A recent WSJ article discusses how Target, one of the largest retailers in the US, has been using smaller warehouses (or “regional hubs”) to improve its online order fulfillment and delivery speed. The regional hubs include flow centers, which replenish stores with in-demand items more frequently and in smaller quantities, and sortation centers, which batch online orders by neighborhood for final delivery to customers.
Target indicates this strategy has helped it reduce its inventory levels, cut shipping costs, and deliver packages more quickly. According to John Mulligan, Target’s chief operating officer, customers who are close to sortation centers receive packages on average a day and a half faster than other customers. About one in three orders arrive in one day. The Minneapolis-based retailer plans to open at least six additional sortation centers by the end of 2026 as part of a $100 million investment to expand next-day delivery.
Other retailers, such as Amazon and Walmart, have been making similar changes to their distribution networks. Amazon recently created eight self-sufficient distribution regions and opened more same-day centers to prepare packages for immediate delivery. Walmart has been using its stores as fulfillment centers and partnering with local delivery services to offer same-day delivery for online orders.
Consumers are driving these changes with growing demand for online shopping and rising expectations for increased delivery speed and convenience. By using smaller warehouses that are closer to customers, retailers are shortening the distance and time that goods have to travel, while also saving on transportation and storage costs. While the consumer benefits, these changes make the network for retailers more complex and require more coordination and flexibility.