Before the pandemic disrupted almost every way Macy’s did business, the retail giant had announced Polaris, a three-year plan to position itself for growth.
The plan always included a supply chain redesign, but as Macy’s tells it, the pandemic accelerated the plan.
"Supply chain is critical to Macy’s, Inc.’s growth plans, and the key driver to overhauling our supply chain is tied to how the customer is shopping today and meeting customer demand in an omnichannel model," Dennis Mullahy, Macy’s chief supply chain officer, wrote in an email. "Our supply chain must support the different ways customers shop, whether that’s inside the store, picking up a package at the store or ordering an item from our website into their home."
By having a supply chain that looks at in-store and warehouse inventory as a whole, the retailer says it can strengthen its margins and get items to customers quicker and in the ways they prefer.
"There’s a broader shift going from store shopping and online to a blend of the two," Carlos Castelán, founder and managing director of The Navio Group, said of retail right now. "A much faster and tighter supply chain is critical. If you have that speed, it becomes easier for customers to shop with you. Speed really helps from a top of the line perspective."
Scrapping a legacy supply chain to get items to customers faster
Macy’s old supply chain met customers where they shopped: either in store or online.
"Our legacy supply chain separated out store and digital inventory and distribution," Mullahy wrote. "Our new model will leverage all of our assets much more productively and improve customer satisfaction by increasing speed of delivery as well as generate efficiencies in our operations and inventory utilization."
As part of the overhaul, Macy’s is looking at how to increase fulfillment capacity in their stores to get products to customers faster and lower delivery costs. That includes "evaluating the ability of our current facilities to drive more through automation, process change and increase productivity," Mullahy wrote.
Macy’s is using data and analytics not just to get items to customers faster, but also to improve inventory forecasting and allocation and package consolidation, so customers receive fewer packages for one order if they opt to shop online.
As part of the process, Macy’s is also assessing "the balance of the network to identify buildings in need of replacement or investment," Mullahy added. The company is expanding buy online, pick up in store and next-day delivery, to "offer customers more options and alternatives to get the product they want when they want it."
Savings at the margins
Macy’s saw 4.6 million new customers in Q1 2021, up 23% from Q1 2019, according to earnings reports. The company believes momentum will continue into the rest of 2021, especially as the country prepares to return to offices in some form, and the back-to-school shopping season kicks off.
Getting items to customers faster and efficiently is crucial for any retailer to sustain this kind of growth. A strong supply chain will "ultimately improve your margin because you’re taking product closer to a customer’s home," Castelán said, which will reduce costs from a last-mile perspective.
A strong supply chain also allows retailers to shift product to where it needs to be. For example, if a rare winter storm were to hit Florida or Texas, a quick and nimble supply chain could move winter coats from the Midwest or Northeast "to where you can sell those products for full price and you won’t have to mark down that product at a local store," said Castelán.
This can also create savings on reverse logistics and returns. "What you don’t want to have happen is a [seasonal item] sits at a customer’s home and they bring it back and it sits a little bit longer and by the time it’s back on the floor or online it’s marked down or just not seasonally relevant," Castelán added.
For this reason, Macy’s is focused on the return process as well.
"We believe that we can provide improve on the return experience, making it more seamless for the customer and providing faster re-shipment and replacement," wrote Mullahy. That also includes launching a new return process within their app.
The Polaris strategy had been put into place before the pandemic, and Mullahy said that priorities about providing customers with shopping options that best fit their lifestyles didn’t change. But the increased demand led the company to "focus more on the integrated fulfillment strategy and alternative fulfillment options that include pick up in store, same day delivery, increased use of store fulfillment and faster delivery to customers’ homes," he wrote.