Target raised the ante Wednesday, announcing that it’s agreed to acquire Shipt, an online same-day delivery platform for $550 million in cash. The acquisition will help Target leverage its network of stores as well as Shipt’s proprietary technology platform and community of shoppers, allowing the retailer to quickly and efficiently bring same-day delivery to customers.
Shipt, a fast-growing membership-based grocery marketplace and same-day delivery platform, leverages a network of over 20,000 personal shoppers to fulfill orders from various retailers and deliver within hours in more than 72 markets.
Target said the acquisition will significantly accelerate its digital fulfillment efforts, which have been cited by retail industry experts as being not as robust as they could be.
Wall Street apparently liked the move, sending Target stock up 2.57 percent to $62.59 on the New York Stock Exchange.
“Target’s announcement is positive for the company, and an example of the speed with which Target is attempting to expand and enhance its online channel,” said Moody’s lead retail analyst Charlie O’Shea. “While it won’t affect Target’s capability this holiday season, the fact that Target will have this service in place during 2018 will significantly improve its online competitive position since the service is integrated and rolled out to customers. This is yet another example of a bricks-and-mortar retailer leveraging its physical assets to improve its online offerings.”
O’Shea said that many retailers already ship products ordered online from stores. “This will allow Target to deliver products out of stores,” he said. “It will reduce inventory levels because you don’t need as much product. The best bricks-and-mortar retailers will have one pile of inventory for both channels.”
“Same-day delivery will soon be par for the course in the same way that free two-day shipping and buy-online-pick-up-in-store has become standard,” said Chuck Grom, a retail analyst at Gordon Haskett Research Advisors. “The team from Minneapolis is no longer sitting back on its heels, but is instead making thoughtful decisions to repurpose assets and improve the customer experience. Strategically, Target is planning to augment the numbers of participants on the Shipt platform over time, creating its own digital ecosystem that’s different than the marketplace both Wal-Mart and Amazon successfully created.“
Like Wal-Mart, Minneapolis-based Target has been transforming its supply chain, leveraging stores to offer store pickup, drive-up service and same-day delivery. The retailer has also ramped up its ability to ship products from stores, with about 50 percent of all digital orders fulfilled by its 1,800 units. Over 1,500 stores will fulfill orders over the holiday season.
“The real battleground, where we have to win, is the last mile,” the retailer’s chairman and chief executive officer Brian Cornell said in October during a press briefing, touting a new service, Target Restock, which provides next-day delivery of more than 15,000 household items, is available in 11 markets and will roll out nationally next year. “For $4.99, that package will be on the guest’s doorstep the next day,” Cornell said. “We can take orders as late as 7 p.m. for next-day delivery.”
While Shipt has expertise in groceries, Target plans to use it to deliver much more.
Target, through Shipt, will offer same-day delivery to consumers at about half of its stores by early 2018. The service, which will cost $99 per year, will be available at the majority of Target stores and in all major markets before the 2018 holiday season, with same-day delivery available for groceries, essentials, home, electronics and other products. By the end of 2019, same-day delivery will include all of the retailer’s major product categories.
Shipt isn’t Target’s first acquisition in the delivery arena. The retailer in August bought Grand Junction, transportation technology company, to improve and expand its delivery capabilities, among other things.
Grand Junction has been working with Target on a same-day delivery pilot at its TriBeCa store in Manhattan. At the unit, which is one of the flexible-format stores the retailer has been unveiling in urban areas and colleges, same-day delivery has been responsible for increasing basket size by six times the store average. The service will be expanded to the new Herald Square and Brooklyn units.
“If you look at the big picture, this acquisition will mark an important milestone in an ambitious strategy that we laid out in early 2017. That included strengthening Target’s supply chain and digital capabilities to make shopping at Target easier, more reliable and more convenient,” said John Mulligan, executive vice president and chief operating officer for Target. “We’ve already made significant progress. “With Shipt’s network of local shoppers and its current market penetration, we’ll move from days to hours, dramatically accelerating our ability to bring affordable same-day delivery to guests across the country.”
Wal-Mart acquired Parcel, in October, a technology-based, same-day, last-mile delivery program that specializes in e-commerce package delivery, including taking fresh, frozen and perishable food to shopper’s doors.
Wal-Mart-owned Jet.com has been testing free same-day delivery of certain orders to customers in New York and said it plans to leverage Parcel for last-mile delivery to customers in New York, including same-day delivery for both general merchandise as well as fresh and frozen groceries from Wal-Mart and Jet.
Moody’s O’Shea said it’s hard to know whether Target paid too much for Shipt, just as it’s unclear whether Wal-Mart overpaid or underpaid for Jet.com when it acquired the e-commerce site in August 2016 for $3.3 billion.
“When Wal-Mart bought Jet.com, it leveraged its assets, including algorithm and talent beyond what people thought would be possible,” O’Shea said, adding Target’s Shipt acquisition has the potential to be similarly transformative. “Target wisely said, ‘What we’re doing isn’t moving fast enough, so we’ll buy [a same-day delivery platform] rather than try to build it ourselves.’ Bricks-and-mortar guys have to invest for the long-term.”