Macy’s: An Omnichannel Case Study for Retailers 2018

In this example of omnichannel best practices, a big retailer — Macy’s lost huge amount of money during a year although they used omnichannel with highly planned strategy.
After this failure, they realized that they underestimated Inventory management.
This case study would show you how they employed and upgrade Omnichannel performance, especially Inventory system to improve their sales higher.

Established in 1858, Macy’s is an iconic retailing brand with nearly 800 stores operating coast-to-coast and online at macys.com.

Macy’s offers powerful assortments and the best brands, tailored to each and every customer with obvious value, engaging service and unforgettable moments. Its famous flagship located at Herald Square in New York City is known as the “World’s Largest Store,” with over 1.1 million square feet of retail space.

Macy’s has a clear vision to help customers shop anywhere, anytime, and anyhow they choose i.e. typical omnichannel strategy examples. To make that vision a reality, inventory accuracy is a critical component of the initiative. Macy’s executes on its corporate strategy dubbed M.O.M.

“My Macy’s merchandise assortments, Omni-channel integration, and Magic Selling customer engagement.”

MACY’S OMNICHANNEL STORY

Big mistake when adopting Omnichannel practices

In 2013, Macy’s met a serious problem with Inventory accuracy.

They could not control the product flow in each warehouse. The inventory degradation occurs at a rate of about 2–3% a month, which could equate to 24 percent by the end of the year.

This would make omni-channel sales challenging, especially if only one or two units of a particular product were reported to be located at a store.

“You don’t want to make decisions based on bad data.”

Peter Longo, Macy’s President of Logistics and Operations.

Macy’s focused too much on sales and customer services without noticing the Inventory Management. Merchandise movements, administrative errors and system updates were terribly detrimental to the fulfillment process.

With thousands of product categories across all 800 stores and the paramount number of customers, all Macy’s actions and omni-channel strategies must strongly focus on providing a localized merchandise offering to bring a smoothly endless shopping experience.

Explore a new door in Omnichannel strategy

Customize their inventory management — upgrade traditional tool RFID

In 2008, Macy’s had applied RFID (radio frequency identification) separately on their inventories. Macy’s Omnichannel best practices actually started in 2015, after their “inventory failure”.

Macy’s began to utilize RFID by integrating RFID across all of its warehouses. With item-level RFID, Macy’s could focus on assortment and service while using their existing inventory to address fulfillment demands.

As a result, Macy’s Inventory Visibility increased 4 times.

Apply RFID to its latest strategy “Pick to the Last Unit”

In the past, the last item in inventory used to be a great fear for any retailers. Inventory counts were simply not accurate enough to ensure that the last unit of a particular product was actually in stock or available for sale.

When an item falls below a minimum amount, the item would be “out-of-stock” and unavailable. However, Macy’s turned this fear to sale.

The program, Pick to the Last Unit (P2LU), enabled the retailer to list goods for sale online even when there was only one such item available at the store.

RFID allows omni-channel fulfillment of consumer purchase, right down to its last available unit of in-store merchandise. The last unit of an item in any store can be easily located and made available for sale.

Thanks to the inventory accuracy and visibility, Macy’s conducted an analysis of how much inventory exists in each store when there is only one unit left — the hardest to be found and sold.

“About 15 to 20 percent of your inventory is accounted for by the last unit in the store. It’s a massive amount of budget, either marked down or not sold, and it is curable through RFID. The confidence to sell is enhanced by RFID. That’s why we are aggressively pursuing this concept of ‘Pick to the Last Unit’ because we know it’s there.”

Peter Longo, president of logistics and operations at Macy’s

Let’s take an example to make this clear. If Macy’s had the last item of Louis Vuitton bag priced $5000, they still could show it available in any online stores and served it to any customers.

In case, a customer wanted to buy 2 similar bags at the same time, Macy’s could contact to the supplier to bring directly 2 bags for its customer.

Besides, the accuracy of RFID also helped Macy’s to inactive “Supply Forecast” and precise “Low-stock Alert”, which meant that before the product quantity dropped to last item, they would immediately ask supplier to bring more items to them.

Shipping in a blink

Besides, as they had spent more than 2 years on analyzing customer behavior, Macy’s noticed that before visiting a store, its customers regularly check products on the macys.com to save time choosing at the physical store.

Thus, the in-store available product visibility would be helpful for online customers.

To achieve near-real-time inventory visibility for all its stores, the company had to integrate legacy systems and build a new and robust order management system. This system incorporates fulfillment optimization algorithms based on products and its business model.

Online customers can now access to their closest store with the item in stock. They can also select their preferred delivery options — such as click-and-collect at a nominated store, or home delivery.

If the customer orders a product that is currently unavailable in a Macy’s store but available from a nearby supplier, the item is dispatched directly from the supplier to the customer as this reduces the turnaround time.

This model requires visibility of supplier inventory and better collaboration between the retailer, its suppliers, and its logistics provider.

Amazing Success

After all, in the success of their omnichannel retail best practices, Macy’s reduced $1B of inventory from its stores and reduced inventory costs by lowering interim inventory requirements by one third.

To test the P2LU strategy, Macy’s conducted a pilot project with women’s dresses which yielded highly impressive results. While online sales were up, pilot stores’ fulfillment sales had significantly increased compared to last year. That was a drastic improvement.

Macy’s recognized that leveraging single unit inventory — approximately 20% of inventory represented at the single unit level by location — can help drive sales and margin.

Inventory accuracy can leverage every unit in every store to fulfill orders. It also enables Macy’s to focus on assortment and service while using existing inventory to address customer demands.

As a multi-faceted retailer with a smart combination of stores, online presence, technology, and business capabilities, Macy’s is committed to helping its customers shop anywhere, anytime, and anyhow they choose, by leveraging the entire inventory of the company to satisfy demand.

Lesson

#1: Never underestimate the efficient inventory management

Macy’s had put a strong focus on sales and ignored Inventory Management. Only after the serious loss by inventory degradation did they began to think about how to manage Inventory efficiently.

This not only created a huge loss for Macy’s but also took a great amount of money to improve Inventory system as soon as possible.

#2: Apply what you had on what you use

Macy’s got the best inventory supporter — RFID. However, they had considered RFID as a supporter for separate warehouses. After Macy’s synchronized RFID cross all inventories, the productivity significantly increased.

The accuracy of new RFID also helped Macy’s to accomplish its unique strategy “Pick to the last unit” to reduce loss completely and satisfy customers’ demands.

The original article was published on Magestore!

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