Retail

Target expands same-day shipping option in the latest move in the delivery wars with Walmart and Amazon

Key Points
  • Target is expanding its same-day delivery options.
  • Shoppers will be able to pay a flat fee of $9.99 and have the option to get 65,000 items on Target.com delivered same day.
  • Target is using Shipt, a delivery platform it acquired in 2017, to do this.
One of Target's Shipt shoppers fills an online grocery order.
Source: Shipt

Target is bringing its same-day delivery option to the masses — the latest move in an ongoing delivery war involving the big-box retailer, Walmart and Amazon.

Target announced Thursday that online shoppers in 47 states will now be able to get items delivered same day by paying a flat fee of $9.99 per order. It's using Shipt, a membership-based, same-day delivery platform it acquired for $550 million in 2017, to do this.

Target shoppers have been able to get orders delivered on the same day by being a Shipt member, which costs $99 per year. That option is still available for everyone, Target said, but the company is making it easier for people to choose same-day delivery on an order-by-order basis, versus signing up for an annual membership.

Target's announcement comes amid a flood of activity among internet retailers to get orders to customers as quickly as possible. Walmart and Amazon recently announced next-day delivery options, with Walmart promising to reach roughly 75% of American consumers with faster shipping by the end of 2019.

Amazon offers Prime members, who pay a $119 annual fee, free same-day delivery for more than 3 million items and for orders over $35. Nonmembers have this option by paying an additional $9.98 per item, according to its website. And this is only for "select areas" across the U.S., Amazon says.

Walmart is on track to offer same-day delivery for groceries out of a network of 1,600 stores by the end of the year — double what it was in January. Fees for this option will vary based on location. And this fall, Walmart plans to begin delivering grocery orders inside homes, straight to customers' refrigerators, in a few markets. It still hasn't disclosed how much extra this service will cost.

Now, with Target's same-day delivery expansion, 65,000 items on Target.com can be delivered within an hour, the company said. Shoppers will be able to use their Target credit cards to pay, which gives them a 5% discount. It said this same-day delivery option should be incorporated into the Target mobile app before the holidays. It's currently live on desktop and mobile web browsers.

"With same-day delivery now available directly within the Target.com experience, we've made it even easier for our guests to shop at Target," Dawn Block, senior vice president of Target's digital operations, said in a blog post.

Shipt membership has doubled

Since its acquisition of Shipt, Target said, the service's membership base has doubled as has the number of retailers in the network. In addition to Target, Shipt still serves companies including CVS, H-E-B and Meijer. Around the holidays, it was employing about 80,000 Shipt shoppers, who help pick, pack and deliver orders from these retailers. It recently said that number has grown to more than 100,000 people.

Target already has been offering other same-day pickup options for online orders through its stores. This includes free curbside pickup at 1,400 stores and free in-store pickup at all 1,850 U.S. Target stores. Both options promise orders are ready within an hour.

During the first quarter, Target said Shipt, curbside and in-store pickup drove more than half of its 42% e-commerce sales growth and 25% of its same-store sales growth. Sales at stores open at least a year were up 4.8% during the quarter.

The financial benefit of all this for Target is that when customers pick items up in stores, it is 90% cheaper for the retailer than when it has to ship something from a warehouse, the company said.

In testing same-day delivery with a $9.99 fee in nine markets ahead of Thursday's announcement, Target said basket sizes grew about 10% to 15% on Target.com, compared with when shoppers were having to go through Shipt's website to get same-day delivery.

Shoppers across the country seem to be trying these options, too.

Fifty-three percent of American consumers said they were planning to place more orders online in 2019 with the intent of picking up their purchases at bricks-and-mortar stores, according to a survey by Internet Retailer of 1,100 people taken just after the 2018 holiday season. About 23% said they planned to place more orders for same-day delivery.

But with Amazon, Walmart, Target and others vying to win customers with speedier services, there's still some skepticism that same-day, next-day and in-home delivery is here to stay.

'It's not sustainable'

"We've distorted customer expectations, and it comes at zero cost to the customer," Sucharita Kodali, a retail analyst at Forrester Research, said in a recent interview. "Somebody is bearing the cost."

Ultimately, she said, "I don't think the customer experience is sustainable. We have to accept slightly less. This means: Something like next-day delivery is a short-term burst of excitement, ... a short-term micro-economic war. At the macro level, it's not sustainable."

Amazon, for example, said it would spend $800 million during its fiscal second quarter this year to move toward one-day delivery for Prime members. Target didn't disclose a cost for its same-day delivery expansion but said more and more customers are actually opting to use its curbside and in-store pickup options, instead of shipping. And as more people do this, Target's fulfillment costs drop.

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