Spending Billions, Target to Add Sortation Facilities to Support Its Store Fulfillment Strategy

Target stores has aggressive plans to reconfigure its current logistics network to be more in tune with an ecommerce world, with plans to spend billions of dollars to get there.

Supply Chain Digest Says...   “Before last year, we hadn’t added a new regional distribution center in over a decade, even as our total sales grew 40% over that same time period,” Mulligan said What do you say? Click here to send us your comments   Click here to see reader feedback

On its earning call in early March, COO John Mulligan said Target is testing a sortation center in Minneapolis in an effort to optimize fulfilling orders from its store locations. Mulligan said Target may add to five more sortation centers to its network in urban environments over the next year.

It is interesting, because Target already fulfills almost all of its ecommerce orders from store locations, at a rate of 95% in its most recent quarter.

With the sorting center model popularized by Amazon, stores will still pick and pack Target's on-line orders, but instead of going direct to consumers they will be trucked to a sortation facility, which will receive the trucks from multiple stores. At those facilities, the parcels will be organized by delivery routes for carriers that will execute the last mile of delivery

Target gets lower delivery costs for pre-sorting the parcels for its carrier or takes time out of the delivery process.

The sortation centers “help us further scale our stores-as-hub strategy and create room for future growth,” Mulligan noted.

Target also said plans to build four new regional distribution centers, adding to the two it opened in 2021. These facilities primarily replenish store inventories.

So the company is spending big on logistics, with plans to invest $4-5 billion every year over the next few years, which would be an increase of more than 40% from its capital investment in logistic facilities in 2021.

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Target already operates 49 distribution centers across 23 states. But that foot print had remained largely the same for over a decade before 2021, the Wall Street Journal reports, though Target did make major investments in material handling DC automation and distribution centers designs to serve its growing business.

“Before last year, we hadn’t added a new regional distribution center in over a decade, even as our total sales grew 40% over that same time period,” Mulligan said on the earnings call. With sales rising by $27 billion over the past two years, “It’s time to expand our network,” he added.

Target does not report growth specific to ecommerce, but one might guess from the overall numbers (8.9% in the latest quarter) that it did better than Amazon (on-line sales down 1% in Q4) and Walmart, which saw its on-line sales rise just 1% in its quarter ending January 28.

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