Target announced on Wednesday morning that it plans to make one of its biggest acquisitions in recent history by purchasing Shipt, a startup that delivers groceries on the same day customers place an order, for $550 million in cash.
The ultimate goal is to get products to customers as quickly as possible. Target has already been piloting same-day service at its TriBeCa store in Manhattan, an effort led by Grand Junction. Competition in this space is growing fiercer, though, as rivals Wal-Mart Stores Inc. and Best Buy Co. also offer same-day service, keeping pace with Amazon. Taking money from coastal investors helped Shipt expand to enough markets to the point where it could be on Target's radar. It's akin to Amazon's Prime membership fee, but Target won't initially offer as many same-day-delivery products as Amazon (nor does it provide as many other perks as Amazon Prime does). Waiting even two days for Prime or Flash shipping is about to become a thing of the past as deals like Target's become more mainstream.
Minneapolis-based Target expects half of its 1,800 stores to offer Shipt's service by next summer. Shipt's delivery service will be offered to most Target stores in major markets before the 2018 holiday season.
"This is yet another example of a brick-and-mortar retailer leveraging its physical assets to improve its online offerings", said Moody's retail analyst Charlie O'Shea. Kroger ended the day up 1.4%, while Costco was little changed. Shipt CEO Bill Smith will remain in his current role. Costco Chief Financial Officer Richard Galanti declined to comment. But the acquisition isn't quite big enough to ensure that the ecosystem gets the capital and talent it needs to support a greater density of startups.
The question for traditional retailers is how to handle all those internet orders. And the acquisition of a startup by a large Fortune 500 company can help attract more experienced, executive-level talent from the parent company to the region.
According to Crunchbase, three funds participated in both Shipt's series A and series B round - Greycroft in New York, e.ventures in San Francisco, and Harbert Growth Partners in Birmingham. The company, which had raised $65 million to date and competes with Instacart, will continue to run its business independently and work with other retailers.
"We've spoken to a number of our existing partners about this deal and all the conversations have been very positive", Smith said.