Why Are So Many Retailers Investing in Next-Day Order Fulfillment in 2023?
The continued growth and normalization of online shopping is creating increased demand for faster delivery times and forcing retailers to make significant investments in shipping to stay relevant. Target’s recent announcement that it plans to invest $100 million in expanding its next-day delivery capabilities is just the beginning. Across the industry, retailers are building massive sorting centers and turning existing storefronts into shipping hubs.
That strategy, to leverage retail space for fulfillment services, could eliminate workers’ need to sort packages in backrooms, as it opens up space to pick and pack more orders. However, it’s also a risky proposition for retailers that have built their reputations on in-person shopping and spent billions developing engaging physical shopping centers around the country and abroad.
“Target’s move towards next-day delivery is not unique in the industry. Major retailers like Amazon, Walmart, and Best Buy have already heavily invested in one-day and same-day delivery options,” says Dipti Desai, CEO of Crstl, a firm that helps brands diversify from direct-to-consumer into retail. “Target’s decision to invest in next-day delivery is a strategic move to stay competitive and meet the evolving needs of their customers.”
Desai says Target’s investment in next-day delivery should be seen as a strategic move to stay competitive and meet the evolving needs of the company’s customers.
That’s an opinion echoed by Christian Piller, co-founder and chief commercial officer of Pollen Returns. Piller says Target’s decision to add sortation capacity will allow the company to take more control of the B2C delivery experience — particularly important as consumers place more value on fast delivery. It should also allow retailers to improve margins by not paying FedEx and UPS to sort their packages.
“The concept of using retail space for fulfillment has been around for years with curbside pickup being one of its successes,” Piller says. “I’m confident that curbside is something that other retailers will adopt in the future.”
Capitalizing on Demand
National brands like Target are particularly well positioned to take advantage of the demand for next-day delivery, given that their retail spaces are often located near the end user. By turning those spaces into fulfillment centers, retailers can effectively use their existing retail footprints to offer faster and more cost-effective shipping options to their customers.
“The practice of using physical stores as fulfillment centers is a trend that is likely to continue in the future, as retailers seek ways to compete with e-commerce giants like Amazon,” Desai says. “By utilizing their existing infrastructure and inventory, retailers can offer faster and more cost-effective shipping options, which can ultimately drive sales and improve customer retention and loyalty.”
Target’s decision to use its stores as fulfillment centers also means the company can reduce the time and costs associated with shipping orders from a centralized warehouse. Desai says this approach allows Target to optimize its inventory and staff to fulfill orders. Other retailers, such as Walmart, have adopted similar strategies. The model is particularly well-suited for retailers with a large physical footprint, and those that can leverage their existing infrastructure to provide faster and more convenient shipping options to customers.
“Speed, convenience, and customer loyalty is the name of the game here.” Desai says. “It is a compelling and natural direction for them to be heading into, and customers are likely to readily embrace the messaging and offering.”
There’s another player that stands to benefit from the rush to bring faster delivery in-house, as well, and that’s third-party or on-demand delivery startups like DoorDash Instacart. Piller says there’s likely to be an increased need for gig economy workers to handle last-mile delivery as companies convert more retail spaces into local fulfillment hubs.
“The biggest winners will be the gig economy that delivers packages to and, in some cases, pickups up returns from consumers’ doorsteps,” Piller says. “FedEx and UPS may be the biggest losers, as they will lose volume as larger retailers add their own sortation and delivery packages, so FedEx and UPS will have to make B2B and healthcare a priority to replace lost volume.”