Target’s Same-Day Services Drive Remarkable Growth As Shoppers Rush to Adopt Them

Target is beginning to see the impact of its same-day digital fulfillment services.

The retailer's same-day services consist of in-store pickup; drive-up, now at more than 1,550 stores; and same-day delivery through Shipt. The three combined accounted for more than a third of Target’s digital sales in its second quarter 2019, up from about 20% last year. Combined sales for the three services have doubled over the last year, accounting for nearly three quarters of Target's 34% digital comp growth in the second quarter.

“In other words our same-day options are growing much faster than our digital sales,” explained COO John Mulligan on the retailer’s recent earnings call.

The three services leverage Target’s store infrastructure, technology and teams, meaning Target’s same-day fulfillment delivers outstanding financial performance as well.

Nearly 1.5 percentage points of the company's overall comp growth was driven by Target’s same-day services. Target’s second quarter comparable sales grew 3.4% in the quarter.

“These are remarkable statistics and they demonstrate how rapidly our guests are learning about and embracing these new convenient options,” said Mulligan. “For many guests, they are becoming the go-to choice for their digital shopping because they offer unique advantages. They are immediate. They allow guests to shop and receive their order on the same day. They are convenient. Guests can choose where they receive their order, either at the front of the store, in the parking lot or at home. They are fast.”

The services are getting better too, as Target adds tools and technology to make them easier and faster for employees. Since the beginning of 2018, order picking efficiency for pickup and drive-up has increased more than 30%, while end-to-end labor efficiency for Target’s ship from store capability has also improved by more than 30% over that same period.

“These are massive improvements which we realized through the natural scale efficiencies we see on higher volume, which are compounded by incorporating improved processes and technology,” said Mulligan.

A few things Target has done to improve productivity:

• Apply new algorithms to prioritize the sequence of order picking based on a range of criteria rather than simply applying a first-in, first-out system
• Implement new technology to eliminate ambiguity for its store team members about which work to perform first, when work is due and the optimal box size for packing orders.
• Enhance data reporting for store teams to track the unit efficiency of both pick and pack.

Same-Day Profitability

As Target shifts its fulfillment from upstream distribution centers (DCs) to its stores, the retailer is seeing its cost go down by upwards of 40%. When fulfillment moves to one of Target’s same-day options—pick up in-store, drive-up or Shipt—it sees a 90% reduction in that cost.

Drive-up, pick-up and Shipt are Target’s cheapest fulfillment methods, thus the most profitable for Target.

“So obviously, as we are seeing the acceleration of our same-day convenient options, more guests opting to order online and pick-up or use drive-up or Shipt, we are seeing the benefits of that flowing through our P&L,” said CEO Brian Cornell.

As Target continues to build awareness through its marketing campaign it is seeing continued growth in the services. Same-day offerings receive some of the highest net promoter scores of anything Target offers.

“So we would expect those fulfillment channels, which obviously are our most profitable way to fill digital orders, to continue to grow over the balance of the year,” said Cornell.

“If you simply apply a guest-first mentality, you quickly see the value of our investments to develop and roll out our same-day options across the country,” Mulligan said. “But what's even better that these services also make sense for our business because they leverage existing store assets and our store teams in new ways. As a result, our same-day options are also the most profitable within our digital offering.”