Target is testing a new distribution model designed to speed up store replenishment, according to The Wall Street Journal. Additionally, next-day delivery through the Target Restock program will be expanded to 60 markets by May 19, and the delivery fee will be cut from $4.99 to $2.99, according to USA Today.
The distribution model, which uses the same inventory to stock physical stores and fulfill e-Commerce orders, is being piloted at a warehouse in Perth Amboy, N.J. The “flow center” facility will send smaller, more frequent shipments tailored to each location’s specific demands, according to Preston Mosier, SVP of Global Supply Chain and Logistics Field Operations at Target. The updated strategy will cut the replenishment cycle from days to hours while reducing the amount of inventory held at stores.
The program is already generating results, with out-of-stocks down in the affected stores, according to Mosier. At the same time, stores supported by the flow center have reduced back-room inventory, which could be a boon at the small format locations Target is opening in urban areas.
Target wants to open 130 new small-format stores nationwide by the end of 2019. The small-format stores will serve as “hyperlocal distribution centers to fulfill digital orders faster,” said CEO Brian Cornell in a statement.
Nearly 70% of online volume was handled by Target stores rather than warehouses during the 2017 holiday season. Reducing the amount of inventory held at stores will let the retailer dedicate more room to digital fulfillment, which in turn reduces costs and allows products to be shipped at a faster pace, according to COO John Mulligan.
The emphasis on improving logistics comes as the retailer aims to make same-day delivery available in every major U.S. market by the 2018 holiday season. The program’s acceleration was enhanced by the acquisition of Shipt for $550 million in December 2017.
The expansion of Target Restock will also be a major milestone in reaching that goal, putting next-day delivery for 35,000 items within range of 75% of the U.S. population. Target will waive delivery fees for shoppers who pay with a Target-branded card.
Target also is creating a new warehouse management system to better integrate its distribution and fulfillment options, which currently use separate systems. All of the retailer’s efforts are part of a $7 billion investment in store and digital improvements.