Target Investing $100M In New Sorting Centers In Bid To Boost Delivery
Target is investing in its real estate in the coming years as part of a larger effort to entice customers.
Among its anticipated investments, Target is spending $100M to add at least six new package sorting centers across the country by the end of 2026 — an effort to boost its next-day delivery offerings, Bloomberg reported.
Target Executive Vice President and Chief Financial Officer Michael Fiddelke told investors on the company’s most recent earnings call that same-day delivery services had seen “explosive growth,” and now account for more than half of digital sales and more than 10% of total sales.
The retail chain has nine of these sorting centers already. They exist to assemble packages from 30 to 40 local stores and prepare them to be delivered locally, a process that is usually cheaper for Target than shipping the packages from its giant distribution centers, according to Bloomberg.
The company is also planning to open 20 more stores "in a variety of sizes” this year and upgrade 175 stores nationwide. The upgrades could include full renovations or store-within-a-store additions such as Ulta or Apple that Target has already deployed.
All stores will soon have the ability to take returns from drive-up customers, CoStar reported. The program launched as a pilot about a year ago. By the end of the summer, the service will be available across its locations, Target Executive Vice President and Chief Operating Officer John Mulligan said on the earnings call.
Drive-up returns work alongside the company’s curbside pickup service. Target “also let some customers order Starbucks coffee to be brought to them along with their goods ordered online,” CoStar said.
All these new efforts to reach shoppers come as Target has seen slowed sales growth and increasing operating costs, according to The Wall Street Journal.
Total revenue for the fourth quarter of 2022 reached $31.4B, a 1.3% increase year-over-year. But Target’s net earnings declined 43% to $876M, “in part because of higher worker wages and more product promotions to unload inventory,” the WSJ reported.
Target said in an earnings call Tuesday that it could take almost two years for the company to reach its pre-pandemic profit levels again.
Among big-box retailers, Target has been hit especially hard because a larger share of its business comes from shoppers spending on “discretionary items,” such as home goods, the Associated Press reported. For its competitor, Walmart, 50% of its business comes from customers buying groceries, which they tend to keep buying even when economic uncertainty causes shoppers to spend more cautiously.
