Macy's scales up 'hold and flow' for inventory management
- Macy's plans to scale the "hold and flow" approach to inventory management it began piloting in 2018, company CFO Paula Price said on the company's most recent earnings call.
- "This approach allows us to provide our stores with an initial allocation of inventory and then to dynamically reallocate in-season to stores needing it most, reducing markdown risk, out-of-stocks and helping to drive fashion and newness," Price said on the call.
- The pilot resulted in improved in-stock performance, which contributed to a 15% increase in gross sales compared to the control stores, Price said. "We are aggressively targeting similar opportunities in replenishment, pricing, marketing and shortage prevention," she said.
This hold and flow effort is part of a larger initiative within Macy's called "Funding Our Future," which Price said is focused on improving the company's margins and expenses.
Macy's CEO Jeff Gennette announced a restructuring of personnel on the same call that will result in "moving key leaders into expanded roles in areas that support our growth strategies," including this "hold and flow" approach to inventory.
Taken together, Macy's believes better inventory management and the restructuring more broadly could save it $100 million annually, beginning in 2019. These changes are part of an attempt to help a company that has been struggling for years with sluggish sales, though Gennette said progress is being made.
"This was our fifth consecutive quarter of positive comp sales and we achieved a full year of positive comparable sales for the first time since 2014," he said.
Price said initiatives like "hold and flow" will begin to bear fruit in the latter part of 2019 in the form of improved gross margins. The company's gross margin rate for the fourth quarter of 2018 was 37.5% of sales.
Figuring out how much inventory to have in-stock at any given location isn't easy. A recent survey found 43% of retailers struggle with overbuying inventory and 36% said the same of under buying. The same survey also found retailers were more likely to struggle with over or under buying if they manually handled the processes for inventory management.
Macy's plans to work more closely with its data analytics team on inventory management. This team is already primarily responsible for pricing strategy, Price said.
This could be the first step in a more substantial shift for Macy's supply chain as the company figures out how best to compete with digital rivals.
Macy's is "looking to transform the entire supply chain, so that will have a significant impact on our inventory," Price said. "We're looking at areas in the replenishment space. There are a number of different initiatives that fall under supply chain transformations that you can look for us to talk more about."
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