Target (NYSE:TGT) has added another way to get your order through its online website delivered the same day you click the "buy" button. Customers can now elect to have items delivered to their homes within hours of ordering straight from Target's website.
The move is a slight change from Target's existing same-day shipping capabilities, offered through its Shipt subsidiary. Target acquired Shipt in late 2017 and quickly added all of its stores and dozens of new retailers to Shipt's website. Previously, customers could only order items from Target for same-day delivery through Shipt's website.
Customers now have the option of ordering straight from Target.com, and instead of paying Shipt's $99 annual fee, customers can elect to pay a one-time $9.99 delivery charge. The move makes Target.com more competitive with Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) among customers who need their orders fast. It may also increase customer loyalty.
Taking on the competition
While Amazon and Walmart have recently focused on one-day delivery options, Target has focused on using its network of stores to fulfill orders as quickly as possible in as many different ways as possible.
Still, the bigger competitors offer their own compelling same-day delivery options. Amazon has offered Prime Now for nearly five years, and it's now available in dozens of metropolitan areas around the world. Prime Now offers free same-day delivery on hundreds of thousands of everyday essentials for Prime members. Amazon started adding Whole Foods groceries to Prime Now after acquiring the grocer two years ago.
Shipt is a direct competitor to Prime Now. But with a price just $20 less than a full Prime annual membership and given its very limited benefits compared to Prime, Shipt's membership offering might have trouble staying competitive, especially as Amazon expands Prime Now's presence and product selection. Giving customers an on-demand option with the ability to upsell to an annual membership might boost Shipt's subscriber base.
Walmart, meanwhile, offers same-day delivery for grocery orders, which increasingly include non-grocery items. Walmart's same-day delivery fee on grocery orders is $9.95, and it plans to offer the service to 50% of the U.S. population by the end of the year.
Target's same-day selection and availability appears broader than Walmart's, and it includes more household items outside of groceries. That's the value the company gained by acquiring Shipt instead of building out its own delivery service.
Increasing customer loyalty
Integrating Shipt with Target.com could make customers more loyal to the retailer. Shipt members can now take advantage of Target weekly promotions (like buying three items and getting a $5 Target GiftCard), or use their Target REDCards to get 5% cash back on their purchases. That makes Target more attractive to Shipt subscribers.
Meanwhile, the move to integrate same-day shipping on Target.com should get Shipt's service in front of more consumers, potentially increasing the delivery service's subscriber base. And if customers subscribe to Shipt, they might not need to subscribe to Amazon Prime or use Walmart's same-day fulfillment services.
The two sides of the equation ought to help Target retain its customers, particularly those who rely on online ordering for fast fulfillment instead of going into brick-and-mortar stores. That's increasingly important as Amazon works on making its Prime service more attractive in order to win sales of items that are often more convenient to buy from Target or Walmart.
Target's efforts should help contribute to the continued improvement of its online sales, which grew at a faster rate than both Walmart's and Amazon's in the first quarter. Best of all, the expansion of same-day delivery to Target.com has practically no additional marginal cost for the company, since it relies on existing infrastructure -- that means investors could see better bottom-line growth, too.