Target investing $100M to expand next-day delivery services

Target is making a big investment to expand its next-day delivery capabilities across major U.S. markets.

The discounter said it will spend $100 million to expand its package-sorting network (dubbed sortation centers) to more than 15 facilities by the end of 2026. The expansion calls for the building of at least six new centers.

Target already operates nine sortation centers, with locations in Minnesota, Texas, Colorado, Illinois, Georgia and Pennsylvania. Most recently, it opened two in the Greater Chicago area and one in the Denver metro area. The company piloted the concept in April 2021, with a pilot in its Minneapolis hometown.

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The centers streamline the process of fulfilling and delivering online orders, removing the sorting process from the backroom of stores.   In markets with a sortation center, packages are retrieved daily from a range of 30 to 40 local stores, depending on the market, and transported to the sortation center to sort, batch and route them for delivery to local neighborhoods by a third-party carrier or Shipt delivery route, depending on the lowest-cost carrier option. 

“With sortation logistics dedicated off-site at our sortation centers, our stores have more room for picking and packing items for guest orders,” said Richard Dean, store director for Target’s store in Edina, Minn., which is supported by the company’s Minneapolis sortation center.

Since the first sortation center opened, Target said it has experienced a 150% increase in its next-day deliveries. It expects the sortation centers to deliver 50 million packages this year, double the amount of 2022.

Target’s sortation centers delivered 26 million packages in 2022, and up to 40% of the chain’s delivery orders with Shipt arrived at customers’ homes the next day. It expects the centers to deliver 50 million packages this year.

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In partnership with Shipt, Target has expanded options for drivers to take advantage of larger routes where they can use larger-capacity vehicles that can hold up to eight times more packages per route. The discounter is testing third-party partnership delivery vans in two of its sortation center markets and plans to roll them out to all markets in the next few years.

According to Target, its sortation center model demonstrates the power of its stores-as-hubs strategy, which leverages the chain’s store network as a launchpad for online orders.  Sortation centers represent the next phase, ensuring faster delivery for guests, saving shipping costs and fueling our long-term growth, the company said.

“Now more than ever, our guests rely on us to deliver their everyday essentials and Target favorites when they want and need them most,” said Gretchen McCarthy, Target’s chief global supply chain & logistics officer. “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.”

This story originally appeared on Chain Store Age.