Target Goes Local to Speed Up Order Deliveries

One of the nation’s largest retailers has been making big changes to its distribution network using smaller warehouses.

Target said its move to add regional hubs with specific roles to its supply chain over the past five years has helped pare its inventories, deliver online orders faster and speed up store replenishment.

The Minneapolis-based merchant, like competitors Amazon.com and Walmart, has been trying to hold less inventory and trim shipping costs by placing goods closer to customers. The strategy has also included fulfilling more online orders out of stores.

The tactic marks a move away from mega-warehouses that ship e-commerce orders out nationwide from a central location, industry experts say. 

Using smaller warehouses to serve surrounding areas “makes your network more complex, but it allows you shorter distances and more flexibility,” said Inna Kuznetsova, a logistics expert and chief executive of supply-chain software company ToolsGroup. 

Kuznetsova said the tactic allows retailers to speed up deliveries by cutting down the distance goods must travel, while keeping costs down by using warehouses that are more efficient at handling large volumes of orders.

Target said the changes to its supply chain helped it improve its in-stock inventory rates for the quarter ended July 29, even as it reported 17% lower inventory on its balance sheet than a year earlier.

“By planning the business cautiously, by positioning with flexibility, and by the team reacting to some of the sales trends we saw in the quarter with urgency, we’ve been able to keep inventory really clean,” said Michael Fiddelke, Target’s chief financial officer, on an earnings call Aug. 16.

Target has recently added facilities it calls flow centers, which use automation to break down shipments to replenish stores with in-demand items more frequently and in smaller quantities. Goods ordered online are then packaged at stores and sent to small sortation centers, which batch them by neighborhood for final delivery to customers.

Target’s flow centers in Chicago and Perth Amboy, N.J., have cut lead times for store replenishment by 20%, said John Mulligan,

“With these shipments, stores see faster replenishment times, require less labor to unload a trailer, and maintain lower levels of backroom inventory,” he said.

Customers close to sortation centers receive packages on average a day and a half faster than other customers, and about one-third of orders arrive in one day, Mulligan said. 

Target plans to open at least six more sortation centers by the end of 2026 in addition to the nine it operates today and to add several more flow centers to its network as part of a $100 million investment to expand next-day delivery. 

Amazon and Walmart have been making similar changes to their distribution networks.

Amazon recently created eight distribution regions designed to work self-sufficiently. The e-commerce giant opened more warehouses called same-day centers to prepare packages for immediate delivery and keeps commonly purchased items closer to customers. 

Walmart used its stores to fulfill more than half of digital orders in the quarter ended July 28, helping cut costs and speed up deliveries. The tactic, along with more automation at warehouses, helped Walmart’s U.S. business reduce stock-outs in the latest quarter while reporting 8% less inventory. 

“What we’re ultimately trying to do with supply chain in the entire e-commerce business is densify our inventory at the first mile, make the middle mile as efficient as possible, and then shorten the last mile,” said John Furner,

Write to Liz Young at [email protected]