Target claims a 90% handling cost reduction for same day shipping options

An article in CNBC.com titled “Target CEO says cost of handling online orders drops 90% when shoppers use same-day options” claims that shipment from stores enables retail efficiency and decreases cost by 40% associated with from a distribution center. Those costs decrease by 90% when customers pick up online orders from the store or curbside. The benefit of satisfying demand from retail locations already close to the customer provides brick-and-mortar retailers a competitive edge over Amazon. How should Amazon adjust to compete with Target – build more distribution centers ? Increase their investment in robotics at their distribution centers ? Increase Amazon lockers for customer pickup close to their offices?

About aviyer2010

Professor
This entry was posted in Capacity, competitiveness, Cost, Ecommerce, emb2021, Supply Chain Issues and tagged , , , , , . Bookmark the permalink.

20 Responses to Target claims a 90% handling cost reduction for same day shipping options

  1. Ryan Ma says:

    Amazon isn’t completely caught off guard with its competitors like Target and Walmart. It does have Whole Foods and a vast amount of Amazon lockers throughout the United States. They have also worked with Kohl’s to handle any Amazon returns and market their smart home products. It would be interesting to see them acquiring more square footage in Kohl’s to display more products. That concept may eventually save Kohl’s retail market share. Amazon could also improve its edge by implementing more hub lockers in UPS locations since Fedex is not a viable option.

  2. Brian says:

    The thought that kept occurring to me while reading the article was how much individual preferences and specific product categories drive this whole conversation. For example, just a cursory look at various surveys shows that a lot of the time customers prefer delivery to in store pick up, in the case of grocery delivery 4:1.( https://www.grocerydive.com/news/study-shoppers-prefer-grocery-delivery-over-in-store-pickup/547173/ ) I think this trend is true for things people need but don’t feel a sense of urgency to have. Soaps, detergent, socks, or everyday household items that Amazon can ship and have on auto-renew. People don’t think even have to think about that after initial setup and they certainly aren’t interested in making a special trip to target to grab similar items. The difference comes when the product is need urgently or unexpectedly or if the product is something that an individual wants to try on. Fit is important here. I can’t tell you how annoying it is to play the game of buying clothes or shoes online only to realize as soon as you try them on that you have to make a trip to the UPS store to return them. Overall, I don’t think Amazon needs to worry. If anything, I think the trend in in-store pickup will slow before shipping does. Amazon is getting faster and faster at shipping and it’s only a matter of time before it only take a split second to consider getting in your car, fighting traffic, finding a parking space, etc etc before you think that Amazon will just have it here tomorrow anyway….

  3. Shibashish Sen says:

    There is fundamental difference between how Target operates from Amazon. Amazon has always focused on DTC (Direct to Customer) channel of delivery since its inception and has been focusing on improving the online experiences of its customers. Target on the other was in the retail game almost 35 years before Amazon came into existence and has had a more traditional beginning of having stores before entering the online marketplace. The concepts of a BOPIS(Buy Online Pick Up in Store), BOSTS( Buy Online Ship to Store) or BOSFS( Buy online Ship from Store) can apply to retailers like Target because they have a slew of stores all over the US. Walking into the Stores to pick up the desired items not only is convenient to the customers but also provides them with a very wholesome experience of walking into the store with the family, enjoy the festivities and the holiday season decorations in the store and but a few extra things along the way. Amazon will never be able to give customers that kind of experience, no matter how many lockers they have. What amazon can do it work on its already existing strength of reduced delivery time. Its Prime service has caught on like wildfire. Amazon like most retailers have their packages delivered by the 3rd party carriers like UPS, FEDEX or USPS for their CMO/Parcel delivery and 3rd party truck carriers for the heavy stuff. Most of the delays that happen in delivery are caused by problems with the carriers. They can eliminate the use of 3rd party and invest in their own transportation management system, have a centralized hub to manage their fleet- Ground/Air/International like UPS has its World port in Louisville, KY or FEDEX has in Memphis, TN. Owning the final mile delivery will most certainly reduce the overall delivery time and shipping and will definitely help Amazon combat any competition from retail bigs especially during the peak holiday season. They have already started working towards giving UPS and FEDEX a run for their money in the coming years in terms of delivery by introducing the “Prime Delivery” service which is in its Beta phase of testing all over America right now. In my opinion, with the kind of money and strategy Amazon has, it wouldn’t be long before “Prime” becomes a legitimate delivery offering for even Amazon retail competitors.

  4. Chris Salkeld says:

    Target and Walmart are using their stores as distribution centers and it has been working great for customers. Amazon’s lockers are a great idea, but they don’t have nearly the network as the stores. Amazon could compete by putting lockers in every Starbucks because there is a Starbucks everywhere. Sometimes more than one. The problem is Walmart and Target already have some of the inventory on hand. If someone wanted to order cleaning supplies or groceries, an employee can just go get it off the shelf. Other items might have to be shipped to the store, but their network of trucks would certainly mitigate costs. Amazon could put a locker on every corner and they still wouldn’t be able to compete. Amazon would have to put a distribution center in every town across the US to have the same network as Walmart. Amazon will have to continue to automate their warehouses and promise next day or same day delivery on more items.

  5. Kavita Iyer says:

    Amazon is already partnering with the existing bricks and mortar stores to compete with the likes of Target and Walmart. The Kohls nearby our house accepts Amazon returns. The symbiotic partnership between Amazon and Kohls is mutually beneficial to both the companies – for Amazon; it offers its customers the convenience of going to a nearby store for returns and Kohls benefits with the extra foot traffic entering their stores with the hope that it converts into a customer. Amazon with its recent purchase of Whole Foods, which is an established brick and mortar store, can also be a place where customers can pick up/drop off and/or perform return activities.

    In addition to providing brick and mortar places for customer convenience, Amazon also invests in tomorrow’s technology, i.e., Drone. Amazon is perfecting the drone technology to deliver certain packages to customers in less than 30 mins. It also invests in infrastructure to build its airport to have greater flexibility, efficiency, and timeliness in delivering packages and provide greater customer satisfaction. Amazon, in many ways, is a trend-setter and almost always ahead of its competition. Whatever edge the brick and mortar stores may have over Amazon, Amazon is prepared and will find innovative ways to stay ahead of its competition.

  6. Diane Vojtas says:

    As a busy mother and wife, I am the target customer of both Amazon and Target. It should come as no surprise that I am an avid fan of both businesses. I love Amazon because of their delivery times and selection. I love the convenience of Target for things that I need same day and I cannot get through PRIME Now 2 hour delivery, or for items that I want to touch and feel to figure out what to purchase. Target also has a great loyalty program and discounts. I also prefer Target when it comes to the level of waste per purchase. Amazon has a box, in a box with packaging material. When I use Target pick up or Shipt, the products include the standard amount of packaging.
    Amazon is able to keep their costs low by keeping their distribution centers in rural areas, so I would not recommend the added cost of more distribution centers. I am not sure Amazon needs to compete with Target in a different way than they do today. Perhaps Amazon could collaborate with Target to leverage the stores, locations, and brand.
    If Amazon wants to make any changes to their current model, it would be to personalize the PRIME Now experience. The way their services are set up today is very mechanical, where at Target via Shipt; the shopper interacts with you real time via text message. With Shipt, you have a personal shopper and Amazon PRIME Now you select if you want substitutes to any of your products at time of check out and that is the extent of the personalized experience.

  7. Brian Cronin says:

    Although I am a big fan and user of Amazon Prime, I do like the competition and innovation that Target and Walmart are bringing to the game. I live in a remote area and it is a 25 minute drive to the nearest Walmart. So for me, the advantage of Amazon in the quick home delivery. This is where I think Amazon should focus not on lockers and distribution points especially in rural or suburban areas. We have a large Amazon distribution center 2 miles beyond the Walmart. If there was an option to pick up spot at that location I would only use it when I needed something quick. Very rarely do I go to pick something up when I can have it delivered in 2 days to my door. If i could get it delivered same day to my door, I would never go to a pickup location. So focusing on technology such as drone delivery or expanding the delivery network is where Amazon can continue to thrive and choke off the in store pickup business. Amazon Flex drivers are beginning to show up in our area. This allows people to drive their own cars and make deliveries for Amazon and get paid $18 an hour. This is a big win for Amazon. They do not have to invest in trucks, maintenance, HR fixed costs, just pay a wage to a driver. People who need flexibility in their schedules, like this type of work too.
    In our area, we have no at home grocery delivery options. Walmart pickup is our best option. So if Amazon Fresh was the first entrant in our region and could control the costs of delivery, they would corner the market. This has been seen time and time again in our area. The company who makes the investment monopolizes the market. Most recently Comcast high speed internet made the investment to run cable back to our area. Now 99% of the households in my neighborhood use Comcast. This is another way for Amazon to invest. Solutions to markets that currently don’t have options.

    • Kyle Hummel says:

      Brian,
      I agree with the competition comments – it is amazing how quickly Amazon was able to completely change the game and force the retailers like Walmart and Target to figure out the best way to compete. I think the pick up at store, and ship to store options are a great way for them to use their existing inventories to help meet the needs of their customers. The other advantage that the retailers have is that for heavy items, they can be more competitive than Amazon because of the shipping costs of those items. Having them delivered to the store for someone who they already know is going to buy the product works out for them perfectly. Being able to pick up a product within minutes at a store is still an advantage over Amazon, and until Amazon can get that quick, the retailers will still have a chance.

  8. Mai Komatsu says:

    Amazon is already adjusting to compete with brick-and-mortar stores by increasing the number of Amazon Hub Lockers, which one could argue is particularly useful for home locations with high rates of package theft and/or wrong address delivery. Amazon’s vast portfolio of goods and home delivery convenience is still unbeatable for non-urgent/perishable purchases in my consumer’s perspective. However, there are times I opt for other retailer’s online purchase with same-day store pickup when there is a substantial discount for that option. Nothing fairer than passing part of that 90% handling cost reduction to the consumer, increasing competition.

  9. Vikash P says:

    On April 11 2019, Jeff Bezos in a letter to his shareholders issued a challenge for both Walmart and Target. He said, “Today I challenge our top retail competitors (you know who you are!) to match our employee benefits and our $15 minimum wage.Do it! Better yet, go to $16 and throw the gauntlet back at us. It’s a kind of competition that will benefit everyone.” https://www.barrons.com/articles/amazon-ceo-jeff-bezos-shareholder-letter-51554994724

    Rather than taking the competition head on in delivery statistics or processes, Amazon responded by upping the ante on employee benefits and social responsibility front. While Walmart is still known for stifling its workers pay, Amazon has slowly started to reinvent itself when it comes to employee benefits. They still have a long way to go in their warehouses when it comes to employee satisfaction, but the answer to how should Amazon adjust is already there for us to see. Amazon knows that brick and mortar stores have an advantage of fulfilling the last mile delivery at a fraction of the cost that Amazon incurs, their purchase of Whole Foods chain shows that they recognize that threat, so they are upping the ante on the employee compensation side.

    Amazon also announced a partnership with J.P. Morgan and Berkshire Hathaway to strategize how to rethink health care for their 1.2 million combined workers. This is another area where Amazon can succeed, because there’s just no one who is different than the most and it will allow it to change the game once again.

  10. James Berki says:

    Amazon has experienced significant growth over the last decade primarily through their adoption of large distribution centers across the country to deliver products to customers within 48 hours. This business model has significantly hurt traditional brick and mortar retailers. In an effort to better compete with Amazon, Target has made significant investments in their online ordering systems and are leveraging their stores as mini distribution centers. By using their stores as distributions centers they are able to deliver a seamless customer experience and often times are able to deliver the item to the customer in less than 48 hours. Targets innovative thinking is enabling it to win back market share from Amazon while generating a loyal customer base.

    To defend their market share, Amazon is slowly adopting the Target mini distribution center model. They are using their purchase of Whole Foods to deliver groceries to customers in two hours or less and are establishing their own chain of retail stores (Amazon Books, Amazon 5 star, etc.) These retail locations will allow Amazon to offer their customer the ability to receive their products faster, offer a seamless point for item returns and allow for quicker customer service. Amazon needs to continue this model as retail locations in populated cities will allow the customer a seamless experience vs more large scale distribution centers.

  11. Omoruyi Usuanlele says:

    I do not think that Amazon should be concerned about the reactionary changes in online sales that Target and Walmart are making. This is a market that Amazon is fully in control of and continues to innovate and hence lead. The gains by the brick and mortar stores in the online space is really marginal to say the least.
    Same day delivery has been part of Amazon’s offerings for a while and they have successfully used it for certain products and premier customers.
    The plan to deliver goods using drones and other unmanned solutions will boost Amazon’s delivery options. I can also see them adding more distribution centers and locker locations to reduce the delivery times.

  12. Brandon Thesing says:

    I think Brian P made an excellent point on purchasing preference and style. How and what we purchase continues to evolve and our confidence in the system, the products themselves, the ability to ship extremely quickly and the quality keeps improving. There are products and items that people may have been hesitant to purchase outside of a brick and mortar store in the past and it is my opinion that will continue to shift as a generation of young adults who have grown up in the “amazon buying model age” will continue to keep pushing that paradigm. The delivery method will also continue to evolve and perfect itself. I am in the same mindset as Brian C, I am 20-25 minutes away from major retailers, so Amazon plays a HUGE role in how and when i am purchasing products.

    Kavita made an excellent point about partnerships, Amazon has already found a way to battle the brick and mortar stores by finding existing distribution and employee networks to piggyback on. They will continue to learn, adapt and perfect how we purchase, and return any product.

  13. Matt Larabee says:

    I think that Amazon is doing just fine operating the way they are and Jeff Bezo’s bank account, I’m sure, would back my statement; however, to Kavita’s point, Amazon is already partnering up with other brick and mortar stores to help edge out the likes of Walmart and Target havinf store locations nationwide. This helps Amazon deliver their insanely fast same day and next day delivery options. To Brian’s point, there is definitely some sort of personal preference that takes place as well. There is a Target less than 3 miles away from my house but because of its location and the traffic pattern I avoid that area at all costs and would more than likely order the same product through Amazon to have it delivered directly to my house. What I save in gas and a headache I pay in patience and end up waiting another half day for the product. It seems like the two of them would mutually benefit from each others partnership. What Amazon lacks (brick-&-mortar stores) is what Target’s strength is and vice versa. What Target lacks at their brick and mortar stores (inventory) Amazon has in abundance half a day away at one of their distribution centers. If they choose not to go this route, then I think that more lockers would be the best way to combat this but they would be wise to put the lockers in locations that people frequent so that it’s not an extra stop. Currently, going to a UPS or FedEx store is an added trip for most people, but if there were lockers at places you find yourself at daily, then this would help, such as grocery stores, gas stations, etc.

  14. Kevin Boodhoo says:

    I agree with a lot of comments before on how Amazon isn’t completely caught off guard by Target’s claim. From their offering of same day delivery, increased Distribution in major locations, as well as partnerships with other brick and mortar stores for Amazon lockers, it does give the flexibility to their customers for convenience. That is not to say, that a traditional store like Target does not have his advantages. From being able to pick something up last minute, to just the old preference of being able to see items in person first, the need for the traditional setup will around. Amazon has made some efforts though with the purchases of stores, and concept stores, especially when it comes to groceries though.

    What will be impacted is smaller retailers that cannot compete against large companies that have higher purchasing power, to offer products at lower costs. As people are looking for convenience as well as lower prices, the Amazon’s, Walmarts and Targets will succeed, while pushing out “mom and pop” stores.

  15. Claudia Morato Guimaraes says:

    I lived in a big city like Sao Paulo and now in a smaller city – Indianapolis. I am super practical person. So, If I order anything online I don’t want to pick up in-store otherwise I would go in the store. Especially because I only buy what is necessary, I don’t buy anything I don’t need or that will accumulate in my house. On top of that, ordering online through Amazon and waiting to deliver on the same day or the next day it is perfect and the best of that – I don’t need to drive, talk with anyone or wait on a line. It is there!!!
    From a business perspective, using the pick up in-store can help Target to compete for the average customer with Amazon. It maybe will take some percentage of Amazon market share, but I don’t expect to be disruptive or change the game. Amazon also has other sources like lockers or even create a new concept to compete if needed.

  16. Sravan P. says:

    While the comments from Target CEO definitely sounds appealing on the surface, however, in my opinion, in order to have an apples to apples comparison with the likes of online stores like Amazon, we need this claim substantiated with some additional details.
    What is the cost of a same day option? Does it compare to the Amazon prime where you can get a two day home delivery and in some cases same day?

    While I am not opposed to picking up from a store or curbside as it is not a big inconvenience to me to stop by curbside to pick up the order while coming back from work etc., ultimately, what differentiates targets of the worlds from the likes of Amazon is the assortment of options you have at your disposal when shopping online. Also, target is still considered one of the premier priced stores when it comes to cost comparison, so, until they start adjusting the prices to make them more comparable to Amazon and other online sellers or start diverting some of the costs saved to consumers, I would say, they have not quite challenged the likes of Amazon.com.
    Perhaps Target and other online stores should allow price adjustment online in comparison to amazon.com lower prices without having to call customer service or go to a store for price adjustment.

    As far as Amazon.com goes, if one can justify cost of prime membership, you cannot beat the convenience of a home delivery with in a 1 or 2 days. Also, they are already making it easier by partnering with brick and mortar stores for returns (Ex: Kohls). You do not even have to pack the returned item, the store takes care of it.

    So, in summary, for Target to really challenge Amazon.com, they have to transfer costs savings to customers in terms of lower prices and have manageable costs of shipping for single day pick ups.

  17. Harini Kasasmsetty says:

    One way is to build more Amazon Go locations and increase Amazon lockers for customer pickup on the same day. Amazon has bought the whole foods in 2017 and still in the process of learning how to convert grocery consumers online. Customers are getting adopted slowly to order groceries using their prime membership. This will bring a big value once Amazon is successful with its approach. Amazon Echoes are now sold at Whole Foods and there are benefits for Prime members who shop in-store.
    Partnership with Kohl’s yields several benefits for Amazon, including cost savings on the returns process. Kohl’s also started carrying Amazon products at more than 200 stores. This partnership is a win-win for both companies.

  18. Ben Hooley says:

    I think Amazon is targeting various markets very effectively. In rural America, they are set up with distribution centers and Prime delivery options for consumer convenience. Likewise, in cities and more urban areas they have partnered with Kohl’s and have also added areas within stores such as Whole Foods for returns and pickup. I see the future of Amazon’s business being centered around even more partnerships within urban areas. As others have mentioned here, it’s a win-win for the partnering companies as it gets people into their stores. However, there seems as though there will be a tipping point when convenience and efficiency of delivery to your home may help Amazon win out versus the Walmarts and Targets of the world.

  19. Rachel Austin says:

    I would have to agree with Kavita and Matt regarding the possibility of partnering with Target or Walmart (at least on the grocery offerings). Not everyone wants to spend their “Whole Paycheck” purchasing food from Whole Foods and the average person is likely to go grocery shopping at Walmart or a Super Target, especially for perishable items. When Instacart will give you several options of stores to choose from (Total Wine, Costco, Sprouts, Albertsons, Petco, etc.), especially for specific items, I usually go with them over PrimeNow. I also love the option to return items at Kohls. I don’t have to worry about repackaging the item and Kohl’s gives you a coupon discount for a purchase that can be used right away (unlike their Kohl’s cash). That type of partnership with Target or Walmart would be a win-win for both companies. I fortunately live near an Amazon hub where I can get several items ‘same day’ but if Amazon could focus on improving the delivery time to a specific amount of hours and encourage the flex drivers, that would definitely ensure that they are maintaining the competitive advantage over the “pick-up in store” competitors.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s