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How Target is trying to cut e-commerce costs


Search for profit

Every morning, hundreds of drivers gather at a delivery center in Minneapolis. They are preparing to fill their private cars with packages to deliver to thousands of customers in the area. This hub is owned by Target (TGT), and thanks to these retailers, the retailer is able to fulfill the increasing number of orders it receives online.

E-commerce now accounts for roughly 20% of Target’s sales. About half of that number is for same-day services, such as home delivery and street pickup. But transportation and labor costs make these sales less profitable. To change that, Target is building a network of sorting centers across the country.

The Bullseye: Cutting costs

Since 2020, Target has added five similar centers like the one in Minneapolis. Three more distribution centers are planned to open by the end of January. The purpose of fulfilling online orders has taken on new urgency with rising fuel prices.

At these sorting centers, contract employees pick up and deliver packages bound for the same general location. While the exact cost of these cost-saving measures is not official, Chief Operating Officer John Mulligan said the average cost per unit of digital fulfillment has fallen by more than 50% since 2019.


Target is not alone in its efforts to reduce its e-commerce costs. Walmart (WMT) uses its stores as warehouses not only for its own products, but also for the goods of other companies. Through a new business called GoLocal, Walmart is helping deliver online purchases to companies like The Home Depot (HD) and Chika.

Of course, there’s Amazon (AMZN) too. In addition to building new local distribution centers, the tech giant recently announced it will begin drone deliveries in College Station, Texas through its Prime Air program. As more and more people shop online, major retailers like Target, Walmart and Amazon are locked in a battle to win those purchases and keep costs down, which can be a daunting task.

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