Target has a stealth advantage over most retailers: Goldman Sachs

Brian Sozzi
·Executive Editor
3 min read
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With shoppers demanding their digitally placed orders faster than ever before because of the COVID-19 pandemic, Target deserves more love from Wall Street since it owns a same-day delivery service, argues Goldman Sachs.

"We think Buy-rated Target is best positioned given it is the only retailer that owns its own platform (Shipt), which reduces some cost pressures and minimizes the barrier on data sharing," said Goldman Sachs retail analyst Kate McShane in a new research note.

Continued McShane, "Third-party providers are offering an important solution for same day needs and is a more profitable option than overnight delivery, but overall proportion of sales remains small for retailers, noting many recently launched the option over the past year and alternative solutions (e.g., curbside/drive-up) have grown faster. While third-party partners enable retailers to rapidly adopt same day delivery services without the upfront costs and time commitment needed for a custom-built solution, we also recognize the margin impact and reduced control over customer data by the retailers."

FILE - This May 3, 2017, file photo shows a Target store in Omaha, Neb. Target is offering same-day delivery on thousands of items $9.99 per order through a startup it purchased nearly two years ago. Until now, Target shoppers looking to receive same-day delivery through Shipt had to go to the startup's website and pay $99 for an annual membership or $14 for a monthly membership. This week, Target incorporated the Shipt feature on its website. (AP Photo/Nati Harnik, File)
A Target store in Omaha, Neb. Target is offering same-day delivery on thousands of items $9.99 per order through a startup it purchased nearly two years ago. (AP Photo/Nati Harnik, File) (ASSOCIATED PRESS)

Target bought the membership-based Shipt for $550 million in 2017, a sum many on the Street thought was too high. The retailer has since expanded the company’s same-day delivery capabilities nationwide.

In late 2020, Target increased the types of goods Shipt shoppers could deliver to kids and baby apparel. And in February of this year, it inked a deal to deliver vitamins and other health producers from GNC.

Shipt likely has more than 300,000 shoppers currently using its service, per back of the envelope math from Yahoo Finance Live's chat with the brand's CEO Kelly Caruso this past holiday season.

"While the initial purchase of Shipt in 2017 was met with skepticism by investors, the past year demonstrated the platform’s competitive advantage for Target as the infrastructure was already in place (vs. others that had to form new partnerships and execute solutions while customer behavior was rapidly shifting in the midst of the pandemic)," added McShane.

The efforts by Target to aggressively scale up Shipt to more categories and city availability continue to pay major dividends in the battle for market share during the pandemic.

Target executives told analysts on a March earnings call that its sales on Shipt surged 300% in 2020 and membership more than doubled. Overall, sales for Target last year rose by $15 billion, greater than its total sales growth over the prior 11 years.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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