The Target Corporation logo displayed on a smartphone screen.
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Target said Wednesday it would spend $100 million to build a larger network of supply chain centers to speed up and reduce the cost of delivering online orders.
The retailer plans to have at least 15 such facilities, called sorting centers, by the end of January 2026. It has already opened nine, after testing the concept in its hometown of Minneapolis. The expansion will also increase Target’s workforce. On average, more than 100 people work in each sorting center.
The company is betting on the growth of e-commerce, despite struggling with a glut of inventory and a noticeable decline in sales. Target lowered its outlook for the holiday quarter and announced plans to cut up to $3 billion in costs over the next three years. It will release its fiscal fourth-quarter results and full-year expectations on Tuesday.
E-commerce sales growth has also slowed for the company, in part due to the surge in the early days of the pandemic, which created difficult comparisons. Digital sales grew less than 1% in the last reported quarter, which ended in late October. That compares to nearly 29% growth in the third quarter a year ago.
This week, Target retail peers walmart And Home deposit predicted a tougher year ahead, after the pandemic-fueled sales boom and as inflation weighs on household budgets. Walmart said it expects U.S. same-store sales to rise 2% or 2.5%, excluding fuel, in the fiscal year. The Home Depot said it expects sales growth for the year to be about flat.
Gretchen McCarthy, Target’s head of global supply chain and logistics, said no matter the economic environment, Target needs to meet customer expectations to make online purchases easy and fast.
“We are monitoring consumer spending closely. We take into account recent trends,” McCarthy said, pointing to the retailer’s lower forecast.
But, she added, the delivery centers will help Target better meet customer needs, whether they’re shopping online, in stores, or using curbside pickup.
She said up to 40% of packages that pass through sorting centers and are delivered by Shipt arrive at customers’ doors the next day — and Target is aiming to increase that number.
For the past six years or so, Target has leaned into a “stores as hubs” strategy. It has transformed its approximately 1,950 stores into mini-warehouses where employees help pick and pack the majority of the company’s online orders. Nearly 97% of its total sales were made by one store during the fiscal third quarter, according to company filings.
However, as online sales increased, Target’s backrooms filled with packages. Target has begun testing sorting centers, a facility where packages arrive from approximately 30 to 40 nearby stores, are consolidated into more efficient delivery routes, and are picked up by a third-party carrier or a contract worker’s vehicle. for Shipt, a third-party delivery company owned by Target. It opened the first in 2020 in Minneapolis.
It has opened sorting centers in major markets in Minnesota, Texas, Colorado, Illinois, Georgia and Pennsylvania. Last month, it opened them in the Chicago and Denver area.
By switching to the model, Target freed up space in its back rooms and freed up time for store employees to help customers, McCarthy said. She declined to specify the savings made by each hub, but said that since opening the sorting centers, the company has saved “tens of millions of dollars in last-mile expenses”.
Over the coming year, she said Target expects to deliver 50 million packages through sorting centers, up from 26 million packages in 2022.
