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Welcome to Near Future. In this weekly feature, The Current spotlights innovations powering the next wave of commerce.
Ecommerce adoption rewires how we shop.
Rather than going out to browse and purchase items by default, more and more options raise expectations that the goods will come to us.
That doesn’t only change how businesses get items to customers. It also changes the urban environment.
As package volume increases, delivery trucks and vans are a growing presence on city streets. Instant delivery brings more cars bringing grocery orders and convenience items.
Charles Jolley looks at this increasing congestion, and sees room for a more modular approach to delivering items over the last mile.
“In the same way containers made global shipping much more efficient, we're wanting to do basically the same thing for the city,” Jolley said.
A former Apple executive who helped launch iCloud and entrepreneur who led Ozlo and Strobe to acquisition by Facebook, Jolley is the CEO of URB-E.
The company developed a system to transport goods in small containers, ferried by electric bicycles. These containers are designed to be kept in the back of a grocery store or at a microwarehouse location that’s close to consumers. They’re big enough to fit many orders. So once they are filled, they can deliver to multiple sites. Once emptied, the containers can be moved to different fulfillment sites, where needed.
The sizes of containers can vary depending on the cargo, but they’re all designed to fit on bike lanes. When compared to vans, these systems reduce congestion and cut down on the amount of energy being used to transport items, Jolley said. Using electric vehicles means that energy consumption isn’t producing emissions, either.
To keep the EVs running, the company has its own supply chain of swappable batteries and a charging network, as well. These batteries are transported in the containers to locations where they are needed, and can be used all day. This reduces the need for fixed chargers.
It’s all designed to optimize for efficiency. As the number of packages continues to increase alongside expectations for fast delivery times, that will become a must, Jolley said. Sending a container that’s configured for a business’ needs to transport its goods from a location that’s close to consumers can serve as the enabler for fast delivery models that don’t lose money.
“Because delivery is becoming so common, the volume is increasing, and that's where systems like ours really matter,” Jolley said. “When you have high volumes, then you can use technology to bring down the cost of delivery.”
Currently working in New York and Los Angeles, URB-E is in the early stages of rollout. It has partnerships with logistics service AxleHire to provide containers to microhubs, and tech-enabled farming company Square Roots to deliver produce grown with hydroponics. Jolley expects hundreds of vehicles to be on the road this year. As it gets more infrastructure built out going forward, Jolley said the company is interested in expanding to offer deliveries between businesses.
Jolley sees URB-E’s model for infrastructure weaving into the fabric of the modern city. At the same time, he sees sustainability as both an environmental and business imperative.
“Sustainable solutions can’t be a product that you’ve managed to make green,”he said. “The element that makes it green or sustainable also has to make it a good business call.”
Those who achieve success figure out both. URB-E believes it has the model to get there.
Trending in Operations
Sortation centers are helping the retailer build on its stores-as-hubs strategy.
Like many retailers, Target undertook a massive digital buildout during the pandemic as ecommerce demand spiked.
The new capabilities proved to be the launchpad for impressive growth. In 2020, store pickup grew 600%. Same-day fulfillment grew 400% from 2019 to 2021. By 2022, the company was ready to double down on digital. It announced plans to invest up to $5 billion to scale operations, with store-based fulfillment capabilities among the big areas that would receive a boost.
It was an example of how the pandemic’s digital shift left a lasting imprint that would change a retailer’s footprint well into the future. But it’s worth remembering that Target already had the strategy that shaped this operational transformation in place well before COVID-19 arrived.
In the mid-2010s, Target adopted a stores-as-hubs strategy that put brick-and-mortar at the center of all operations, including digital. This meant that ecommerce orders would run through the store, just like in-person shopping. This has remained in place, and only grown. In the first quarter of 2023, more than 97% of sales were fulfilled by stores.
Stores-as-hubs was a radical approach at the time it was introduced. CEO Brian Cornell faced criticism that the two channels would cannibalize each other, and was out-of-step with the massive warehouse-based fulfillment network that Amazon was building. But in the end, Cornell was vindicated. The strategy put Target not only in position to capitalize on the pandemic’s digital shift, but to continue to see its stores be a destination when consumers returned to in-person shopping when restrictions were lifted.
At this point, Target’s nearly 2,000 stores are cemented as the center of ecommerce operations. But as it seeks to gain efficiency and speed in delivery, the retailer is bringing additional facilities into the network.
Now, Target sees opportunity to build ecommerce from the inside out.
Scaling with sortation centers
This year, evidence is emerging in the form of Target’s sortation centers. Positioned downstream of stores, these facilities combine technology and process logic to triage packages for last-mile delivery by the Target-owned service Shipt. Orders are still picked and packed at the store, but the sortation centers serve as the staging grounds that get packages out the door for delivery.
On the company’s first-quarter earnings call with investors, Target COO John Mulligan stressed that these centers are not highly automated.
“In fact, it's because of the relative simplicity in the design of these buildings and the efforts of an incredibly innovative and energetic team that we've been able to scale the number of these buildings so quickly,” Mulligan said.
Target is placing a big bet on these facilities. In February, it announced plans for a further investment in the supply chain of $100 million, focused on the sortation centers. It is enabling rapid growth. In 2022, the company had three centers, and now has nine. By 2026, it expects to have 15 centers in place.
These facilities are also serving as testing grounds as Target seeks to scale the delivery network.
A new facility in the Atlanta area is serving as an extension of the sortation center that has enabled Target to reach 3 million customers with next-day delivery.
“With this new facility, online orders that have been packed by Atlanta area stores continue to flow to the sortation center, where they're sorted and delivered via our national carrier partners or a ship driver,” Mulligan said. “However, a portion of local orders falling outside the sortation center's last-mile delivery area can now be transferred to the Smyrna extension, where Shipt drivers can pick them up and serve additional neighborhoods.”
Target and Shipt are also refining the path that packages take to reach customers. Shipt vehicles are being shifted to high-capacity models such as SUVs and minivans. These were used in 65% of last-mile deliveries in the first quarter, compared with zero a year ago. The vans service nearly five times as many packages, and enable route optimization that increases the number of packages delivered per hour.
It all adds up to reduced service costs for Target, and the company is continuing to build and refine processes at the sortation centers.
“Based on the success of these efforts, we're developing plans to begin testing high capacity vans at a larger scale,” Mulligan said. “In addition, we're developing a standardized faster way to load those vans, enabling package containerization and easy identification of the correct packages at delivery. In addition to simplifying the load process for the drivers, this new process will enable us to safely move a larger number of Shipt drivers in and out of our sort centers in a given amount of time, expanding our last-mile delivery capacity in these markets.”
Improving the ecommerce experience
To expand this last-mile capability, Target won’t be building massive fulfillment centers like Amazon. It already has large stores that offer proximity to large swaths of the population. Those can be outfitted to serve the same functions as large warehouses, and sortation centers help to expand them. Add in a delivery network via Shipt, and the pieces are in place to continue expanding and optimizing capabilities.
A scaled logistics network on the backend could also improve Target’s ecommerce experience on the frontend. For instance, increasing fast delivery could also open up more opportunities to deliver items with a shorter shelf life such as groceries, which is an area where Target is looking to expand. As Amazon has shown, consumers are also more likely to buy if they receive items in a convenient manner. Target’s stores have long benefitted from customers associating the shopping experience with their affinity for a retailer, just as much as they do the products they buy. Through fulfillment and delivery, it can extend the Tarjay cachet online, as well.
Ecommerce has always held the promise of being able to bring the store home. Target’s logistics strategy is putting that idea into action in a very literal way.