Over the past few years, Target (NYSE: TGT) has increasingly become a threat to malls. Not only does Target have the benefit of being an essential retailer and a one-stop shop, but its recent partnerships have made it so that Target is sort of a mini-mall unto itself.
But it's not just malls that Target stands to take business away from. The big-box giant is now upping its shipping game to take on e-commerce powerhouses like Amazon and Walmart, too.
Stepping things up on the shipping front
While many retailers struggled during the pandemic, Target enjoyed solid earnings. And part of the reason why has to do with the way it adapted to consumer habits at a time when shopping trends changed overnight.
Throughout the pandemic, customers were drawn to digital sales. Thanks to Target, they were able to replace their normal in-store purchases with online orders -- orders that qualified for either same-day or multi-day shipping, depending on the program at hand. There was also the option to pick up items curbside or in stores.
Coming off of its recent success, Target is taking steps to get online orders fulfilled even faster. In addition to using common carriers, Target will amass its own delivery staff to pump orders out quickly.
Target is testing out this new approach in its hometown of Minneapolis, and there are multiple steps involved. First, employees will sort orders at actual stores, not warehouses. Items will then be transferred from stores to sortation centers multiple times a day.
From there, Target will use its technology to group packages for the most efficient delivery routes to customers, and contract workers for Shipt, Target's same-day delivery service, will shuttle packages to customers in clusters.
By ramping up delivery speeds for online orders, Target is hoping to take business away from other e-commerce giants that have their own efficient shipping models in place. But this move won't just benefit customers -- it could also make online orders more profitable for Target.
Shipping goods out of Target stores is 40% cheaper than shipping them from warehouses and fulfillment centers. Given that Target's digital sales soared during the pandemic -- they grew 145% in the most recent fiscal year ended Jan. 30 -- that could result in a lot more revenue.
Target has long relied on its stores, not warehouses, to fulfill digital orders. And last year, around 95% of sales were fulfilled at stores. If Target's latest initiative is successful, it could secure its spot at the No. 1 retailer to contend with. And that would, in turn, be good news for shopping center investors.
The Millionacres bottom line
Target has long been an anchor tenant for shopping centers, and at a time when many retailers are making plans to close stores and pump money into distribution centers instead, shopping center operators may be growing increasingly concerned by the day. The fact that Target is not only upping its shipping game, but centering its strategy on actual stores, should give investors a reason to breathe easy.