Digiday: Target’s Profitable Same-Day Delivery Strategy is Driving Digital Sales

May 22, 2019 In the News

Target’s profitable same-day delivery strategy is driving digital sales

As Walmart and Amazon race to deliver online orders to customers in a one-day window, Target is reaping the profits of its store-centric same-day delivery strategy.

Chief operating officer John Mulligan told investors during the company’s first quarter 2019 earnings call on Wednesday that 80% of Target’s first-quarter digital sales were fulfilled from stores. Target has three options for customers to buy online and receive orders from stores the same-day: In-store pickup, a drive-up delivery service and home delivery from store using Shipt, the last-mile delivery company Target acquired in 2017. For the quarter, digital sales increased by 42%, half of which was driven by store fulfillments, according to the company. In 2018, Target saw $5 billion in digital sales (last year, two-thirds of those orders were fulfilled by a Target store). The company expects to hit $6 billion in digital sales this year.

While investments in delivery options — which include new technologies for proper inventory tracking, store remodels to make room for order fulfillment and new wage structures for store staff and Shipt delivery drivers — have eaten into Target’s bottom line and pinched margins, the company is seeing a bounce-back. Mulligan said that all of Target’s same-day delivery options were now profitable, and more profitable than typical online orders that ship items from fulfillment centers to customers’ homes.

“That was the strategy at the essence, over the past three years. With more than 1,000 stores, within a three-mile radius of customers, there was no reason Target couldn’t compete with Amazon on Prime,” said Omar Akilah, VP of product management at supply chain service Yantriks, who formerly was the director of product management at Target. “The consensus was, Amazon was fast, but we could be fast, too. Retail used to be about brand, price and assortment but what they’ve realized is that fulfillment is that fourth leg of the stool.”

Read the rest of the article on Digiday.