When Target (NYSE:TGT) spent $550 million to buy same-day shipping platform Shipt in December 2017, the common belief was that the retailer did so to jump-start its own ability to deliver quickly. The purchase allowed the retail chain to quickly add same-day delivery, which gave it an edge over rivals that had yet to do that, and it helped put Target on an even footing with Amazon (NASDAQ:AMZN).
It was largely expected that Shipt would become a Target-centric service. That's not entirely what has happened. The shipping company also has same-day delivery offers from CVS (a Target partner), and grocery rivals HEB and Meijer.
Now Shipt has a new deal with another Target rival. It's going to be offering same-day delivery from Office Depot (NASDAQ:ODP) as well as that company's OfficeMax brand. The deal will involve stores in more than 200 markets serving more than 60 million households.
What is Target doing?
Target has essentially opted to run Shipt as its own company rather than making it a part of the parent brand. That's smart for building the value of the shipping company. It may make sense because even if Target kept Shipt's services for itself, the companies that have partnered with the delivery company would just turn to other players in the shipping space.
"Our vision at Shipt is to deliver the products consumers need so that they can spend their time doing what matters most," said Shipt CEO Kelly Caruso in a press release. "With Office Depot, we're now able to serve more people in more ways -- from the local business owner, to the schoolteacher, to the work-from-home mom or dad. We're in the midst of an exciting evolution to a multi-vertical, multi-retailer delivery service and are thrilled to have Office Depot as part of the Shipt family."
The last part of Caruso's statement makes it clear how Target is allowing Shipt to operate. It's clear the same-day delivery company is going to grow even if some of the partnerships it makes offer some products that its parent company also sells.
Target is following Amazon
Amazon offers shipping services to other companies. That has helped it build out its network of trucks, which supports its effort to offer same-day delivery throughout the United States.
Target is doing the same thing. By growing Shipt's partnerships, it helps the company add capacity. That, in theory, should allow Target to offer same-day delivery more efficiently from its own stores.
This is a case where the retail giant has chosen to grow Shipt because the company could be a big moneymaker on its own. In addition, expanding Shipt will help Target's stores even if the chain loses some sales to customers of the shipping service that sell products that overlap its own.
Target has opted to grow its shipping company betting that it will benefit more from doing that than it would from keeping the service for itself. That's probably a smart call because Shipt has rivals, including Instacart, that could step in and make these deals if Target refused to.