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Target Launches Next Day Deliveries, the Secret to Amazon’s Free Shipping Offers

Target is poised to be a player in the delivery wars.

The big-box retailer is testing a next day delivery service in Minneapolis this summer, according to the company’s blog.

The service, dubbed Target Restock, will initially only deliver to area residents who have a REDcard. Those shoppers will be directed to a special site that features the eligible products. Fulfillment will take place at a local store and deliveries are guaranteed by 1:30 pm the next business day. Shoppers will be charged “a low, flat fee.”

Meanwhile Amazon keeps lowering its barrier for free shipping.

Yesterday, CNN Money reported the e-commerce giant dropped its minimum for free shipping to $25 for non-Prime members. The company had set the threshold at $35 in February, reducing it from $49. That move was seen as a response to Walmart’s free two-day delivery on orders of $35 or more. Amazon shoppers using this option will still have the same pokey 5 to 8-day delivery window.

How is Amazon, in particular, able to offer free shipping to so many customers? In “Economies of Density in E-Commerce: A Study of Amazon’s Fulfillment Center Network,” National Bureau of Economic Research (NBER) crunched the numbers to determine the smart decisions that have led to lower delivery costs, and chief among them has been dotting the landscape with fulfillment centers.

“We find that Amazon saves between $0.17 and $0.47 for every 100 mile reduction in the distance of shipping goods worth $30,” report stated.

By those estimates, NBER said the company has reduced its total shipping costs by more than 50 percent while increasing profit margin by 5 percent to 14 percent in the last decade.

These results justify the company’s focus on adding more fulfillment centers. In 2006, it had eight compared to 90 locations by the end of 2016. This year, that number is expect to top 100.