Quick, low-cost delivery is the name of the game when it comes to eCommerce where every retailer is trying to keep pace with the lofty consumer expectations set by Amazon. However, the troubling truth behind this expedient eCommerce model is that it’s just not been that profitable for businesses. A study by HRC Advisory found that retailers’ operating earnings as a percent of sales declined by up to 25 percent when compared to traditional in-store commerce. This dynamic is due in large part to the added labor and transportation costs accrued through the process of getting products to customers.
eCommerce isn’t going anywhere. As a result, retailers need to find a way to maintain the rapid delivery services that consumers have come to expect while improving profit margins. The question is, how? The answer may just lie in Target’s expanding eCommerce model of sortation centers that leverage a contract carrier force and source products from stores instead of warehouses.
At the sortation centers, workers sort products, which have been packaged for delivery in store backrooms, into bundles for delivery to the same town or neighborhood. The bundles are then handed off to a growing fleet of Shipt drivers, who use their own personal vehicles to conduct last-mile delivery services. Target opened its first sortation center outside of its hometown of Minneapolis in 2020 and will have nine facilities nationwide by the end of January 2023.
The Minneapolis facility now leverages a fleet of over 2,000 shift drivers and can deliver roughly 50,000 packages a day. Nationally, the sortation centers handled a whopping 4.5 million packages in the first quarter of 2022. Target’s Chief Operating Officer, John Mulligan, said in an interview with CNBC that the sortation center model has reduced the average per unit digital fulfillment cost by more than 50 percent over the past three years.
All you independent retailers out there may be thinking: Cool, a big box retailer with a boatload of financial resources has streamlined its eCommerce operations, but how is this relevant to me? The answer is simple. Big box retailers like Target have the budget to experiment with outside-the-box retail strategies without the fear of financially crushing repercussions if it tanks. As a result, independent retailers can learn from the company’s success to streamline their own eCommerce operations by leveraging already existing store infrastructures and non-traditional methods of last-mile delivery.
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