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Target Launches New Delivery Service, But Is It Too Late?

Target Corporation TGT launched Target Restock, a next-day delivery service in Minnesota on Tuesday after testing the concept with employees for a few months. Shares of TGT are up a slight 0.4% in late-morning trading on Wednesday.

Target Restock ships a box of household items to a Target REDcard holder for a flat rate of $4.99 per box. Customers also currently need to have an account with Target.com to access the service, although they can choose any payment method. Non-cardholders may be included in this offer in the future as the service expands nationwide.

This delivery services directly challenges Amazon.com’s AMZN Prime Pantry, which also offers to ship a box of household items to customers for a flat rate of $5.99. Boxes can weigh up to 45 pounds, but they’re shipped using ground shipping. Target can offer next-day shipping because the boxes will come from nearby stores.

This launch comes almost two weeks after Amazon announced that the company would buy Whole Foods Market WFM. While Target Restock effectively challenges Amazon’s Prime Pantry, Whole Foods stores could help Amazon redesign their own delivery system to be just as fast and cheap as Target’s.

This new service also follows Target’s latest earnings report where the company reported falling revenue and comparable sales. Target’s revenue fell 1.1%, to $16.02 billion, while its same-store sales at brick-and-mortar locations declined by 2.2%.

Target attributes these losses to a decline in customer visits and few items purchased on average per visit.

In addition to Target Restock, the company has other plans to revitalize its stores. The retailer plans to roll out 12 original brands over the next two years after the success of its Cat & Jack children’s line. Target will also open 30 small-format stores and remodel 100 of its larger locations by the end of 2017.

The company hopes that these changes will encourage shoppers to physically visit stores. While Target wants to continue to expand its online shopping sales, customers shopping in brick-and-mortar stores boost sales because shoppers are more likely to make impulse purchases.

Despite all these new initiatives, Target still faces strong competition from Amazon and Walmart WMT as both companies continue to put forth new ideas and investments of their own. There is no better example than Amazon’s buyout of Whole Foods. Will Target’s changes be enough to increase profitability in the face of this?

That being said, Target remains a Zacks Rank #2 (Buy). With a VGM score of ‘A,’ Target remains one of the largest retail stores in the country that provides a brick-and-mortar experience unlike Amazon, while still possessing an upscale image vastly different from Walmart.

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Target Corporation (TGT): Free Stock Analysis Report
 
Whole Foods Market, Inc. (WFM): Free Stock Analysis Report
 
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