Target Expands E-Commerce Operations With New Delivery Hubs

The retailer aims to reduce costs and get packages to customers faster.

July 26, 2022

Target Shipping Truck on the Highway

MINNEAPOLIS—Target is opening three additional delivery hubs to fulfill online orders faster and at a lower cost, reports CNBC. Two locations are opening in the Chicago area, and one will be near Denver. All three hubs are scheduled to open by the end of January 2023.

Target opened its first delivery hub in Minneapolis, where the big-box retailer is headquartered, in 2020. After a successful pilot, it opened five more in Atlanta, Philadelphia, Dallas, Austin and Houston.

The delivery hubs are called sortation centers, and the locations receive already-boxed online orders from area stores twice a day. Packages are sorted by town and/or neighborhood so customers receive their orders quicker and so that more can be delivered at a time.

Many of the packages are loaded into personal vehicles to be delivered by gig workers—many of whom worked for Shipt, which Target acquired in 2017. Other packages are delivered by national carrier partners, such as FedEx, if they are going to locations farther away like another metro area or state.

“Our goal is meet the guest where they are, when they want, how they want,” Chief Operating Officer John Mulligan said in an interview with CNBC. “And so if they do want us to ship something to their home, we want to make that as efficient as possible.”

E-commerce is nearly 20% of Target’s sales, and more than half of these sales are same-day services, such as curbside pickup, and the rest are shipped to homes.

CNBC reports that Target brick-and-mortar store backrooms are now warehouses where employees pick and pack most orders. The company acquired software companies Deliv and Grand Junction to help determine which stores should fulfill online orders, delivery routes and the best ways to grab items off store shelves.

The five sortation centers currently open handled 4.5 million packages in the first quarter, and Target said it has reduced the average per unit digital fulfillment cost by more than 50% over the past three years. Ultimately, the company wants to shorten the distance packages travel by having desired items at stores near the customer.

In addition, Target is testing out larger delivery vehicles driven by Shipt drivers at its Minneapolis delivery hub. The vehicles can hold up to eight times more packages per route than other vehicles.

The company is also attempting to reduce delivery costs by encouraging more customers to use Drive Up, where customers park and their orders are delivered to their vehicles. Drive Up costs Target 90% less to fulfill than if it shipped packages from a warehouse, Mark Schindele, chief stores officer, told CNBC.

Walmart announced in June that it will open four "next generation" fulfillment centers over the next three years in an attempt to make its e-commerce business more profitable. The centers will be the “first of their kind” for Walmart and will use a combination of people, robotics and machine learning. CNBC also reports that Walmart is using its stores as warehouses and using contract workers to deliver packages.

Here are three reasons why businesses are tapping into the gig economy.