Same-Day Delivery Buoys Target’s E-Commerce Growth

Glenn Taylor

Wed, May 22, 2024, 12:47 PM 4 min read

“This builds on the explosive growth of Drive Up that occurred during the pandemic, which was followed by double-digit increases in both 2022 and 2023,” said Brian Cornell, CEO of Target, during a Wednesday morning earnings call. “Altogether, at more than $2 billion in Q1, Drive Up sales were more than 30 times larger than we saw in the first quarter of 2019.”

Across 2023, same-day services contributed $12.5 billion in total sales, the company has previously stated. These fulfillment and delivery capabilities have driven 70 percent of the retailer’s digital growth since 2013.

The improvements coincide with Target’s ongoing expansion of same-day delivery, with the company recently incorporating the option into its Target Circle 360 membership program. Paid members are eligible for same-day delivery on all orders over $35, without any fees.

Since Shipt operates the service, members are also eligible for same-day delivery from the company’s more than 100 retail partners, further expanding the number of products that can be delivered in a few hours.

Target’s returns experience is apparently getting good marks from consumers as well.

“While we received high satisfaction scores across all of our same-day services, returns received the highest rating of any service we provide,” said Michael Fiddelke, Target’s chief financial officer and chief operating officer, during the call. “And notably, the net promoter score for Drive Up returns moved even higher in the first quarter, exceeding the sky-high score this service was receiving a year ago.”

Fiddelke also highlighted what he called “productivity gains” across Target’s general merchandise and food distribution networks, saying that the retailer had improvements in middle-mile fill rates, which represents the percentage of orders a brand can transport on the middle mile without running out of stock.

According to Fiddelke, Target’s changes within its last-mile delivery capability have helped the company optimize units per package and save on delivery costs. The last-mile investments have largely come through the buildout of new sortation centers, with Target anticipating a total of 15 across the U.S. by 2026.

Ten sortation centers are currently operating across Target’s supply chain. The $100 million project positions these facilities further downstream than their legacy distribution counterparts in an effort to be closer to stores and end consumers.

During the company’s financial community meeting in March, Fiddelke suggested that the company’s supply chain investments might not come as rapidly in the years ahead.

“We’re no longer feeling that same urgency today,” Fiddelke said at the time. “Similarly, while we love what we’re seeing in our sortation centers and expect to meaningfully grow their capacity over time, the pacing of sort center investments has slowed somewhat in the near term, given that brown box last-mile delivery volumes declined significantly last year.”

Most of the products flowing through the sortation centers end up in the company’s stores. In the first quarter, stores fulfilled nearly 98 percent of Target’s total sales.

“We’ve also seen improvements through continued collaboration with our vendor partners, where we’re approaching pre-pandemic levels of reliability regarding inbound shipments arriving on time and in full,” said Fiddelke.

Target touted its same-day services less than a week after chief rival Walmart flexed its own delivery muscles. According to the retail giant’s CEO, Doug McMillon, Walmart delivered 4.4 billion items either same-day or next-day across the U.S. over the past 12 months. Roughly 20 percent of those shipments are delivered in under three hours, he said.

Target’s overall quarter was a disappointment, marking the fourth straight quarter it saw comparable sales dip. Total revenue at the retailer dipped 3.1 percent to $24.5 billion in the quarter, while net income decreased 0.8 percent to $942 million.

Overall customer traffic fell 1.9 percent, while the average amount that customers spent on those visits also dropped 1.9 percent. Target’s stock plummeted more than 7 percent in Wednesday morning trading on the earnings release. In an effort to win back inflation-impacted customers, Target is cutting prices of 5,000 frequently shopped items.

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Same-Day Delivery Buoys Target’s E-Commerce Growth

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