Target seeks greater e-commerce profits with new distribution centers and fleet of drivers

Target seeks greater e-commerce profits with new distribution centers and fleet of drivers
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MINNEAPOLIS — Every day, hundreds of drivers park at a delivery center in Target’s hometown and put packages in the trunk of their personal cars to deliver to customers.

Soon, the big-box retailer will have similar centers and gig workers in three more locations—two in the Greater Chicago area and one near Denver—to get online orders to the door faster and more cost-effectively. The new hubs are part of a growing pressure among retailers, including: Walmart making e-commerce more profitable as shoppers spend online and expect their purchases to arrive at their doorstep within a day or even hours.

Since it began testing at its Minneapolis facility in late 2020, Target has added five similar centers where ready-to-use packages are sorted and grouped to create busy delivery routes. Three more are scheduled to open by the end of January.

“Our goal is to welcome guests where they want, when they want, how they want,” Operations Director John Mulligan said in an interview. “And if they want us to send something to their home, we want to make it as efficient as possible.”

E-commerce now drives just shy of 20% of Target’s sales, with more than half coming from same-day services like curbside pickup and the rest from shipping to homes. Still, due to labor and shipping costs, these sales are less profitable than shoppers visiting Target stores and taking items home from the shelves.

Like other retailers, Target has sought to compromise the costs of fulfilling online orders – a target that has taken on a new urgency for retailers due to rising fuel prices.

Distribution centers, called sorting centers, receive boxed online orders from stores twice a day. Packages going to the same town or nearby neighborhoods are bundled together the day after ordering to get customers more. An increasing number of sorted packages are then delivered by contract workers driving vehicles for Shipt. and delivery starts Target achieved in 2017. Some are also sorted and delivered by national carrier partners such as: FedEx — usually to more remote addresses, such as another metropolitan area or state.

Over the past five years, Target has transformed store back rooms into warehouses where employees pick and pack most orders. It has acquired Deliv and Grand Junction, two companies with software that helps determine which store is fulfilling an online order and designs busy delivery routes. The devices now also help guide some employees into the best ways to get items off store shelves.

But with growth came new challenges. Packages began to pile up in the back rooms, and workers had to wait every day for national carriers to pick them up. Carriers had to make stops between regions. For example, trucks were required to collect packages from 43 stores and a logistics center in Minneapolis before the sorting center opened; This required more time and effort.

Aim’with first sorting center It was built in an old Sears warehouse in Minneapolis. Packages from the hub are delivered by more than 2,000 Shipt drivers or carrier partners. The center has started delivering 600 packages per day and is now capable of delivering 50,000 packages per day.

With three new centers, Target will have nine sorting centers — with more expected in the coming years, Mulligan said. Along with Minneapolis, its headquarters are located near Atlanta, Philadelphia, Dallas, Austin, Texas, and Houston. They handled 4.5 million packages in the first quarter.

Mulligan said Target is still trying to determine how much sorting centers are reducing shipping costs. In March, he said Target has cut 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 package travel by getting the desired products in stores close to the customer.

Target is also piloting a new concept at its Minneapolis location: Some Shipt drivers use delivery vehicles that can take up to eight times more packages per route.

Other retailers are also working to make e-commerce more profitable. In addition building high-tech supply centers, Walmart is is using their stores as warehouses and using subcontracted workers deliver packages. As part of it, Home Depot provides online purchases for Chico’s and other companies. A new business called GoLocal.

Another way Target is reducing delivery costs is to encourage customers to use Drive Up, a curbside pickup service where shoppers pick up their purchases at the parking lot. Store chief Mark Schindele said this cost the company 90% less to fulfill if they shipped packages from a warehouse.

The move to increase profitability for Target comes at a crucial time. Retailer lowers forecast operating margins twice in recent monthsAs he warned, he would have to cancel orders and increase discounts to get rid of the unwanted merchandise he stocked. covid epidemic.

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