Here's How Target Plans to Beat Amazon and Walmart in the Shipping Wars This Holiday Season - NBC Southern California
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Here's How Target Plans to Beat Amazon and Walmart in the Shipping Wars This Holiday Season

There's a huge opportunity for Target as it competes with rivals like Walmart and Amazon this holiday season

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    Target has been busy upgrading its supply chain, and this holiday season marks its biggest test yet. 

    Early last year, the retailer said it would pour $7 billion into investments to turn around its business over the next three years. A portion went into bulking up its delivery options — making it more convenient for people to shop in Target stores and online. While Target declined to say exactly how much it spent on those efforts, it's easy to see the results. It has rolled out free two-day shipping, acquired a transportation company and is adding services like curbside pickup and same-day delivery in major metro areas. 

    There's a huge opportunity for Target as it competes with rivals like Walmart and Amazon this holiday season. These new convenient options may make the difference in where a shopper goes to stock up on holiday treats and gifts. U.S. shoppers are poised to give retailers another strong holiday, but it may not be as robust as last year, according to some forecasts. 

    "From my perspective I think Target has a more differentiated product assortment than Walmart today," Stacey Widlitz, president of consulting group SW Retail Advisors, told CNBC. "They have the product to win, and now they are putting the tools in customers' hands — like two-day shipping." 

    "Customers are now like: 'Wait a minute. Target behaves like Amazon, and they have strong private-label categories. Why would I not add some extra stuff in my basket?'" she said. 

    Last holiday season, Target said its stores fulfilled 70 percent of all digital orders. This year, that percentage will be even higher. That's a big reason why the company is hiring 120,000 temporary workers, or 20 percent more people than it did a year ago. About 7,500 of those workers are expected to help pack boxes in warehouses, Target said. Overall, Target said it will double the number of hires fulfilling online orders in stores and distribution centers this year. 

    "Our stores are at the center of our digital growth," CEO Brian Cornell told CNBC last month. "They are fulfilling the majority of our online orders. … They are center to everything we are doing at Target." 

    The company just had one of its strongest quarters ever. This holiday season, Target will have to prove it can keep the momentum going. One way to do that is to prove that its network of distribution centers and delivery services can handle what could turn out to be an unprecedented surge in traffic in stores and digital orders. 

    "Last August, I ordered a bunch of stuff from Target, and it took so long to get it," Widlitz said. "This year, I ordered stuff, and I got it next day, and some of it was even flown in. That is a game changer." 

    One improvement was free two-day shipping for Target credit card holders, which launched earlier this year. For everyone else, two-day shipping is free with a minimum order of $35. That compares with Amazon, which offers free two-day shipping for Prime members who pay $119 annually, and Walmart, which offers free two-day shipping on orders totaling more than $35, but doesn't have the credit card perk. 

    For Target, the perks for free two-day shipping serve as another way to lure more shoppers to sign up for its REDcard, which also takes 5 percent off purchases. 

    Target said 90 percent of its orders for two-day delivery are now fulfilled from the back of its stores. The company said it uses about 1,400 of its roughly 1,800 stores in the U.S. today to do this. 

    For those customers who are still choosing to visit Target stores, the retailer has been rolling out options like order online, pick up in store, along with curbside pickup. From the time orders associated with these services are placed, Target said it has the majority of items ready within an hour for customers. The drive-up service in particular has grown from a trial at one store to more than 800 locations across the U.S. today. And Target said roughly one-third of customers who come inside a store to pick up an online order end up making other purchases while they are there. 

    "Once you are in one of our stores, you might come in for a toy and walk out with something for your home," Cornell told CNBC. "We are making sure that whole offering is readily available." 

    To become a bigger force with same-day delivery, Target acquired Instacart rival Shipt for $550 million late last year. The deal brought with it a network of Shipt's personal shoppers that pick items off of shelves and deliver them to customers' homes. The service, which is also available at other retailers including Costco and Publix, retails for $99 per year. Target said Shipt's membership has tripled since it was acquired. 

    Shipt currently delivers a wide variety of items that Target sells — the company chose to start with groceries, home decor and electronics, primarily. "All major product categories," including apparel, are expected to be available on the service by the end of 2019. 

    By comparison, Walmart has been using its Jet.com business to make a same-day delivery push in New York. And Amazon's Fresh, which serves select ZIP codes in many major U.S. cities, offers same-day delivery of groceries, so long as shoppers place their orders that morning. 

    Before Shipt, Target last August acquired transportation service Grand Junction, which now helps the company deliver items purchased within the store to shoppers' homes within two hours. This is being tested in New York, San Francisco, Washington, D.C., Chicago and Boston. The company said the average basket size of these customers is $200, the most of any fulfillment service. That's primarily because shoppers use it for bulkier, and likely more expensive, items like coffee tables and flatscreen TVs. 

    Target also has an offering similar to Amazon Prime Now called Restock. Customers can pack a box full of household items like dish soap and cereal, until the box reaches 45 pounds. Again, this is free for Target credit card members, with other customers paying a $2.99 fee for shipping. 

    It's also possible these services could expand or be supplemented with other offers during the holiday period. This has happened in the recent years. 

    "Zooming out, as we think about Target's supply chain and inventory management in the context of Walmart, we believe Target does need to catch up to its competitor, but also acknowledge progress is being made behind the scenes," Cowen & Co.'s Oliver Chen said in a research note. 

    "We do believe Target has demonstrated the retailer can very quickly scale initiatives and acquire differentiated assets to drive growth," he said.

    This story first appeared on CNBC.com. More from CNBC: