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The biggest news that came with Amazon.comof (NASDAQ: AMZN) The first quarter report released on Thursday was the e-commerce giant's plan to make the day-to-day shipping the norm for its Amazon Prime subscription service. Unlimited navigation within two days has been Prime's main attraction since its launch in 2005, but it is no longer as distinctive as it was before. Both Walmart and Target (NYSE: TGT)For example, offer a free two-day shipping on online orders over $ 35, with no membership fees.
By switching to navigation in one day, Amazon certainly raises the bar. But the idea that this decision will leave other retailers in the dust does not take into account the progress made by Amazon's competition. Target Restock, Target's home delivery service for essential products, already offers free shipping the next day for a broadband of customers.
Target Restock has a minimum order of 35 USD and a small selection compared to Amazon Prime, but this demonstrates that Target is perfectly capable of delivering orders quickly, with no membership fees or distribution network at the same time. Amazon scale. Amazon's one-day sea push will certainly get Target and other retailers to become more aggressive, but it's not the end of the world.
Source of the image: Amazon.
Everything revolves around the shops
The basics of Target Restock, which the retailer reorganized last year:
- Tens of thousands of household items and non-perishable grocery items are available.
- The minimum order is $ 35.
- Orders placed before 7pm on weekdays are delivered the next day.
- No shipping charges apply to orders placed with Target's REDcard or members of Target's free loyalty program, Target Circle. Fees of $ 2.99 apply otherwise.
Target Restock offers a much smaller selection than the millions of items available via Amazon Prime. This is certainly not a replacement for Prime. However, the fact that Target is able to offer free delivery the next day, without the vast distribution system that Amazon has spent decades building and perfecting, and without reducing the profit, shows that the retailer has come a long way. A long way.
The key to the next day's free shipping on Target's day lies in its base of more than 1,800 stores. All Target Restock commands, as well as many standard online orders, are executed directly from store shelves. This may seem ineffective, but it allows Target to save a lot of money. The company was able to forgo about $ 3 billion in new warehouse expenses by using its stores to fulfill its orders. Orders shipped from stores cost the company about 40% less than orders shipped from warehouses.
Result: Target has already put in place the necessary infrastructure to offer free delivery the next day. This is currently limited to replenishing orders, but it would not be surprising to see Target expand its efforts to a broader range of goods in the future, especially now that Amazon is moving on a one – day expedition.
A little stroke at the margins
Target has not had a significant impact on bottom line results through its free and fast delivery initiatives, but their cost is modest. In the fourth quarter of 2018, Target's gross margin fell 0.4 percentage points year-on-year to 25.7%, reflecting higher realization and supply chain costs. for the digital. The company managed to maintain its operating margin at 4.9%, which is mainly due to the strong growth in store sales.
Target's margins will certainly be under pressure as the company continues to expand its online sales, especially if the performance of its stores begins to cool. However, the retailer has demonstrated with Restock that it can offer Amazon-level convenience without Amazon-level subscription fees.
A shipping day since Amazon may seem disastrous for Target, but it's really not the case. The target will be fine.
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