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Target, Shipt Fire Latest Shot in the Last-Mile Wars

The delivery wars continue to heat up. Target, which revealed its $550-million acquisition of last-mile startup Shipt in December, will make same-day delivery available in the Minneapolis and Saint Paul, Minn., metropolitan area beginning March 1.

Last-mile fulfillment has been a major trend recently as retailers jockey for position as consumers’ go-to provider of convenient and lightning-fast delivery experiences. Whereas Amazon once stood out for its two-day free-shipping policy through Prime membership, now the delivery expectation has shrunk from days to hours, putting pressure on retailers to meet consumer demand as cost effectively as possible. Amazon’s Prime Now service, launched in late 2014 in select parts of Manhattan, give Prime members access to a number of products from a handful of different retail partners that are available in a variety of timeframes, from a one-hour window for $7.99 to a two-hour window for no charge.

McKinsey’s 2016 Parcel Delivery: Future of the Last Mile report found that 20 percent to 25 percent of consumers are willing to pay extra—as much as $3 more—for same-day delivery. What’s more, same-day and instant delivery services are expected to drive 15 percent of the overall last-mile market by 2020.

Why the growing demand for right-now delivery? In tandem with customer demand for greater convenience, many consumers simply want their time back. Rather than making a time-intensive trip to the store, where they could encounter frustrating out-of-stocks, not to mention the hassle of battling for parking or wrangling antsy children, a burgeoning body of consumers would want to skip all of that in lieu of activities or tasks more worthy of their time.

Big-box mass retailers and others have been investing heavily in last-mile services and considering unusual ways to service customers. Walmart said it’s testing an offering that sees store associates delivering orders to customer addresses after they finish their shift for the day and are driving home. Late last year Amazon launched its Amazon Key service for Prime members that allows couriers to leave packages inside customers’ homes via a smart lock and Amazon Cloud Cam that streams video of the delivery person’s activities to the user’s smartphone. (That service hasn’t been without a couple security flaws, however, which Amazon has addressed.)

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In August, Target acquired Grand Junction, a SaaS-based technology infrastructure provider specializing in local delivery services. The retailer tested Grand Junction’s tech in its Tribeca, New York City store, trialing a same-day delivery pilot.

Still, the Shipt deal helps Target to further level the playing field somewhat against Walmart and Amazon. With a $99 annual membership fee (currently offered at $49 for new signups ahead of March 1), Shipt gives Target customers in participating zip codes access to same-day delivery on more than 55,000 products, including grocery and household staples such as paper goods and cleaning supplies. Half of Target’s 1,828 nationwide stores should be eligible for Shipt service this spring and the majority of stores and major metro areas will be covered by holiday 2018. The retailer said that all major product categories, which undoubtedly include apparel and footwear, will be offered via Shipt by the close of 2019.

[Read more on Target’s Shipt acquisition: Target to Acquire Shipt Same-Day Service Provider]

“If you look at the big picture, this acquisition will mark an important milestone in an ambitious strategy we laid out in early 2017, which included strengthening Target’s supply chain and digital capabilities to make shopping at Target easier, more reliable and more convenient for our guests,” Target COO John Mulligan said in a blog post when the deal was unveiled in December.

Noting the struggle to provide seamless customer experiences while reducing costs, L2’s Mike Froggatt wrote in a blog post that shipping and delivery continue to be a “balancing act” for brick-and-mortar retailers—unless they’re able to optimize their fulfilment operations. “Winning brands navigate this issue by driving customers toward more cost-friendly fulfillment habits that can take advantage of existing store infrastructure or subsidize expedited delivery with well-funded startups,” Froggatt added.

Indeed, fulfilling from store enables Target to best utilize its existing physical assets and investments while getting products to customers quickly.

Shipt customers browse items via website or mobile app, note any preferences where necessary, and select their delivery timeframe. Shipt leverages a network of shoppers to select in store the products in an order and then deliver them to the customer’s home, offering a service it describes as more “personalized” than others that often have two separate workers doing the picking and the delivering.

Target expects Shipt’s arrival in the Twin Cities to create 4,000 jobs.