Nike ranks No. 9 in the Top 1000, Digital Commerce 360’s database of the largest North American e-retailers.

Nike’s digital retail strategy

Chief financial officer Matt Friend said Nike consumers spent more time in brick-and-mortar locations in the quarter.

“But 90% of their shopping journeys are starting with digital,” Friend said. “And so we continue to believe that our digital and physical strategies of serving consumers are the right strategy to serve demand as we look forward.”

In North America, Nike Digital sales grew 4% in the retailer’s first quarter. Nike Digital refers to sales made through the retailer’s websites and apps.

At the same time, Nike Digital sales in Europe, the Middle East and Africa decreased 2%. And they decreased 3% in Asia Pacific and Latin America. In Mexico specifically, though, Nike’s “digital business delivered double-digit growth,” Friend said, without revealing more.

“We’ve increased the size of our supply chain in the last few years to be able to address the growth that we’ve seen in our business, both overall and in digital,” Friend said.

To improve that efficiency, he said, Nike has reduced digital split shipments so consumers don’t get two deliveries for the same order. It has also invested in “regional service centers that are closer to where consumer demand is.” In other words, it has improved its fulfillment by opening distribution centers in strategic areas.

Nike Digital sales in China

In the Greater China region, Nike Digital sales grew 6% in Q1. The footwear brand held a three-day sports festival called Sportchella in China.

“The team amplified the impact of the festival by partnering with Tmall to create the first Nike Super Brand Week, which drove more than 2 billion impressions,” Friend said. “And this partnership seamlessly integrated the events with a digital shopping journey that generated very strong consumer response and engagement.”

Tmall is an Alibaba-owned marketplace, along with Taobao. Taobao ranks No. 1 in the Global Online Marketplaces Database, Digital Commerce 360’s ranking of the largest such marketplaces by gross merchandise value. Tmall ranks No. 2.

Nike App increases Nike sales

The Nike mobile app had “strong growth,” Friend said. Nike mobile app traffic had high single-digit growth in the quarter, he said.

“We saw member activity continue to increase both in terms of engagement and buying behavior and a higher basket size, a higher AOV,” Friend said.

That drove “sustained momentum on the Nike mobile app” as loyalty members increased their buying frequency in the quarter, he said.

“We continue to see a growing structural advantage as more consumers start their shopping journeys with us on mobile,” Friend said.

Nike Direct revenue

Friend said member engagement through Nike Direct grew double digits in its Q1 compared with the year-ago period. Average order value through Nike Direct sales increased, but he did not specify how much.

Nike Direct refers to the retailer’s direct-to-consumer sales (online and offline). It grew 6% year over year in the first quarter.

In North America, Nike Direct grew 7%, led by 11% growth in physical store sales. Nike Direct sales grew 10% in China. They grew 6% in Europe, the Middle East and Africa, and 3% in Asia Pacific and Latin America.

How much does Nike make in a year?

For the fiscal first quarter ended Aug. 31, 2023, Nike reported:

• Revenue grew 2% to $12.94 billion, from $12.69 billion in the year-ago period.
• Profit also grew 2%, to $5.72 billion from $5.62 billion the year before.
• Similarly, Nike Digital sales grew 2% year over year in the quarter.
• Nike Direct, or the retailer’s direct-to-consumer sales (online and offline), grew to $5.4 billion. That’s a 6% year-over-year increase.

Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports. Here’s last quarter’s Nike report.

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The apparel/accessories retailer grew its digital sales 14% in Q4 and 24% in the fiscal year. Nike Digital sales accounted for 26% of total sales in fiscal 2023.

In pre-pandemic 2019, Nike Digital sales accounted for 10% of total sales. Nike Digital refers to sales made through the retailer’s websites and apps.

Nike ranks No. 9 in the Top 1000, Digital Commerce 360’s database of the largest North American e-retailers.

Fourth-quarter Nike revenue increased 5% compared with the prior year, to $12.8 billion. Full year revenue increased 10% compared with fiscal 2022, to $51.2 billion.

John Donahoe, president and CEO, said consumers want digital and physical access to the brand.

“They use different shopping occasions to use different channels,” Donahoe said. “Consumers expect us to know who they are, and consumers have said to us they want a consistent and seamless experience. And so that is what has driven our marketplace strategy.”

Nike Digital sales

In North America, Nike Digital sales grew 17%. And in Europe, the Middle East and Africa (EMEA), Nike Digital sales grew 24%.

In China, Nike Digital sales declined 12% “as consumer buying continues to over index in brick-and-mortar versus the prior year,” said Matthew Friend, executive vice president and chief financial officer, in the retailer’s Q4 2023 earnings call.

Meanwhile, Nike Digital sales in Asia Pacific and Latin America (APLA) grew 9%.

Based on Nike Digital sales accounting for 26% of total sales, Digital Commerce 360 estimates Nike ecommerce sales to have reached about $13.3 billion in fiscal 2023.

“We continue to invest to grow based on the fact that the consumer continues to choose to shop in our stores and in our digital channels — or at least to engage in our digital channels — before they go try to find the product that they want in the wholesale marketplace,” Friend said.

Traffic analysis

Nike’s digital conversion traffic decreased 5.8% in the Q4 FY 2023 compared with Q4 FY 2022, according to a Similarweb analysis. Similarweb monitors website traffic.

In May 2023, while Nike held 42.5% digital market share, the largest among the top 10 sports apparel brands, its share declined 6.2% compared to the previous year, according to Similarweb. Nike traffic to the Dick’s Sporting Goods website decreased 3.4% year over year in Q4 2023.

“With the COVID-19 pandemic functioning as a catalyst, Nike’s shift to DTC sales accelerated, and the company began employing a combination of scaling back wholesale partnerships while expanding direct channels like the Nike website and Nike app,” wrote Sneha Pandey, insights manager at Similarweb. “However, with pandemic ecommerce tailwinds slowing down and market dynamics changing, Nike has had to re-evaluate its distribution strategy and move toward a better balance between DTC and wholesale.”

Source: Similarweb

Direct-to-consumer sales

Sales through Nike Direct, which refers to the retailer’s direct-to-consumer sales (online and offline), grew 15% year over year in the fourth quarter. Nike Direct grew 18% year over year in the fourth quarter; Nike Direct revenue reached $5.5 billion in fiscal Q4 2023. For the full fiscal year, Nike Direct revenue increased 14% to $21.3 billion.

Nike DTC sales in its physical stores increased 24% in Q4.

In North America, Nike Direct sales revenue grew 15% in Q4. Nike Direct sales grew 28% in EMEA. In China, Nike Direct sales grew 19%. Meanwhile, Nike Direct sales in APLA grew 9%.

Nike Q4 2023 earnings summary

For the fiscal fourth quarter ended May 31, Nike Inc. reported:

• Fourth-quarter revenue increased to $12.83 billion. That’s up 5% from $12.23 billion in the previous fiscal fourth quarter.
• Nike Direct revenue was $5.5 billion, up 15% from the year-ago period.
• Nike-owned stores grew 24%, and Nike Digital sales increased 14%.

For the full fiscal year ended May 31, Nike reported:

• Total revenue was $51.22 billion. That’s up 10% from $46.71 billion in the previous fiscal year.
• Nike Direct revenue was $21.3 billion, up 14% from the previous year.
• Nike Digital sales grew 24%, and Nike-owned store sales grew 14%.

Percentage changes may not align exactly with dollar figures due to rounding.

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Friend said on the retailer’s earnings call March 21 for the fiscal third quarter ended Feb. 28, 2023, that Nike Digital sales grew 24%. That, plus 19% growth at Nike physical stores, led to 22% Nike Direct growth.

Nike Digital refers to sales through the retailer’s websites and apps. Nike Direct refers to its direct-to-consumer sales.

Third-quarter total revenue grew to $12.39 billion. That’s up 14% compared with the prior year’s third quarter. Nike Direct sales in the quarter reached $5.3 billion. That’s up 17% year over year.

Digital sales for the retailer’s namesake brand increased 20% year over year. Nike-brand revenue totaled $11.766 billion, with Converse-brand sales accounting for the remaining $612 million.

Nike ranks No. 10 in the Top 1000, Digital Commerce 360’s database of the largest North American e-retailers.

Nike Digital sales breakout by region

North America

Nike Digital sales in North America grew 25%, though the retailer did not provide a dollar amount. That fueled 23% Nike Direct growth as the retailer’s total revenue in the region grew 27% to $4.913 billion. Friend attributed the growth to holiday sales.

Footwear accounted for $3.322 billion in the quarter. That’s up 31% from $2.532 billion in the year-ago quarter. 

For the nine months ended Feb. 28, total sales in the region reached $16.253 billion. That’s up 23% from $13.238 billion in the year-ago period.

Europe, Middle East and Africa (EMEA)

Nike Digital sales in the EMEA region grew 42%. Friend attributed that growth to Western European markets, specifically citing the United Kingdom. Nike Direct sales grew 29% in EMEA as the retailer’s total revenue grew 26% in the region to $3.246 billion. That’s up 17% year over year from $2.779 billion.

For the nine months ended Feb. 28, total sales in the region were $10.068 billion. That’s up 9% from $9.228 billion in the same period the year before.

The retailer has lowered fulfillment costs in the region by reducing split shipments and adding pickup points, Friend said. 

When it comes to membership and marketing, Friend said, “if we’ve got more members coming in through the top of the funnel who are more engaged and buying more frequently, we should start to see an improvement in our ROAS or return on ad spend from a digital perspective and give us a lot of confidence that we’re building a moat to be able to continue to serve and grow our digital business.”

Greater China

Nike Digital sales declined 11% in the quarter, though Nike Direct grew 3%. Friend attributed this to consumers shifting back to physical stores as China lifted COVID-19 restrictions. Revenue from the region was $1.994 billion. That’s down 8% from $2.160 billion in the year-ago quarter.

For the nine months ended Feb. 28, total sales in the region were $5.438 billion. That’s down 9% from $5.986 billion in the same period the year before.

This was the market in which Nike sales declined across the board in the third quarter, as well as year to date.

Asia Pacific & Latin America (APLA)

Nike Digital sales grew 23% and Nike Direct 22% as the retailer’s revenue increased 15% in the quarter in APLA.

The retailer’s equipment sales declined to $53 million. That’s down 15% from 63 million in the year-ago quarter. It’s also the only revenue decline in the quarter outside the retailer’s Greater China market.

Revenue in the region totaled $1.601 billion in the retailer’s fiscal third quarter. That’s up 10% from $1.461 billion.

For the nine months ended Feb. 28, total sales in the region were $4.735 billion. That’s up 11% from $4.273 billion in the year-ago period.

Nike Q3 2023 earnings summary

For the fiscal third quarter ended Feb. 28, Nike Inc. reported:

• Third-quarter revenue increased to $12.39 billion. That’s up 14% from $10.87 billion in the previous fiscal third quarter.
• Revenue in North America was $4.91 billion. That’s up 27% from $3.88 billion in the year-ago quarter.
• Nike Direct sales increased 17% to $5.3 billion.
• Nike Digital sales increased 20% and represent 27% of total sales.

For the nine months ended Feb. 28, Nike Inc. reported:

• Total revenue was $38.392 billion. That’s up 11% from $34.476 billion in the year-ago period.
• Total revenue in North America was $16.253 billion. That’s up 23% from $13.238 billion in the year-ago period. It’s also more than 50% greater than the revenue from the retailer’s next-largest market: Europe, Middle East & Africa.
• In EMEA, total revenue grew 9% to $10.068 billion. It was $9.228 billion in the year-ago period.

Percentage changes may not align exactly with dollar figures due to rounding.

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Global retail sales through all channels hit $21.21 trillion last year, just a 1.0% uptick from $21.00 trillion in 2019, Digital Commerce 360 estimates. That means online’s share of total retail sales crossed 20.0%, with ecommerce accounting for all retail growth and gains in the online sector more than offsetting declines in store sales.

Historically, digital penetration rises each year as consumers get increasingly comfortable shopping online and retailers fine-tune ecommerce operations to deliver orders more quickly and efficiently. But COVID-19 magnified trend lines in a big way in 2020.

Globally, more than $1 in every $5 that went toward the purchase of consumer goods last year was spent on the web, Digital Commerce 360 estimates. Online penetration hit 20.2%, up from 16.4% in 2019 and 14.4% in 2018. The nearly four percentage-point gain in ecommerce penetration is a major headline, as anything around a two percentage-point bump in digital share over the preceding year is typically noteworthy.

Big markets’ share of global retail e-commerce sales

The world’s two largest economies—the United States and China—dominate global online retailing. Together, these two powerhouses have accounted for more than half of the worldwide digital sales of physical goods for years. In 2020, the pair amassed nearly $2.29 trillion in web sales, representing 53.3% of the global ecommerce market. But that was down from 55.1% in 2019 after years of growing market share, signifying that other countries gained ground on the largest players in an unusual year.

A number of markets outpaced both the U.S. and China with higher online growth: In North America, Canadian ecommerce skyrocketed by 71.2% last year after rising just 22.1% in 2019, according to data from Statistics Canada, a government-run agency. And in Mexico—a very low-penetrated country—online sales swelled an incredible 81.0% in 2020, according to the Mexican Association of Online Sales, or AMVO.

In Europe, the United Kingdom grew ecommerce by 36.0% last year, according to IMRG, the country’s online retail association. And online product sales in France climbed 32.0%, according to FEVAD, the country’s ecommerce federation. Additionally, Russia boosted digital sales by 45.0% in 2020 while Brazil’s ecommerce market saw even higher growth at 66%, Euromonitor reports to Bloomberg.

The U.S.’s banner year in ecommerce

Despite major surges in smaller markets, just the year-over-year gain in online revenue dollars alone for the U.S. during 2020 was larger than all but a few total ecommerce markets across the world. And as usual, the country had an outsized impact on the overall landscape in global online retail.

The U.S. is second among the biggest markets for ecommerce—behind only China—and comprised 18.5% of global digital sales. As shoppers turned to the web in wildly inflated numbers as the pandemic raged, consumers spent an astounding 32.4% more online with U.S. merchants than in 2019, according to U.S. Department of Commerce retail data. Ecommerce hit $791.70 billion in 2020, up from $598.02 billion the prior year.

That’s the highest annual U.S. ecommerce growth of any year for which data is available and also more than double the 15.1% year-over-year jump reported by the Commerce Department in 2019.

Ecommerce penetration hit 19.6% last year in the U.S., Digital Commerce 360 estimates. That’s up from 15.8% in 2019 and 14.3% in 2018. The nearly four percentage-point gain in online’s share of total retail sales during 2020 is by far the largest year-over-year uptick in penetration ever recorded. No other year has registered even a two percentage-point bump in digital share over the preceding year.

Sales through all channels reached $4.04 trillion last year in the U.S., up from $3.78 trillion in 2019, according to a Digital Commerce 360 analysis of Commerce Department data. The sizable 6.9% lift—the highest annual growth since 1999—was surprising after a year marked by store closures, lingering consumer anxiety over being in public spaces and the enormous boost to ecommerce. After all, total retail increased just 4.0% in 2019.

Digital Commerce 360 studies non-seasonally adjusted Commerce Department data and excludes spending in segments that don’t typically sell online, such as restaurants, bars, automobile dealers, gas stations and fuel dealers.

But online sales drove nearly three-quarters—or 74.6%—of the gains in total retail in 2020, and that’s the highest share of overall annual growth ecommerce has ever represented. It’s also nearly 11 percentage points higher than the 2008 share, which came in second place, and substantially higher than online’s 54.0% share of spending gains in 2019. But interestingly, the fact that ecommerce didn’t account for all gains means that offline—or primarily in-store—sales grew 2.1%, which is the same rate as pandemic-free prior 2019.

The U.S.’s record-breaking online performance was a major contributor to the health of the global ecommerce market in 2020. In fact, excluding the U.S., global web sales increased by 22.4% year over year in 2020—lower than the 24.1% with the U.S. That’s because the growth in China’s ecommerce market slowed last year.

China’s web sales growth slows in 2020

China’s numbers typically overshadow the U.S., as online sales in the country have been more than double domestic ecommerce revenue for years. But the U.S. made a little headway in 2020, closing the gap a bit after increasing web sales by $193.68 billion to China’s $189.18 billion gain, according to currency-converted data from the National Bureau of Statistics of China, a government agency. Still, China accounted for more than a third—34.9%—of all ecommerce across the world in 2020.

The online sales of physical goods reached nearly 9.76 trillion yuan, or roughly $1.49 trillion, in China last year, up from more than 8.52 trillion yuan, or roughly $1.31 trillion, in 2019. But the 14.5% rise in digital revenue was a deceleration from 21.4% year-over-year growth in 2019. While percentage changes often taper off over time as figures get larger and growth is harder to achieve, pandemic-related shifts in consumer behavior led to many markets bucking that trend in 2020. So it’s notable that China didn’t see the same rise in ecommerce growth. Especially in light of the online sales jump in the U.S. of 32.4%—more than double that of its Asian counterpart.

While China’s ecommerce gains gave a boost to the country’s floundering overall retail performance in 2020, it wasn’t enough to offset an 11.2% decline in the offline sales of goods.

Total retail sales of consumer goods excluding automobiles hit nearly 35.26 trillion yuan, or roughly $5.40 trillion, in 2020, according to the National Bureau of Statistics of China. That’s a 5.3% decline from almost 37.23 trillion yuan, or roughly $5.70 trillion, the year before. The dropoff in sales through all channels is a big swing from 2019, when retail climbed 8.8%. Here, again, the retail landscape in China proved to be quite different from the U.S., where overall retail had a banner year.

China’s ecommerce penetration continued to lead all countries with more than a quarter of the sales of goods—27.7%—occurring online in 2020. That’s up from 22.9% in 2019 and 20.5% in 2018. The country’s 2020 online gains paired with a decline in overall retail meant digital share surged 4.8 percentage points in a 12-month period—double the year-over-year lift in 2019 and higher than the U.S.’s 3.8 percentage-point increase last year. With more than $1 in every $4 now spent online in China, the ecommerce penetration gap between both countries widened in 2020, with an 8.1 percentage-point difference between the two.

Marketplaces account for nearly two-thirds of global ecommerce

Much of the story in ecommerce continues to center on the world’s biggest online marketplaces, including Amazon.com Inc. in the U.S. and Alibaba Group Holding Ltd.’s Tmall and Taobao, both dominant forces in China. All of the third-party selling platforms ranked in the 2021 Digital Commerce 360 Top 100 Online Marketplaces sold nearly $2.68 trillion in 2020. That’s up 29.0% from nearly $2.08 trillion the prior year. This means online marketplaces accounted for nearly two-thirds—62.5%—of global ecommerce in 2020, up from 60.1% the year before.

But the rankings are quite top heavy. Taobao, Tmall and Amazon (Nos. 1-3) represented 62.6% of the Top 100’s collective total gross merchandise value, or GMV, in 2020 and an incredible 39.1% of global ecommerce for the year.

Amazon runs a hybrid marketplace, meaning it both lists its own inventory and operates a platform through which other retailers sell their products. In 2020, the web giant’s global first-party revenue surpassed $302.99 billion, up 41.4% from nearly $214.22 billion the year before. Figures capture the sales of the company’s own products plus the commissions and fees the company received from its marketplace sellers, Amazon Prime memberships and other subscription services.

Including purchases made through third-party sellers, the value of goods sold on Amazon reached a Digital Commerce 360-estimated $475.00 billion in 2020, a 40.1% jump from $339.00 billion the year before. As consumers leaned heavily on Amazon during the pandemic, the company accelerated both first-party revenue and total GMV growth to roughly double its 2019 upticks.

It’s worth noting that Amazon grew far faster than the overall global market last year and accounted for 16.3% of all worldwide ecommerce gains. It also increased total GMV at roughly double the rate of Alibaba’s pure-play marketplace competitors.

Taobao grew its total GMV by a Digital Commerce 360-estimated 17.5% in 2020, to $609.58 billion from $518.79 billion in 2019. Tmall saw an estimated 21.0% jump over the prior year, with total GMV reaching $593.45 billion last year after hitting nearly $490.46 billion in 2019. An astonishing 80.5% of online sales in China flowed through these two marketplaces last year, and collectively, they represented 23.3% of global gains in ecommerce.

A look at the top 10 global marketplaces further reveals China’s staggering power over worldwide online retail. The country holds three spots on the list—with hybrid marketplace JD.com Inc. joining Alibaba’s biggest names—and yet, this trio brought in more than two-thirds of the total GMV of the top 10.

Percentage changes may not align exactly with dollar figures due to rounding.

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So what will developments will lie in the year ahead? The December issue of Internet Retailer examines how ecommerce may evolve next year.

Inside the December issue

• “Retailers adapt to rising fraud rates” looks at how merchants are working to ensure they have safeguards in place to combat fraud.
• “What California’s new privacy law means for retailers” explains the potential impact of the new data privacy standard.
• “Retailers adapt to the evolving marketing landscape” examines how online merchants plan to spend their digital marketing budgets next year.
• “How the new North American free trade agreement will impact ecommerce” looks at how the U.S.-Mexico-Canada Agreement may drive more retailers to sell across borders.

Compliments of our sponsors: ACI Worldwide, Lucidworks, Melissa, Monetate, Radial, Top Ten Wholesale.

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The two centers will cover 1.4 million square feet and will create more than 3,000 new jobs in the country.

“The investment in Mexico is part of a comprehensive strategy that we started in 2016 that will allow us to reduce substantially the delivery times of our products,” says Ignacio Caride, general director for MercadoLibre Mexico.

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E-commerce accounts for about 3% of total retail sales in Mexico, MercadoLibre says. That’s compared to 13% in the U.S., according to Internet Retailer estimates.

Currently, 80% of the items sold through MercadoLibre in Mexico use Mercado Envíos, the company’s shipping and logistics service, and more than 70% are delivered within 48 hours, the company says.

Amazon.com Inc. also is stepping up its investments in Mexico. Last year, after operating for about two years in the country, it launched its Prime two-day delivery service in Mexico for about $23 a year—far less than the U.S. fee of $99. Amazon, No. 1 in the Internet Retailer Top 500, began selling physical goods in Mexico in 2015.

MercadoLibre Inc. operates in 19 countries including Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay and Venezuela. MercadoLibre says it is the 7th most visited retail site in the world.

EBay.com Inc. had been the Buenos Aires-based company’s largest shareholder since 2001, but in 2016 announced it was selling most of its stake in the company.

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The all-cash deal will let Target customers order groceries and other goods online, and then have the items sent directly to their doors from nearby Target stores. Target is No. 20 in the Internet Retailer 2017 Top 500.

2023 Ecommerce Fulfillment Report

Analysis of the latest trends in ecommerce fulfillment. Includes over 20 charts, expert analysis on top U.S. shipping carriers and how their finances impact retailers, and breakdowns of shipping, returns, and omnichannel offerings among retailers in the Top 1000

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Buying Shipt further beefs up Target’s logistics operations—earlier this year, the retailer announced the acquisition of software company Grand Junction, which also manages local and same-day deliveries. Target now offers same-day delivery in New York City and can send orders from 1,400 of its stores. Competition in this space is growing fiercer, though, as rivals Wal-Mart Stores Inc. (No. 3) and Best Buy Co. (No. 10) also offer same-day service, keeping pace with Amazon (No. 1).

Four out of five shoppers want same-day shipping, according to a survey by fulfillment software maker Temando, but only half of retailers offer it.

“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,” John Mulligan, Target’s chief operating officer, said in a statement.

The deal will give Target same-day delivery at about half of its 1,834 stores by next summer, with the number growing to a majority of stores in time for next year’s holiday season. The service costing $99 a year for unlimited deliveries—will initially encompass categories like groceries, household essentials and electronics before expanding to all major product groups by the end of 2019.

Improved position

“While it will not affect Target’s capability this holiday season, the fact that Target will have this service in place during 2018 will significantly improve its online competitive position,” Charlie O’Shea, an analyst at Moody’s Corp., said in a note.

“We are now at a point where same-day delivery service is becoming the rule for top retailers, rather than the exception,” says Tushar Patel,  chief marketing officer at order management, e-commerce and omnichannel technology vendor Kibo. “With the acquisition of Shipt, Target has unequivocally positioned themselves in Amazon’s swimming lane of fast and seamless delivery services. This announcement also comes on the heels of UPS admitting that many Black Friday and Cyber Monday package deliveries are being delayed because of the unexpected flood of orders from online shoppers. Bottom line, these types of delays are simply not acceptable to shoppers any more,” he says.

“The question that remains unanswered is if consumers will pay for same-day delivery,” Patel says. “With the acquisition of Shipt, Target is betting on it and is marching in double time to make sure they get general merchandise, fresh and frozen groceries into the hands of their customers. We believe it will force more and more retailers to expand their delivery service capabilities, which are and will continue to be critical to have ready during high traffic shopping days.”

Target rose as much as 2.4% to $62.47 on the news, while the shares of Shipt’s existing retail partners Kroger Co. (No. 88) and Costco Wholesale Corp. (No. 9) pared earlier gains.

Kroger said it’s still optimistic about the prospects for home delivery after expanding its logistics operations in recent years via partnerships with Instacart Inc. and others.

“We feel really good about the variety of partnerships Kroger has going,” corporate communications head Keith Dailey said.

Costco chief financial officer Richard Galanti declined to comment.

Online preference

Consumers’ increasing preference for shopping online, along with Amazon’s purchase of upscale grocer Whole Foods and its encroachment into new arenas like apparel, have sent retailers scrambling to improve their online offerings. E-commerce sales are up about 17% this holiday season, according to Adobe Systems Inc., and online merchants racked up a record $6.59 billion on Cyber Monday alone, the company found.

The question for traditional retailers is how to handle all those internet orders. They could build their own delivery network, but it’s an arduous and expensive process. That’s why many of them are seeking help from e-commerce startups like Shipt and Instacart.

Founded in 2014, Shipt serves about 20,000 customers through partnerships with retailers including Publix Super Markets Inc., HEB Grocery Co., Kroger and Costco. It will continue to operate independently and plans to expand its business with other retailers, CEO Bill Smith said in an interview.

‘Scale matters’

“We’ve spoken to a number of our existing partners about this deal and all the conversations have been very positive,” Smith said. “Having multiple retailers allows us to grow our membership base and make it more attractive. In same-day delivery, scale matters.”

For now, Target shoppers will need to pay Shipt’s $99 annual membership fee to gain access to the service. Once a customer orders, they send a “shopper” into the store to grab the groceries, and then deliver the items. Target is working on how to integrate Shipt into its website and mobile shopping app, Mulligan said.

The deal is expected to close before the end of the year and will be “modestly accretive” to Target’s profit in 2018, while boosting online sales, the company said. The retailer’s e-commerce sales already grew 24% in the third quarter.

Instacart partnership

Target has worked with Shipt’s rival Instacart for same-day service in cities like Minneapolis and Chicago since 2015, and Mulligan said he “will have conversations with them on where we go next.” Instacart didn’t immediately reply to a request for comment.

The two companies began discussing the deal in the middle of the summer, Mulligan said. They decided to pursue an acquisition rather than just a partnership in order to plow Target’s resources into expanding Shipt’s business, and to maintain its current level of customer experience.

Smith will stay in his role, reporting to Mulligan, and its 270 employees will remain in Shipt’s offices in San Francisco and Birmingham, Ala.

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2017 Latin America 500 Report

Analysis, rankings and profiles of the 500 largest e-retailers in the Latin America

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El Puerto de Liverpool, which conducted its first e-commerce transaction in 1997, is spending just a fraction of the amount as Amazon.com Inc., No. 1 in the Internet Retailer 2017 Top 500; MercadoLibre Inc., Latin America’s biggest online marketplace; and Wal-Mart de Mexico SAB on bolstering internet operations in Mexico. Instead, its shares have tumbled to a five-year low amid a focus on opening new brick-and-mortar stores at a record pace.

Liverpool, No. 9 in the Internet Retailer 2017 Latin America 500, which traces its roots to a Mexico City clothing store set up in 1847, offers fewer products online than its peers do and many of its items can only be purchased in stores. Shipping is free but can take longer than five days when there’s high demand, compared with as little as one day for some Amazon orders. Perhaps most importantly, it doesn’t accept cash payments for online purchases, which cuts off a big chunk of the population in Mexico, where fewer than half of adults have credit cards.

“Liverpool’s business model is largely threatened,” Credit Suisse analysts led by Antonio Gonzalez wrote in a note this week. “Investors should no longer think about e-commerce in Mexico as a phenomenon that will impact stock prices in the distant future. The future for e-commerce is now.”

While online shopping only represents about 3% of retail sales in Mexico, analysts at HSBC predict it’s set to grow substantially after Amazon introduced its Prime membership club to Mexico earlier this year. A potential change to the North American Free Trade Agreement that would let Mexican consumers buy more online from the U.S. and Canada without having to pay tariffs could also lead to more cross-border e-commerce.

Liverpool shares have tumbled 17% this year. Walmex has gained 18% and Mexico’s benchmark stock gauge is up 3.7%.

Alejandra Tovar, a spokeswoman for Liverpool, didn’t immediately respond to a request for comment.

El Puerto de Liverpool is planning to open 11 stores this year, expanding floor space by 6%, according to its latest earnings report.

But it’s only invested about $30 million on e-commerce in Mexico during the past few years—the same amount that MercadoLibre has invested on free shipping in Mexico this year alone, according to Credit Suisse. Wal-Mart de Mexico has spent about $190 million on online efforts during the past two years, Credit Suisse says. Amazon, which entered Mexico in 2015, is planning to open a warehouse near Mexico City that would triple its distribution space, Reuters reported in September.

These efforts already appear to be paying off: Mercado Libre captured 9.5% of online sales last year while e-commerce platform Linio, Amazon and Wal-Mart de Mexico each controlled just under 6% of the market, according to data from Euromonitor International Ltd. El Puerto de Liverpool’s online sales were 1.7% of the market.

“Mercado Libre is investing at a pace that is simply not being followed by bricks-and-mortar players, which will create a permanent dislocation in market share,” Gonzalez wrote.

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