Target Corporation (NYSE:TGT) announced on Wednesday that the company would be acquiring Shipt Inc. for $550 million. The acquisition will enable Target to offer same-day delivery for groceries and other items as it tries to compete with Amazon.com, Inc. (NASDAQ:AMZN), Wal-Mart Stores Inc (NYSE:WMT) and other companies that have already offered ventured into same-day shipping.
Target hopes the acquisition will make it more of an attractive option for shoppers that might otherwise look for quicker shipping options. Target’s COO, John Mulligan, stated that “With Shipt’s network of local shoppers and their current market penetration, we will move from days to hours, dramatically accelerating our ability to bring affordable same-day delivery to guests across the country.”
Target is aiming to provide same-day delivery to most of its stores by the end of next year. The company has struggled to find ways to grow its top line with sales rising just 1% in the most recent quarter. By venturing into same-day delivery that should help increase the company’s sales as it attracts more customers.
The challenge for Target will be whether it can remain profitable in offering the service. Amazon has a big advantage over conventional retailers in that it doesn’t have the big overhead costs that come with operating brick-and-mortar stores.
In the past four quarters, Target’s margins have been thin with the company averaging a profit margin of less than 4%.
Year-to-date the share price has declined 13% but has climbed 9% in the past six months. The stock could be a good value buy but in the long term I would be concerned about how well it can keep up with competition from online retailers.
