Minneapolis — Every day, hundreds of drivers park at a delivery hub 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 locations — two in the Greater Chicago area and one near Denver — to get online orders to the door quicker and at lower prices. The new centers are part of growing pressure among retailers including walmart To make e-commerce more profitable as shoppers spend online and expect the purchase to reach their doorstep within a day or hours.
Since testing began at the Minneapolis facility in late 2020, Target has added five identical hubs, where ready-to-go packages are sorted and grouped together to form dense delivery routes. Three more are expected to open by the end of January.
“Our goal is to meet guests where they want, when they want, how they want,” Chief Operating Officer John Mulligan said in an interview. “And so if they want us to send something to their house, we want to make it as efficient as possible.”
E-commerce is now just shy of 20% of Target’s sales, with more than half of that coming from same-day services like curbside pickup and the rest from shipping to homes. Yet because of labor and transportation costs, those sales are less profitable when shoppers go to Target stores, take items off the shelves, and take them home.
Like other retailers, Target has worked to address the cost of fulfilling online orders — a goal that has taken on new urgency for retailers amid rising fuel prices.
Its delivery hubs, called sorting centers, receive boxed-up online orders from the store twice a day. Packages going to the same city or nearby areas are batched together to be delivered to the customers a day after the order is placed. An increasing number of sorted packages are then delivered by contract workers who drive to the ship, a delivery start-up The target was achieved in 2017. Some are even serialized and distributed by national carrier partners such as fedex – generally for far-flung addresses such as another metro area or state,
Over the past five years, Target has transformed store backrooms into warehouses where employees choose and pack most orders. It acquired Delive and Grand Junction, two companies with software that helps it determine which stores fulfill online orders and design dense delivery routes. The devices now also help guide some employees on the best path to retrieve items from store shelves.
Yet with development came new challenges. Packages began piling up in backrooms and employees had to wait for national carriers to retrieve them each day. Carriers had to stop across regions. For example, before the sortation center opened, trucks had to pick up packages from 43 stores and a fulfillment center in Minneapolis—which took more time and labor.
target’first sorting center of Built in a former Sears warehouse in Minneapolis. Packages from the hub are delivered by over 2,000 ship drivers or carrier partners. The center started delivering 600 packages per day and now has the capacity to deliver 50,000 per day.
Mulligan said that with its three new centers, Target will have nine sortation centers — with more expected in future years. Along with Minneapolis, it has centers near Atlanta, Philadelphia, Dallas, Austin, Texas, and Houston. In the first quarter, they handled 4.5 million packages.
Mulligan said Target is still trying to figure out how much sorting centers reduce shipping costs. In March, he said Target had already reduced average per-unit digital fulfillment costs by more than 50% over the past three years.
Ultimately, he said the company wants to reduce the distance package travels by placing desired items at the store near the customer.
Target is also piloting a new concept at its Minneapolis location: Some shipowners are using delivery vehicles that can hold up to eight times as many packages per route.
Other retailers are also working to make e-commerce more profitable. in addition to the following Build high tech fulfillment centers, walmart Is Using your stores as warehouses and using contract workers to deliver the package. It distributes online shopping as part of for Home Depot, Chico’s and other companies. A new business called GoLocal.
Another way Target has lowered delivery costs is by encouraging customers to use Drive Up, a curbside pickup service where shoppers retrieve purchases in the parking lot. Chief Store Officer Mark Schindel said it costs the company 90% less to accomplish that if they shipped packages from a warehouse.
For Target, the move to improve profitability comes at a critical time. The retailer lowered its forecast for Operating margin twice in recent monthsAs warned he would have to cancel the order and increase the markdown to get rid of unwanted merchandise during which he stocked covid pandemic,