Caroline Hyde of Bloomberg (left) with Jeff Gennette, Chairman and CEO of Macy’s Inc. (right) - Photo: James Tenser
At the NRF Big Show, Jeff Gennette, Macy’s CEO, discussed how process changes and improved data science helped the retailer overhaul inventory disciplines over the pandemic.
In the third quarter, Macy’s kept inventories to an increase of four percent year-over-year and down 12 percent compared to 2019.
Mr. Gennette said that as stores were forced to close in March 2020, the priority became cash preservation, prompting Macy’s to relook at how it purchases its inventory.
As is traditional at department stores, Macy’s buying typically involved assumptions around markdown money. He said, “You basically would buy something for a $10 cost and get back $1.50 to $2.00 of that back in some sort of allowance in a quarter, seasonal or yearly reconciliation.”
In a change over the pandemic, Macy’s renegotiated its vendor agreements to lower that up-front cost and reduce the “net cost” while building in a reserve for expected demand.
A related step “that was really instrumental in getting the culture from that model to the new net-cost model” was putting all merchant and supply chain partners on enterprise metrics. Said Mr. Gennette, “If you were a buyer of housewares, instead of being reviewed on the performance, sales and profitability of that category, you got reviewed on the sales and profitability of the enterprise. That then made everybody’s receipts and markdowns communal. Everybody benefited from that.”
On the improvements in data science, Mr. Gennette said demand forecasting “can be quite healthy as you kind of work through the art and science of how you build inventories” versus relying on gut instincts, last year’s numbers or trend forecasting.
Regarding allocation, he said Macy’s is doing a better job tapping data science to determine in which channel or door to place products to optimize full-price selling.
On pricing, Macy’s used to take major markdowns across five zones, with the same markdown on an item applied in varied markets across the country. Mr. Gennette said, “It was horribly imprecise.” Now, markdowns are made by door and channel level with a better understanding of likely sell-through rates for each item. Said Mr. Gennette, “That’s going to help preserve our margins and it’s also going to give us more sales.”