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Target Buys Shipt, Challenges Amazon with Same-Day Delivery

Target Buys Shipt

Consumer demand for lightning fast delivery is sending shockwaves through the e-commerce industry, leaving both retailers and carriers scrambling to catch up.

In response to the phenomenon it largely created, Amazon has been experimenting with building a larger logistics operation. Now traditional retailers like Target are catching on.

Target bought same-day delivery startup Shipt for $550 million, the Minneapolis-based retailer announced Wednesday. This new service will allow Target customers to order groceries, household essentials, and electronics online and have the items shipped from nearby Target stores to their doorsteps the same day.

According to Kantar Retail analyst, Robin Sherak, Target’s decision to buy Shipt, rather than partner with it, “shows how serious they are” about boosting their logistics operation.

“One-stop shopping was convenient in the 1990s but for today’s families you have to be able to do instant food delivery as well,” Sherak told Bloomberg. “It’s also a realization that Amazon, this big technology disruptor, has entered the consumer landscape.”

The acquisition of Shipt isn’t the only way Target is going head-to-head with the e-commerce giant. Earlier this year, Target bought Grand Junction, a startup software that connects retailers to carriers.

News of the acquisition came the same day that Amazon announced that it’s expanding same-day and one-day delivery services to 3,000 more cities.

What This Means for the Shipping Industry

So, what does this prove about the state of the parcel shipping industry? Carriers are not only competing with each other — they’re also battling against retailers to stay in front of customer’s demands.

Keeping up with the customer doesn’t come cheap. For carriers, this means greater expenses in the form of adding to their fleet, increased fuel costs, and a larger workforce. And carriers pass these costs along to retailers in the form of rate increases and increasingly varied surcharges.

Retailers used to be able to pass these costs along to their customers, but that has changed as well. Customers are no longer willingly pay for these expenses, and they’re increasingly unwilling to pay for shipping at all. This behavior puts a strain on e-commerce businesses and their profit margins, as carriers increasingly pass these costs along to shippers in the form of increasingly complex surcharges and annual rate hikes.

Target’s acquisition of Shipt also affects the future of last-mile delivery, which is how packages arrive at the customer’s door. Only a few years ago, the last mile was straightforward: a carrier brings a package from a hub directly to the customer’s door. Today, apps and solutions such as parcel lockers and drone deliveries are disrupting the industry and quickly becoming the norm.

What This Means For Retailers

For the largest retailers, meeting new consumer expectations is a prime opportunity. Amazon — and now Target — are competing with FedEx and UPS by developing capabilities to complete all of its shipping without including any additional fees and surcharges.

Amazon has effectively positioned itself as a third competitor in the arena with UPS and FedEx. This has helped to lower business costs since UPS and FedEx are now being forced to address surcharges, fees and general rate increases.

While there is not any hard evidence of how Amazon will continue to disrupt the shipping industry, perhaps the next step involves changing how carriers do business.

A company like Reveel can help businesses compete in this changing space by helping you secure the best possible shipping rates.

Our extensive local knowledge and experience working for FedEx, UPS, and DHL positions us as a valuable resource for businesses looking to cut their shipping costs. We lift the veil on pricing to give you valuable industry benchmarks, prepare you for contract negotiations, and help you monitor your shipping data.