. It offers online purchases to Home Depot, Chico’s, and other companies as part of the a new business called GoLocal.
Another way Target has reduced delivery costs is by encouraging customers to use Drive Up, a curbside pickup service where shoppers can make purchases in a parking lot. That costs the company 90% less if it ships packages from the warehouse, says Mark Schindele, the store manager.
For Target, the move to improve profitability comes at a critical time. The retailer has cut its forecast for operating profit twice in recent monthsas it warned that it would have to cancel the order and increase the discount to get rid of the unwanted goods it had hoarded for a while. Covid pandemic.
