November 27, 2019

Target and UPS show why stores are essential to online delivery

Last mile is expensive, but using stores to fulfil orders and/or act as collection points can dramatically shrink costs, as Target has recently illustrated.

Target CEO Brian Cornell revealed in an interview this week that when customers orders are fulfilled and picked up in a store, about 90% of the cost of delivery ‘goes away’. In its quarterly earnings call, the retailer reported 31% digital sales growth, of which 80% was driven by same-day services. 

See also: Instant collections will be the biggest trend in retail – Mike Richmond

In May of this year, Target set a goal of fulfilling more than two thirds of its ecommerce orders from stores, and expected to remodel 1,000 stores to improve the viability of store-based fulfilment. Being able to offer same-day fulfilment represents a strong incentive for customers to choose to pickup from store – and enables Target to incentivise a customer behaviour that reduces its own fulfilment costs.

And it’s not just retailers who are seeing the benefit. UPS recently announced a rewards scheme whereby shoppers who use alternative delivery locations through its Access Point network will receive digital vouchers worth $35, to incentivise them to pick a PUDO option instead of home delivery. For us, that’s one of the clearest articulations yet of how much better the economics are in PUDO.

Whether through vouchers or same-day delivery speed, both these businesses are at the forefront of driving pick-up, and see stores as being central to their fulfilment infrastructure.

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