Target, the American retail corporation, has announced its plan to invest $100 million in constructing a more expansive network of supply chain hubs. The expansion aims to accelerate the delivery of online orders and reduce costs. Target intends to have 15 sortation centers in place by the end of January 2026, with nine already operational after piloting the concept in its hometown of Minneapolis. Moreover, the expansion plan will grow Target’s workforce, with more than 100 people employed on average at each sortation center.
Despite having a glut of inventory and experiencing a significant sales slowdown, Target is optimistic about the growth of e-commerce. Recently, Target lowered its holiday-quarter forecast and revealed plans to reduce costs by up to $3 billion in the next three years. However, Target’s report for the fiscal fourth quarter earnings and full-year expectations will be announced on Tuesday.
Furthermore, Target’s e-commerce growth has slowed down due to the sharp rise during the early stages of the pandemic, creating tough comparisons. In the most recently reported quarter, which ended in late October, digital sales increased by less than 1%. In contrast, the year-ago third quarter recorded nearly 29% growth.
Walmart and Home Depot, Target’s retail peers, have also forecasted a challenging year ahead, with pandemic-fueled sales decreasing and inflation putting pressure on household budgets. Walmart anticipates a 2-2.5% rise in its U.S. business’s same-store sales, excluding fuel, in the fiscal year, while Home Depot forecasts roughly flat sales growth for the fiscal year.
Gretchen McCarthy, Target’s chief global supply chain and logistics officer, explained that regardless of the economic background, Target must meet customer expectations, especially with regards to getting online purchases quickly and conveniently. “We are absolutely tracking consumer spending closely. We’re taking recent trends into account,” McCarthy stated, pointing to the retailer’s lowered forecast.
Moreover, the delivery hubs will enable Target to better cater to customers’ needs, whether they’re shopping online, in stores or utilizing curbside pickup. McCarthy revealed that up to 40% of packages that go through sortation centers and get delivered by Shipt arrive at customers’ doors next day. Target aims to increase this number.
Over the last six years, Target has implemented a strategy of “stores as hubs.” Approximately 1,950 stores have become mini warehouses, where employees help pick and pack the majority of the company’s online orders. According to company filings, nearly 97% of its total sales were fulfilled by a store in the fiscal third quarter.
As online sales grew, Target’s backrooms became crowded with packages. To tackle this, Target started testing sortation centers. These facilities receive packages from approximately 30 to 40 nearby stores, group them into more efficient delivery routes, and hand them over to a third-party carrier or a vehicle belonging to a Shipt contract worker. Target opened its first sortation center in Minneapolis in 2020 and has since opened centers in major markets in Minnesota, Texas, Colorado, Illinois, Georgia, and Pennsylvania. Last month, Target opened additional sortation centers in the Chicago and Denver areas.
By switching to this model, Target has cleared space in its backrooms and freed up time for store employees to assist customers. McCarthy refused to specify the savings that come from each hub but revealed that the company has saved “tens of millions of dollars in last-mile expenses” since opening the sortation centers.
Target anticipates delivering 50 million packages through sortation centers in the coming year, up from 26 million packages in 2022.