- Several acquisitions laid the foundation for Target’s e-commerce success, said COO Jim Mulligan.
- The retailer could still improve in three key areas, five e-commerce supply chain experts told Insider.
- Here are nine startups that could strengthen Target’s e-commerce speed and profitability.
- See more stories on Insider’s business page.
Target’s e-commerce supply chain is built on acquisitions. That’s what COO John Mulligan said last week, as the retailer reported comparable sales growth of 22.9% year over year.
The retail giant’s digital order fulfillment options are exploding. Same-day services, including curbside delivery, in-store pickup, and home delivery, grew by 90% in the first quarter of 2021. Mulligan said the credit goes to three key acquisitions Target has made in the past five years.
The first of the trio was Grand Junction, in 2017. Grand Junction software helps Target choose the right logistics provider for each digital order, specializing in same-day delivery. It also provides tracking and carrier performance data. The retailer acquired the San Francisco-based startup after a successful New York City pilot.
Next was Shipt, which the retailer scooped up for a cool $550 million later that year. The gig-economy delivery platform provides Target’s main labor force for same-day delivery. By 2018, Shipt enabled same-day delivery from half of Target stores. Today, it covers nearly all of them, and Shipt is still racking up contracts with other retailers.
And in May of 2020, Target acquired the assets of Deliv, a gig-based delivery platform that had recently shut down operations. Deliv’s ability to batch and route orders enables Target’s newly launched sortation centers, Mulligan said Wednesday.
“We optimize sortation to minimize costs and increase speed by applying technology we acquired from Deliv,” the COO said, according to a transcript from Sentieo. Deliv’s founder and CEO Daphne Carmeli came with the deal too, and is now Target’s vice president of emerging business.
According to expert observers, Target is ahead of the curve on e-commerce logistics — the way online orders are picked, packed, and delivered.
But there are still areas where the retailer could improve and if history is any indication, more acquisitions could be the way. Five e-commerce experts pointed to three areas of focus Target may be looking at for future buys.
Last mile delivery is one area where retailers can never have enough capacity.
“If you consider Target’s supply chain acquisitions historically, they all have last mile relevance,” Santosh Sankar, founding partner at Dynamo Ventures, told Insider. Owning Shipt gives Target a lot of flexibility to experiment with and grow its same-day delivery service, but it has limits.
“I think Shipt could use more scale,” said Rick Watson, founder and CEO of RMW Commerce Consulting. Since a gig-based service is only as good as the number of drivers it pulls in, Watson suggested more regionalized gig networks to combine with Shipt might be next.
To prepare more orders to meet improved delivery capacity, Target may be looking at order fulfillment technology, according to Sankar.
“We see the supply chain being ‘rewritten’ backwards from the customer, making warehousing and fulfillment the obvious next opportunity that’s supported by market dynamism” he said.
And even farther back from that, Gartner Vice President Tom Enright said Target could build up the skill all retailers (and businesses for that matter) crave: the ability to see the future.
Enright said Target is generally viewed as one of the best in the industry at predicting what consumers will buy in-store or online. But with so many ways to get orders delivered and the reverberations of those consumer choices up the supply chain, he said Target could benefit from even sharper forecasting skills.
Target acquired PoweredAnalytics, a Pittsburgh predictive analytics company, in 2014. But Enright still sees room for Target to pull farther ahead of the pack in this existing area of strength.
Target, and most retailers that have invested in forecasting, can reliably predict what shoppers are going to buy and whether they’re going to buy it in a store or online, said Enright. But these predictive powers generally do not cover how a customer wants to have an order fulfilled. As e-commerce gets more complicated, retailers need to know how consumers will want their purchases delivered, since that choice impacts inventory, labor, and margin.
To see where Target might go next, Insider asked e-commerce and supply chain experts including Enright, Watson, Michael Zayonc of technology accelerator Plug and Play Supply Chain, and Patrick Van Hull of supply chain planning software Kinaxis, which companies the retailer could — or should — be eyeing for a potential acquisition. Here are nine companies and technologies they pointed to.
What it does: REEF turns parking lots into logistics hubs used as fulfillment centers or ghost kitchens.
Why Target would want it: As Target expands same-day services, the closer it can get to consumers, the shorter and more cost-effective each delivery will be. In 2020, REEF became the largest parking lot owner in the US.
What it does: Urbx is an automated micro-fulfillment company that makes 150-foot-tall robotic fulfillment towers.
Why Target would want it: Automated fulfillment in tight spaces can help speed order picking and accelerate delivery without large facilities. Major players in the space are currently targeting cities where large populations can create demand for ultra-fast delivery. Combining the speed and efficiency of automation with Target’s existing fulfillment capabilities could increase its scale and capacity for same-day orders.
What it does: Modula makes automated storage units that can pick e-commerce orders along with warehouse management software.
Why Target would want it: Most of Target’s online orders are currently picked in stores. And while the company has celebrated the efficiency of that system, supplementing it with automated picking could give the retailer more options for fulfilling small orders faster.
What it does: Veho is a parcel carrier founded in Boulder, Colorado that specializes in next-day delivery using gig-economy drivers.
Why Target would want it: Adding scale and reach to its already nationwide Shipt network could add to the number of same-day orders Target can fulfill each day.
What it does: Solvoyo makes retail analytics software that uses machine learning to make automated supply chain decisions.
Why Target would want it: Solvoyo combines planning and predictive analytics for supply, demand, inventory, and transportation. Putting all of this together is increasingly important as e-commerce speeds up.
What it does: Relex is a platform that combines predicting customer demand with recommendations about where inventory should go, allowing users to automate those decisions.
Why Target would want it: Predicting where inventory should be based on what orders will come is a key skill as Target diversifies the ways digital orders can be delivered.
What it does: O9 Solutions is an AI-backed planning software platform already used by Walmart. It uses real-time data to connect future demand with supply chain planning.
Why Target would want it: O9’s software could help Target better place inventory so that it’s closer to the customer likely to order it and in the right place for the fulfillment method the customer will likely choose.
What it does: Antuit uses AI and machine learning to predict demand and advise retailers on how to order products and spread out inventory. It’s used by Gap, Old Navy, J. Crew, Michael Kors, and Eddie Bauer.
Why Target would want it: Antuit says it can eliminate the hit to retailer margins caused by e-commerce orders not being fulfilled from the most efficient location.
What it does: daVinci makes planning software that helps retailers turn sales data into buying suggestions.
Why Target would want it: daVinci could help Target understand how to spread out its inventory by predicting what consumers are likely to buy and how they will want it delivered.
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