Macy’s automated fulfillment center in Portland, TN – Source: Macy’s video
Is Macy’s leveling up its online fulfillment network?
Macy’s recently announced that it has carved out roughly one million square feet across 35 stores to efficiently fulfill online orders in local markets at a reduced cost.
Adrian Mitchell, Macy’s CFO, speaking last month on the company’s third quarter earnings call, said delivery expenses during the period represented about 4.3 percent of net sales, a figure consistent with 2021’s results. Higher fuel costs were “more than offset” as Macy’s reduced the cost of delivery on a per package basis.
“We continue to get smarter about where demand is and how best to service that demand,” he said before adding that the semi-automated store-level DCs would enable Macy’s “to reduce shipping costs and split shipments, better utilize inventory in specific markets and regions and improved delivery speed, which will be an advantage this holiday season.”
Adding this functionality, he said, provides Macy’s with a “relatively low-cost” complement to its existing system.
Mr. Mitchell said that Macy’s has made process and technology investments across its stores to further “streamline fulfillment activities” chainwide.
“The investments we’re making in our supply chain, both upstream and downstream, our focus on simplifying our processes and modernizing our technology further enhancing our keepers to move product to our customers faster while driving greater supply chain cost efficiencies,” he said.
A recent Macy’s Inc. Insider video at the retailer’s fulfillment center in Portland, TN, looked at the use of automation to cut costs and increase the speed at which products get to customers’ homes.
Jodi Buhrman, VP, process & engineering, said that the “queue-based system” used at the facility enables Macy’s to make use of airspace that would not be possible if humans were doing all the work.
“By having this automation it prevents us from having to expand onto the building or open up another building,” she said.
The department store plans to use additional automation to further improve performance.
Ms. Buhrman said Macy’s would add a pocket sorter that can take multiple items from a customer’s order, marry them up and then deliver them to a packer. “Automation is going to do that work, eliminate touches that our colleagues need to perform and we can get the goods to the customer faster.”
Discussion Questions
DISCUSSION QUESTIONS: How do you see Macy’s semi-automated store-level and large warehouse fulfillment centers working together? Will this dual approach give Macy’s an edge over its retail peers going forward?
Poll
Loading …BrainTrust
Melissa Minkow
Director, Retail Strategy, CI&T
Gary Sankary
Retail Industry Strategy, Esri
My experience of more than four decades tells me that the more “touches” of merchandise that you add to a product, the more it’s costing you to get it to the customer. Consequently, adding a regional or local distribution point, by definition, requires additional touches plus the capital investment to install the materials handling equipment plus the operating expense of the real estate required to house the fulfillment operation. I have not put numbers to this but I hope that Macy’s has.
Fulfillment has become a key provider of competitive advantage. These improvements will make a major difference in reducing costs and optimizing crucial efficiencies for Macy’s.
These investments are absolutely the right thing for Macy’s to do. As mentioned here, one of the biggest issues retailers like Macy’s had during the pandemic was increased labor costs to support the surge in e-commerce activity.
The goal for Macy’s is twofold: provide convenient delivery to customers and minimize the cost of doing so. It’s an acknowledgement of the importance fulfillment has for the retailer and that retailers can’t reduce the expectations of shoppers. They have to meet them where they live.
I am usually a critic of how Macy’s invests in the future. This system is a leap in the right direction in taking online seriously. Could the C-suite recognize where the future is?
But there is also a little cynic in me. While I have not seen a system as impressive as shown in the video, I have seen systems that do all the same functions. The competition and technical development for these types of developments are fierce. Systems like these will further separate the haves from the have-nots in retailing.
I don’t think there’s much doubt Macy’s will expand their store-level fulfillment — they already own the real estate, after all. The real issue is should they? The “semi” automated part bothers me: it seems to be a quiet acknowledgement that — owned or not — retail space doesn’t (necessarily) make good distribution space.
And speaking of Macy’s: where’s their Christmas ad?