July 20, 2021

Creating an Omnichannel Supply Chain: A Macy’s Case Study

Written by

In February 2020, Macy’s announced their Polaris plan, a three-year strategy created to stabilize profits and create growth. This plan included closing 125 underperforming stores and consolidating offices. It also included a major overhaul of their supply chain model.

But, of course, Macy’s had to close their doors less than 6 weeks later due to COVID-19. As their online presence was the only presence available, their longstanding supply chain strategy, which was already starting to cause major issues within the company, needed immediate attention.

Macy’s CEO Jeff Gennette stated in September 2020, “Everything on the digital agenda has been accelerated. We’re optimizing inventory placement to meet customer demand wherever and however they shop in our store.”

What’s so bad about Macy’s supply chain model?

Customers expect a strong omnichannel experience—one that integrates both the online and offline world of the retailer, enabling a frictionless shopping experience.

For retailers, the goal is to take the retailer’s replenishment cycle from days to hours and reduce inventory at stores. This way, retailers expand their use of stores to fulfil online orders and hold less inventory altogether, allowing them to dedicate more room for digital fulfillment.

Omnichannel shopping is the baseline expectation for customers, as companies such as Gap, Target, and many others have upped their omnichannel game.

And Macy’s is, er, behind.

Macy’s way of viewing their supply chain in the past was traditional: Move products from point A to point B and optimize costs at each stop along the way. Each delivery channel has its own transportation plan and technology stack, siloing all distribution and fulfillment centers.

This supply chain method was acceptable 10 years ago, but to stay afloat in the in-store and online retail spaces, Macy’s needed to make a change. Silos created major cost issues, not to mention slow speed and service in today’s two-day-delivery age.

The company’s supply chain model operated two separate warehouse networks, one for stores and the other for direct customer (online) orders. This system made rebalancing inventory nearly impossible, among other issues.

Macy’s supply chain also lacked a central platform for locating inventory at the SKU level across the chain, and the cost of goods were high compared to competitors since each private brand sold at May’s was sourced independently.

Creating a better supply chain

In 2019 Macy’s hired Dennis Mullahy, the first ever Chief Supply Chain Officer, to transform the supply chain into one that supports an omnichannel strategy.

Since then, Macy’s has made leaps and bounds in optimizing their supply flow, with COVID expediting the process.

The company is transitioning to a centralized warehouse model, implementing a flow and fold design, meaning a light initial allocation to stores and flexible replenishments. Multipurpose warehouses hold inventory, which can both replenish stores and fulfill e-commerce orders.

By having a centralized inventory, the retailer is better able to strengthen its margins and fulfill orders quicker and in the ways customers want.

“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.” Dennis Mullahy wrote.

In addition, Macy’s is getting on board with using data and analytics to not only get items to customers faster, but also improve inventory forecasting and allocation and package consolidation.

The company plans to increase drop-shipping to boost margins in e-commerce, where delivery costs have been the largest drain on profits. They’ll also renew their efforts into Macy’s Backstage operations in order to compete with other off-price companies such as Nordstrom Rack and TJMaxx.

Behind the curve

And while these improvements are giving Macy’s the help it needs, they should’ve seen the warning signs sooner. Retailers of equal size have been making moves to change their supply chain for years now, and Macy’s is just catching up.

For example, Kohls has been working to integrate e-commerce and brick and mortar stores since the beginning of 2018. The company worked to change its purchase and inventory management system by starting with the smallest stores and working their way up.

Nordstrom has been working on omnichannel fulfillment for over 3 years, and brought in tech consulting firm Opex Analytics to help.

Walmart unveiled plans this month to install a high-tech automation system across 25 Walmart regional distribution centers through their partnership with Symbotic, a robotics and automation company—something they’ve been working toward since 2017. This system will digitize and modernize Walmart’s current supply chain facilities to enrich customer experience and support evolving demand.

But even though Macy’s may be a few steps behind, true omnichannel is a journey—and a difficult one at that. It requires a lot from the supply chain, especially in terms of speed, complexity, and efficiency. The global retailer is making strides in executing their Polaris plan by focusing more on the integrated fulfillment strategy and alternative fulfillment options and listening to what their customers want.