Target and Amazon Sharpen Their Delivery Weapons

In December 2013, the Wall Street Journal reported that Home Depot planed to spend “at least $300 million on supply chain, technology and online improvements in the fiscal year that begins in February [2014], including building new fulfillment centers and overhauling its warehouse technology systems” to enable same-day shipping and delivery of orders. See my commentary at the time about the news.

Over the past decade, with the continued growth of e-commerce, many retailers have made significant investments in building new fulfillment networks or overhauling their existing ones (including utilizing their stores as fulfillment centers) to enable same-day or next-day delivery.

The big investments continue.

Last week, Target announced that “we plan to invest $100 million to expand our flexible, best-in-class supply chain sortation network to more than 15 facilities by the end of 2026, bringing our next-day delivery capabilities to guests across major U.S. markets.” Here are some excerpts from the press release:

Target currently has nine sortation centers in Minnesota, Texas, Colorado, Illinois, Georgia and Pennsylvania, including our three most recent facilities in the greater Chicago and Denver metro areas. With this $100 million investment, we’re planning to build more than a half dozen additional facilities.

Target piloted its first sortation center in Minneapolis in 2020, sorting online orders efficiently and quickly for delivery to local neighborhoods by a third-party carrier or Shipt delivery route, depending on the lowest-cost carrier option.

“We learned that we had to operate differently,” says [Doire Perot, operations director for our Minneapolis sortation center]. “This type of building, the type of next-day delivery capabilities that we can offer to our guests and team, it was going to take a different operating model across every team involved.”

“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,” says Doire. “Those three things are going to be the tune for the next several years as we continue bringing that vision to life.”

Meanwhile, as Sebastian Herrera reports in the Wall Street Journal today, Amazon is “expanding ultrafast delivery options, a sign that it remains committed to pushing its logistics system for speed as it scales back plans in other areas.” According to the article:

A central part of Amazon’s ultrafast delivery strategy is its network of warehouses that the company calls same-day sites. The facilities are a fraction of the size of Amazon’s large fulfillment warehouses and are designed to prepare products for immediate delivery. In contrast, the larger Amazon warehouses typically rely on delivery stations closer to customers for the final stage of shipping.

Amazon has opened about 45 of the smaller sites since 2019 and could expand to at least 150 centers in the next several years, according to MWPVL International Inc., which tracks Amazon warehouse operations.

These investments make it clear that delivery remains a competitive weapon for retailers like Home Depot, Target, Amazon, Walmart, and many others.

It’s also clear — to underscore what Doire Perot from Target said — that “decreasing costs, increasing speed and increasing last-mile capacity” is a tough balancing act. It requires big investments, as well as change and innovation across multiple fronts — not just with the design of fulfillment networks and facilities, but also with pricing models (because there is no such thing as “free shipping”) and delivery demand shaping (see “Delivery Demand Shaping: A Key Element In Enabling Profitable Same-Day Delivery”).

Simply put, delivery has become an important competitive weapon in the retail industry, but it’s a weapon that still requires a lot more sharpening.

Finally, I’ll end with a question I raised almost four years ago: Do we really need same-day delivery, especially when you consider the trade-offs in terms of more packaging, more deliveries, more traffic congestion, the environmental impacts, and so on?