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Target announces massive supply chain investment

Last March, Target announced its plan for a logistics overhaul in 2022, following through with new sortation hubs and a reimagined store design to support e-commerce and same-day fulfillment services.

As March of 2023 approaches, the retailer is continuing to ride last year’s momentum. On Wednesday, Target (NYSE: TGT) announced a plan to invest $100 million through 2026 to expand its U.S. sortation network with more than a half-dozen additional facilities.

The retailer’s goal is to reach 15 sortation centers by the end of 2026, which will expand its next-day delivery capabilities to customers in new markets. It currently has nine hubs across Minnesota, Texas, Colorado, Georgia, Illinois and Pennsylvania, including the three it added in Chicago and Denver this past July.

Target’s sortation centers, the first of which opened in Minneapolis in 2020, are part of the retailer’s “stores-as-hubs” strategy, which leverages brick-and-mortar stores to fulfill online orders. 

Sortation hubs are the next phase of that model — stores can ship their e-commerce orders to these facilities to be batched and routed for delivery. This allows store associates to spend less time sorting and packing. And it creates a central pickup location for Target’s delivery partners, like Shipt, which it acquired for $550 million in 2017, to retrieve orders.

According to Target, each sortation center team visits between 30 and 40 Target stores, picking up packages and preparing them for delivery off-site.

“Through our sortation centers and Target Last Mile Delivery capabilities, we’re able to move faster and with more precision — while controlling costs and expanding our network capacity — for years to come,” said Gretchen McCarthy, the company’s chief global supply chain and logistics officer.

Watch: What is going on with Target?

In just a few short years, Target customers are already feeling the added impact of its sortation centers. Since the Minneapolis facility opened in 2020, the retailer has seen its number of next-day delivery orders rise 150%. Last year, its nine hubs delivered 26 million packages to customers nationwide, and four in 10 of the orders it fulfilled with Shipt arrived the next day.

But with Target’s three newest sortation centers entering their first full year of operation, and with more hubs in the works, the retailer projects even more volume to flow through its network — a lot more. In fact, it expects to deliver more than 50 million packages in 2023, nearly double what it handled last year. 

And to support that growth, Shipt is introducing longer routes and larger-capacity trucks for drivers, allowing them to deliver up to eight times as many packages per route. The vehicles are being tested in two sortation center markets and will roll out to all hubs in the next few years.

“There are three high-level goals that existed on day one and still hold true today: decreasing costs, increasing speed and increasing last-mile capacity,” said Doire Perot, who directs operations at Target’s Minneapolis facility. “Those three things are going to be the tune for the next several years as we continue bringing that vision to life.”

And there’s more to come. In November, the retailer rolled out the first of its redesigned store concepts in a Houston suburb and announced that by 2024, all new stores would feature most of the updated features. Those include an additional 20,000 square feet of space, a dedicated area for online fulfillment options like curbside pickup and a backroom that’s five times larger.

These investments could serve Target — which fulfills an astounding 95% of its digital orders out of brick-and-mortar stores — very well, even if inflation were to curb some of that online demand.

Click for more FreightWaves articles by Jack Daleo.

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