Same-day delivery supports the growth of e-commerce at Target

E-commerce sales at Target increased for the first time in more than a year, and the mass retailer attributes the increase to the growth of same-day delivery and fulfillment services.

While comparable digital sales increased 1.4%, year-over-year same-day sales growth was almost 9%. Same-day alternatives include Drive Up’s curbside pickup service, in-store pickup and same-day delivery powered by Shipt.

Drive Up itself reported 13% year-over-year growth in the quarter.

“This builds on the explosive growth of Drive Up that has occurred during the pandemic, followed by double-digit growth in both 2022 and 2023,” Target CEO Brian Cornell said on a Wednesday morning earnings call. “In total, Drive Up sales of more than $2 billion in the first quarter were more than 30 times higher than in the first quarter of 2019.”

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

The improvements coincide with Target’s continued expansion into same-day delivery, as the company recently incorporated the option into its Target Circle 360 ​​membership program. Paid members qualify for same-day delivery on all orders over $35, at no cost.

Because Shipt supports the service, members are also eligible for same-day delivery from over 100 of the company’s retail partners, further increasing the number of products that can be delivered within hours.

Target’s returns experience also apparently gets good marks from consumers.

“While we received high satisfaction ratings for all of our same-day services, returns received the highest rating of any service we provide,” Michael Fiddelke, Target’s chief financial officer and chief operating officer, said on the call. “Remarkably, Drive Up’s net promoter score for returns increased further in the first quarter, exceeding the highest score the service achieved a year ago.”

Fiddelke also highlighted what he called “productivity gains” in Target’s general merchandise and food distribution networks, saying the retailer improved its mid-haul fill rate, which represents the percentage of orders a brand can fill that stretch without running out of stock. warehouse.

According to Fiddelke, Target’s changes to last-mile delivery capabilities have helped the company optimize the number of units per package and save on delivery costs. Much of the last-mile investment is driven by the construction of new sortation centers, with Target predicting there will be a total of 15 across the U.S. by 2026.

Ten sortation centers currently operate across Target’s supply chain. The $100 million project places these facilities further down the supply chain than their existing distribution counterparts, striving to be closer to stores and end consumers.

At the company’s March financial community meeting, Fiddelke suggested that the company’s supply chain investments may not happen as quickly in the coming years.

“Today we no longer feel such urgency,” Fiddelke said at the time. “Similarly, while we are encouraged by what we are seeing in our sortation centers and expect to significantly increase their capacity over time, the pace of investment in sortation centers has slowed somewhat in the near term given that last mile brown box delivery volumes have declined significantly last year.”

Most of the products passing through sorting centers go to the company’s stores. In the first quarter, stores completed nearly 98 percent. Target’s total sales.

“We have also seen improvement through continued collaboration with our supplier partners, where we are approaching pre-pandemic levels of reliability in terms of incoming deliveries on time and in full,” Fiddelke said.

Target touted same-day services less than a week after archrival Walmart flexed its delivery muscles. According to the retail giant’s CEO, Doug McMillon, Walmart delivered 4.4 billion items across the U.S. on the same or next day over the past 12 months. About 20 percent of those packages are delivered in less than three hours, he added.

Target’s overall quarter was disappointing, with it reporting a comparable sales decline for the fourth quarter in a row. The retailer’s total revenue fell 3.1 percent to $24.5 billion in the quarter, while net profit fell 0.8 percent to $942 million.

Overall customer traffic dropped by 1.9 percent, while the average amount customers spent on these visits also dropped by 1.9 percent. Target shares fell more than 7 percent Wednesday morning after the earnings release. In an effort to win back customers hit by inflation, Target is lowering prices on 5,000 frequently purchased items.