Will Target’s ‘stores-as-hubs’ strategy get turbocharged by sortation centers?

Source: Target
Jul 26, 2022

Target wants to speed up its fulfillment of online orders using local stores to get the job done. The retailer yesterday said it is adding three new sortation centers over the next year to the six it currently operates with the goal of getting products to customers even faster and cutting costs in the process.

Sortation centers take control of orders packed in nearby Target stores and sort them for local deliveries. The dual goals of faster delivery times and cost reduction is critical to the retailer’s strategy that has contributed to exponential online business growth in recent years. The chain’s stores fulfilled more than 95 percent of its online orders in 2021.

The sortation centers are intended to take a function away from stores to free up time for associates and open more backroom space. Target claims that store associates are able to fulfill a larger number of orders in the process and the sortation centers are able to consolidate and batch deliveries to “add ease” for its carriers.

The retailer’s first sortation center in its Minneapolis backyard is an example of what Target hopes to accomplish with its three new facilities scheduled to be opened in the Chicago (two) and Denver markets. The Minneapolis sortation center handles nearly two-thirds of the company’s deliveries in the market, according to a Target blog post.

“We started out delivering several hundred packages per day, and now can deliver tens of thousands on our busiest days with the help of more than 2,000 Shipt drivers, who deliver packages in their personal vehicles. Packages are picked up from our 43 Twin Cities stores twice daily and sorted at the center for pickup by Shipt drivers and our other carrier partners, who then deliver them to guests’ doors.”

Target is currently running a pilot with Shipt in Minneapolis that makes use of “large-capacity” vehicles to deliver online orders to customers in the area. The new trucks ”can hold up to eight times more packages per route, adding more flexibility to deliver even faster and make room for growing order sizes.”

The retailer said it plans to use its learnings from the pilot to make improvements and scale the program in future years.

DISCUSSION QUESTIONS: Where do you think Target is heading operationally with its “stores-as-hubs” strategy? What do you make of its use of large capacity trucks using Shipt in Minneapolis?

Please practice The RetailWire Golden Rule when submitting your comments.
"Target is a good example of adapting to the new multichannel reality."
"Stores as hubs works because Target designed its supply chain around it from top to bottom and invented to make it work over several years."
"If Target is creating sortation centers, why not move to a full dark store picking and delivery unit?"

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16 Comments on "Will Target’s ‘stores-as-hubs’ strategy get turbocharged by sortation centers?"

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Rick Watson

Target has proven its operating model, and continues to innovate on it.

Stores as hubs works because Target designed its supply chain around it from top to bottom and invented to make it work over several years.

Large capacity trucks is a new experiment. The beauty of Target is each new experiment is a new opportunity to drive efficiencies, and these experiments keep moving forward. It doesn’t matter if a particular experiment fails. Target has proven the model, and their operators are constantly driving new innovations to improve their operating efficiency (costs) and service levels.

Most companies do not have that kind of patience. They see “we need more BOPIS” and jam it into an unoptimized network with no strategy.

Lee Peterson

Man, you gotta love the Nipper. This is a great move (stores as fulfillment centers) as is the smaller, more local store idea they’ve been executing for years now. Way ahead on all counts. I’d like to see more showroom stores from them to open up the rest of the space they have for fulfillment, but other than that, truly THE brand to watch in terms of physical store forward moves.

Ken Morris

Hello, MFCs and CFCs. Target is calling. This hub-and-spoke concept is definitely the way to go. It has the flexibility to go from stores to sorting facility or reverse and robotically pick from the mini-DC (sorting facility) and ship to the local store for lower-cost delivery. The cost of online orders, with their higher-than-in-store return rates, makes this move an inevitable evolution of people, process, and technology. 

Target is a good example of adapting to the new multichannel reality. Online is overtaking in-store, but almost every retailer’s infrastructure was built 100% for in-store shopping. Retailers need to step back and map out what their business mix will look like in the future. Step two is to retrofit or retool enough to keep up with orders. Phase three will be to establish a true multichannel system that can flow goods quickly to wherever shoppers want them to be.

Gary Sankary

Target understands the concept of “Unified Commerce” — creating a seamless experience for their customers across all channels. This is a perfect example of supporting that strategy. They’re building a more efficient supply chain that will leverage all available inventory to service their customer’s demand. Target will see reduced out-of-stocks. I suspect their guests will see an improved level of service — a win for Target.

Andrew Blatherwick

If Target is creating sortation centers, why not move to a full dark store picking and delivery unit? It seems they are double handling inventory to move to stores and then to sortation stations. There would be an additional inventory cost, but that is likely to be lower than the shipment between stores and sortation sites.

Scott Norris

The advantage is that they’re using Shipt and delivery-truck backhauls so that almost every mile driven is either delivering to a shopper or consolidating inventory. A dark store would still waste those backhaul miles. Only works when you have a critical density of store locations in a metro — but when you do, the cloud of stores is the DC.

Lisa Goller

This strategy frees up Target associates and store space while boosting productivity and profitability. Sortation centers streamline the last mile with order consolidation for faster delivery and cost reduction.

The large capacity trucks act as Target stores on wheels, delivering convenience to more homes.

Jeff Sward

Sounds like Target is yet again at the front of the line in executing evolutionary change. It’s pretty clear they are thinking many years down the road while many retailers are still wringing their hands about today and tomorrow. Product + Process. A great mix of national brands and proprietary brands. And a process that recognizes how customers want to interact with a retailer in the year 2022 and beyond. All while achieving ever improving cost efficiency. Hats off to Target!

Paula Rosenblum

I love sortation systems! Actually installed the first ones in the US back in the stone ages, for stores — flat and hanging goods. Anything that brings the work to the worker instead of forcing the worker to go to the work is efficient and convenient.

Doug Garnett

Retailers all have a core problem with shipping and inventory. What concerns me is the belief that there’s a solution to the fundamentally flawed idea that shipping can be free. Delivery to our doorstep is a luxury — we should have to pay for it as a luxury.

So this sounds somewhat savvy. But I doubt that it will take Target where they hope it will. Some big ideas end up remaining that — big ideas which cannot solve the unsolvable.

Mark Price

This strategy makes perfect sense from both an operational and customer experience perspective. Operationally, these centers can take advantage of robotics and economies of scale to drive down the cost, increase the throughput and the accuracy of orders to be mailed. On the customer experience side, this frees up staff to be available to meet customer needs in store, rather than have them spend time processing orders, which is not what they were originally trained for in the first place, either. I anticipate significant expansion of this approach across the markets where the majority of e-commerce orders are processed by the stores currently.

Brian Delp
4 months 9 days ago

The store to door strategy is an excellent strategy to keep inventory turning and speed up delivery times. It maximizes the benefit of brick and mortar locations. Q-Commerce is going to continue to evolve, and Target continues to lead with their Shipt service.

Ryan Mathews

Obviously, it is working for Target or they wouldn’t be expanding the program. As to becoming overly reliant on Shipt — or any third party delivery service — I’m little more bearish since you are building a potential vulnerability into a critical segment of the supply chain.

Richard J. George, Ph.D.

As noted, these sortation centers provide a valuable bolt on to online shopping. However, this enhancement does not address the still critical online shopping component, namely the picking of product in-store by Target employees or third party providers. In-store order selectors compete with regular shoppers for aisle space & can disrupt their shopping trip.

Kroger in partnership with Ocado has done a terrific job of launching 375,000 square foot fulfillment centers, complete with 1,000 robots. Shoprite (Wakefern) in partnership with Takeoff, has developed micro fulfillment centers. The goal of the large and micro fulfillment centers is to remove the order fulfillment process from stores.

Anil Patel

Target is efficiently implementing “omnipresence.” Ship-From-Store strategy devices enable faster movement of inventory, and on top of that, ensure speedy order fulfillment. Target’s sortation centers will assist in improving the efficiency of stores. Store executives focusing on their core operations and access to more in-store space will further aid in improving the store KPIs.

One-day delivery can be achieved using Shipt. So, I think the overall strategy is quite remarkable and Target can successfully bring optimization in all its spheres.

Nicola Kinsella

Target will continue to innovate on their fulfillment model. Sortation centers are a natural extension of looking at the “stores-as-hubs” strategy and asking themselves “How can we make it better?” As for larger capacity trucks, it makes sense. Why send multiple smaller trucks out if you’re shipping enough volume to fill larger ones. The key will be managing capacity to ensure they don’t end up delivering mostly “air” and maybe even looking at how they can include returns pickups if that makes sense.

"Target is a good example of adapting to the new multichannel reality."
"Stores as hubs works because Target designed its supply chain around it from top to bottom and invented to make it work over several years."
"If Target is creating sortation centers, why not move to a full dark store picking and delivery unit?"

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