Target to buy Shipt for $550 million in challenge to Amazon
Target Corp. agreed to purchase grocery-delivery startup Shipt Inc. for US$550 million, stepping up its challenge to Amazon.com Inc. by speeding the rollout of same-day shipping.
The all-cash deal will let Target customers order groceries and other goods online, and then have the items sent directly to their doors from nearby Target stores.
Buying Shipt further beefs up Target’s logistics operations — earlier this year, the retailer announced the acquisition of software company Grand Junction, which also manages local and same-day deliveries. Target now offers same-day delivery in New York City and can send orders from 1,400 of its stores. Competition in this space is growing fiercer, though, as rivals Wal-Mart and Best Buy also offer same-day service, keeping pace with Amazon.
Four out of five shoppers want same-day shipping, according to a survey by fulfilment software maker Temando, but only half of retailers offer it.
“With Shipt’s network of local shoppers and their current market penetration, we will move from days to hours, dramatically accelerating our ability to bring affordable same-day delivery to guests across the country,” John Mulligan, Target’s chief operating officer, said in a statement.
The deal will give Target sameday delivery at about half of its 1,834 stores by next summer, with the number growing to a majority of stores in time for next year’s holiday season. The service — costing US$99 a year for unlimited deliveries — will initially encompass categories like groceries, household essentials and electronics before expanding to all major product groups by the end of 2019.
“While it will not affect Target’s capability this holiday season, the fact that Target will have this service in place during 2018 will significantly improve its online competitive position,” Charlie O’Shea, an analyst at Moody’s Corp., said in a note.
Kroger said it’s still optimistic about the prospects for home delivery after expanding its logistics operations in recent years via partnerships with Instacart Inc. and others. “We feel really good about the variety of partnerships Kroger has going,” corporate communications head Keith Dailey said.
Consumers’ increasing preference for shopping online, along with Amazon’s purchase of upscale grocer Whole Foods and its encroachment into new arenas like apparel, have sent retailers scrambling to improve their online offerings. U.S. e-commerce sales are up about 17 per cent this holiday season, according to Adobe Systems Inc., and online merchants racked up a record US$6.59 billion on Cyber Monday, the company found.
The question for traditional retailers is how to handle all those internet orders.
They could build their own delivery network, but it’s an arduous and expensive process. That’s why many of them are seeking help from e-commerce startups like Shipt and Instacart.
Founded in 2014, Shipt serves about 20,000 customers through partnerships with retailers including Publix Super Markets, HEB Grocery, Kroger and Costco. It will continue to operate independently and plans to expand its business with other retailers, said chief executive officer Bill Smith.
“We’ve spoken to a number of our existing partners about this deal and all the conversations have been very positive,” Smith said. “Having multiple retailers allows us to grow our membership base and make it more attractive. In same-day delivery, scale matters.”
For now, Target shoppers will need to pay Shipt’s US$99 annual membership fee to gain access to the service. Once a customer orders, they send a “shopper” into the store to grab the groceries, and then deliver the items.
Target is working on how to integrate Shipt into its website and mobile shopping app, Mulligan said.