Originally published in Fierce Retail by Jacqueline Renfrow
Target recently announced that it will acquire same-day delivery platform Shipt for $550 million in cash. This is big news, but it seems many retail analysts are not surprised. Leveraging its network of stores and Shipt’s technology platform puts Target in the running against big same-day delivery services such as Amazon Prime Now and Walmart’s Jet.com.
“This is a competitive reaction which Target had to take to respond to what its main rivals, Walmart and Amazon, are doing,” Sam Cinquegrani, founder and CEO of ObjectWave, a digital strategy and services firm, told FierceRetail. “And ultimately, it’s a good thing for consumers because it’s all about convenience and a great user experience. Target is one retailer that has responded to the competitive threat from online retailers like Amazon. If they can do more to leverage their physical stores to their advantage, I think they will do just fine. To do that, they’ll need to look at other technologies like Beacon and RFID to continue responding to the customers’ needs and wants. Bravo, Target!”
Target’s goal is to bring same-day delivery services to half of its stores by early 2018, before the next holiday season. At launch, goods available for the platform include groceries, essentials, home and electronics. By 2019, Target anticipates all major product categories will be available for fast delivery service.
Although it will be owned by Target, Shipt plans to remain independently functioning and will continue to partner with other retailers.
Greg Portell, lead partner in the retail practice of A.T. Kearney, a global strategy and management consulting firm, says that the acquisition follows several new trends happening in retail.
First, it highlights the importance of building out an ecosystem, in a way that Amazon has pioneered.
Second, retailers are segmenting themselves and Target, like Amazon, is competing across the entire customer experience. Therefore, Target needed same-day capability.
Third, building the infrastructure would’ve been a daunting task, so acquiring Shipt eliminated this giant job.
Finally, these types of acquisitions have the added benefit of bringing fresh, entrepreneurial talent into the organization.
“The question for companies like Target is, how to identify the talent they want to keep and how to nurture the talent in a publicly traded environment. For every example of a Marc Lore-like success story, there are innovators who don’t find a home in the acquiring company,” Portell said.
Plus, the acquisition gives Target a leg up in the grocery game, another competitive market that it has been actively pursuing in the last few years.
“This is a smart move to make sure Target stays in the grocery game,” said Michelle Grant, head of retailing, Euromonitor International. “It has long struggled in this category but seems to be turning the corner. Its third-quarter results showed an increase in comparable sales for food and beverage, especially in areas it has invested: fresh, organics, in-stocks and labor. Having an ‘instant’ delivery option, whether it’s click-and-collect or hyperlocal, is table stakes now for grocers.”
And Jared Blank, senior vice president of data analysis and insights at Bluecore, thinks this is a winning approach for Target. While they may not have the in-house technology and digital focus that Amazon and Walmart have, Target does have well-loved in-house brands. So this investment will put these products into the hands of consumers, right at home.
“About a year or so ago I was concerned that Target was falling far behind Walmart and Amazon in their efforts to understand the intersection of digital, physical stores and in-home,” said Blank. “Amazon has obviously invested enormously in building out same-day and one-day product delivery to markets across the country. Walmart’s purchase of Jet relaunched their digital strategy with a focus on building out a portfolio of brands exclusive to the retailer. Target has taken a different approach, instead thinking about how to leverage their 1,800-plus store locations to reduce delivery time and friction. About a year ago they bought a logistics technology company called Grand Junction to help with that, and that technology will be integrated with Shipt, which also offers last-mile delivery services.”