Target (TGT) is buying tech start-up Shipt in a bid to become a much more serious contender in the same-day delivery wars.
The discount retailer, looking to better compete with Walmart (WMT) and Amazon.com (AMZN), said on Wednesday it was paying $550 million in cash for Shipt in its biggest acquisition in recent history. As a result, it plans to offer same-day delivery at about half of its 1,800 stores by summer ahead of a roll-out to nearly the entirely fleet by next year’s Christmas season.
Shipt, which will become a wholly-owned Target subsidiary that will continue to do and solicit business from other retailers, works with chains such as Kroger (KR)and Costco Wholesale (COST) by making the specific items at any given store available online.
When customers place an order on Shipt’s marketplace, the service sends one of its 20,000 “shoppers” to the store to grab the items and then deliver them. Shipt, founded in 2014 in Alabama, charges $99 a year for unlimited deliveries.
The move marks a ramping up of Target’s efforts to speed up delivery. Just more than three months ago, Target said it was buying Grand Junction, a San Francisco-based startup that connects retailers and other distributors to a network of more than 700 carriers across North America.
With Walmart rolling out grocery pickup at many more stores and looking at same-day delivery, and Amazon making similar moves with more expected in the wake of its acquisition of Whole Foods this year, Target has no choice but to pick up the pace. What’s more, Target wants to sustain the growth of its online business, which grew 24% last quarter.
“We believe we will be able to leap several years ahead, significantly accelerating our nationwide delivery,” John Mulligan, Target’s operations chief, told reporters on a conference call. That means going from a matter of days to a matter of hours, he said, something customers increasingly expect. Target has already been piloting same-day service at its TriBeCa store in Manhattan, an effort led by Grand Junction.
As for Shipt, the deal will make it a much bigger player in the delivery wars and likely begin to narrow the gap with much bigger rival Instacart, with which Target currently partners in three major markets. (Mulligan said Target hadn’t alerted Instacart ahead of the Shipt announcement and that no decision about that partnership could be announced.)
Shipt, whose management team will remain in place and will operate independently in its hometown of Birmingham, Ala., now serves 70 U.S. markets, compared to 30 a year ago. The company recently told Bloomberg News it also expects revenue to hit the $1 billion milestone, according to the news agency. Mulligan told reporters Shipt would continue to be able to serve Target competitors because its business model requires a certain critical mass to work, and therefore to be viable for Target, too.
Initially, Target will offer same-day delivery of groceries, essentials, home, electronics and other products, and by two years from now, the service will encompass all major product categories at Target. The company said the deal, expected to close by year-end, won’t affect its financial results in the short term, but would spur online growth a bit further out.