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Target bets on e-commerce, invest in delivery centers

by SuperiorInvest

Target Corporation logo displayed on smartphone screen.

Rafael Henrique | SOPA Images | Lightrocket | Getty Images

target said on Wednesday that it will spend $100 million to build a larger network of supply chain nodes to speed up and reduce the cost of delivering online orders.

The retailer plans to have at least 15 facilities, called sorting centers, by the end of January 2026. Nine has already opened, Mon concept testing in his hometown of Minneapolis. The expansion will also expand Target’s workforce. On average, more than 100 people work in each sorting center.

The company is betting on the growth of e-commerce, despite its struggles excess stock aa noticeable withdrawal for sale. Target lowered its outlook for the holiday quarter and announced plans reduce costs by up to $3 billion over the next three years. On Tuesday, it will report fiscal fourth-quarter earnings and full-year expectations.

E-commerce revenue growth also slowed for the company, partly due to a spike in the early days of the pandemic, making comparisons difficult. Digital sales rose less than 1% in the most recent quarter, which ended in late October. This compares with nearly 29% growth in the third quarter of last year.

This week, Target’s retail counterparts Walmart and Home Depot after a pandemic-induced sales boom and with inflation weighing on household budgets, it predicted a tougher year ahead. Walmart said so expects same-store sales for its US business to grow 2% or 2.5% excluding fuel in the fiscal year. Home Depot said so expects sales growth to keep the fiscal year roughly the same.

Gretchen McCarthy, Target’s director of global supply chain and logistics, said that regardless of the economic background, Target must keep up with customer expectations — specifically, to shop online conveniently and quickly.

“We’re absolutely watching consumer spending closely. We’re taking into account recent trends,” McCarthy said, pointing to the retailer’s lowered forecast.

But she added that the fulfillment centers will help Target better serve the needs of customers, whether they shop online, in stores or use curbside pickup.

She said up to 40% of packages that pass through sorting centers and are delivered by ship arrive at customers’ doors the next day — and Target aims to increase that number.

Over the past six years or so, Target has relied on a “stores as centers” strategy. It has turned its approximately 1,950 stores into mini-warehouses, where employees help pick and pack most of the company’s online orders. Nearly 97% of its total sales in the fiscal third quarter came from the store, according to the company’s filing.

But as online sales grew, Target’s backstage was crowded packages. Target has begun testing sorting centers, facilities where packages arrive from about 30 to 40 nearby stores, are grouped into more efficient delivery routes and picked up by a third-party carrier or a Shipt contractor’s vehicle. a third-party delivery company owned by Target. She opened the first in 2020 in Minneapolis.

It has opened sorting centers in major markets in Minnesota, Texas, Colorado, Illinois, Georgia and Pennsylvania. It opened them in the Chicago and Denver areas last month.

By switching to this model, Target freed up space in its back rooms and freed up time for store employees to help customers, McCarthy said. She declined to specify the savings that come from each center, but said the company has saved “tens of millions of dollars in last-mile expenses” since the sorting centers opened.

In the coming year, Target expects to ship 50 million packages through sorting centers — up from 26 million in 2022, it said.

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