Macy’s Stores Counter Amazon’s Logistics Edge
Macy’s Inc. is doing a lot right these days. Same-store sales at the operator of Macy’s and Bloomingdale’s were up 4.4 percent in the first quarter of 2012 versus last year. Online sales, which added 1.5 percent to the same-store number, were up 33.7 percent for the period.
The company has acknowledged that online is vital to its success and has made substantial efforts in the past couple of years to integrate that part of its business with its traditional brick and mortar operations.
One area where Macy’s is picking up the pace is fulfillment where it has begun using stores as distribution centers to speed the delivery of online purchases to customers.
"We’ve spent the last 153 years building warehouses," Peter Sachse, Macy’s chief stores officer, told The Wall Street Journal. "We just called them stores."
Macy’s has expanded storerooms and upgraded technology at 80 locations to help stores handle fulfillment. Plans call for 292 locations to handle online fulfillment by the holiday selling season.
"We think the sales potential from this omnichannel approach is enormous," Karen Hoguet, Macy’s chief financial officer, told analysts, according to the Journal of Commerce. "In addition, over time, it should enable us to also improve the productivity of our inventory, as well as our store square footage. We have barely scratched the surface here, and we are very optimistic about the possibilities."
Discussion Questions
Discussion Questions: Will the use of store locations to fulfill online orders close any perceived customer service gap between brick and mortar retailers such as Macy’s and Amazon.com? What do you see as the challenges and opportunities for merchants who handle online order fulfillment in store locations?
I’m not sure whether Macy’s move will help it combat Amazon more effectively over the long run, but it will surely drive e-commerce sales now. It’s also a way to drive more productivity out of its brick-and-mortar stores, payroll and inventory (regardless of how it accounts for the sales) provided that it tackles the logistics challenges. Macy’s has taken a page from Nordstrom, which has successfully fulfilled web orders from its store inventory for many years.
Very smart; one of these “D’oh” moments. You wonder why it wasn’t done sooner or with every retailer.
Using existing showrooms/warehouses/transaction centers (a.k.a. stores!) to fulfill online orders is a logical and necessary step in creating an omnichannel environment for your shoppers and customers. This is what customers expect. They don’t know, or care about the technical and workflow challenges that need to be addressed in order to offer this service. This is a logical and expected service that is a requirement in ‘being digital’!
The challenges of inventory and supply-chain management, departmental sales credits, commission and bonuses, and cross-departmental transparency are just some of the historical issues that need to be addressed; all of which are on the retailer — not the customer!
‘Being digital’ is finally forcing retailers to become truly customer-centric. Cross-channel is not a buzz word but a real shopper behavior.
This is an interesting alternative to other retailers’ ship-to-store models, but one that would seem to limit Macy’s online aisles to something less than “endless.” I don’t see this competing with the highly-efficient, robot-staffed, hanger-like spaces that back Amazon’s fulfillment arm but for a clicks and bricks retailer such as Macy’s, it makes sense to move toward common inventory. Challenges could arise if product descriptions, pricing (tagging) and other details are not standardized between the channels. Things could get mighty cumbersome.
Multi-Tier fulfillment is an important tool for a cross-channel retailer like Macy’s to leverage but it’s dangerous to think of it as a competitive advantage vs. Amazon.
The latest ComScore data shows that over 50% of all e-commerce sales include free shipping, so it’s critical for merchants to get the cost of shipping down as much as possible. At the same time, “When Can I Get It?” is a major decision making factor for shoppers, so leveraging inventory that is closer to the consumer is a smart play for Macy’s. The challenge is that picking/packing/shipping that store inventory is expensive, and Amazon is rapidly deploying DC’s with very efficient logistics (leveraging their new Kiva acquisition), as quickly as they can resolve sales tax/nexus issues. Amazon already had plans for two California DC’s for example, and don’t be surprised to see those facilities used as hubs for same day delivery. So for a cross-channel retailer, using your store locations for home fulfillment makes good economic sense, but it’s more of a tactic to keep up with Amazon than it is to beat them.
Where the stores do provide a competitive advantage is in Local Search Engine optimization. A rapidly increasing number of Google searches have a geographic component (because they come from mobile phones encoded with GPS data, for example) and Google wants to respond to those searches with local results. Physical stores give a retailer the ability to beat Amazon for the vast majority of those local searches. Most retailers have to significantly improve their local search engine optimization to do so, but it’s well worth it as a sustainable competitive advantage vs. Amazon.
The use of store locations to fulfill online orders can help close the gap with Amazon, but they must be backed up with stellar customer service. Amazon succeeds because it offers a wide variety of products at great prices, and backs this up with excellent customer service.
Macy’s needs to make it very easy for consumers to visit a store, pick up their orders and make returns. Hassle-free, time saving shopping is the key.
I doubt Macy’s use of store locations to fulfill online orders will significantly close any gap between brick & mortar and Amazon’s. But it will surely help drive store traffic which usually drives sales. I believe too much time has lapsed with brick & mortar watching as Amazon grew to allow for them to “significantly” close the gap.
Using brick and mortar stores has the potential to improve customer service. The regional warehouses and store locations, if used properly, can definitively provide Macy’s with a competitive edge. Store personnel can use non-productive time to fulfill customer orders.
The key will be the systems in place to automatically route fulfillment requests to stores based on available resources and proximity.
This is a good idea, but hardly a counter to Amazon’s logistics edge. For Macy’s it adds revenue to a fixed cost expense. That is good.
But, the real edge Amazon has is that they can provide considerably more choice of items with considerable less revenue per dollar of inventory.
Reference Bob Phibb’s comment on Robert Graham shirts then check the selection of those shirts on Zappos. There is no contest. B&M just can’t do it. A warehouse is a warehouse and a store is a store. They are not the same thing in any way.
Macy’s would be better off having a specialized real warehouse that fills every inventory gap so customers can order from the store or on line. A lost sale is more costly than this logistics saving.
Hallelujah! This is one logical step that retailers need to take and to add to their psyche, to end the bemoaning of the “unfair” Internet-only retailers “that have all the advantages”. It’s also a wake-up call for the Amazon Kool-Aid drinkers that believe Amazon makes all the rules and everyone else is powerless to do anything about it.
Execution and fulfillment speed will be the key to breaking the service gap between brick and mortar retailers and on-line merchants. If execution fails, this is just another nice idea that went awry. Additionally, unless they are willing to revamp floor plans, many store brands will struggle to use retail locations as fulfillment centers because they dedicate very little back-room space to inventory storage.
Genius. The people running Macy’s today have all the right moves. The folks running other companies might want to copy everything they do NOW, because it’s going to be hard to catch up later.
Very smart move. And I’d argue that the stores won’t even incur much incremental cost, if you include all the costs associated with markdowns and inter-store merchandise transfers. Fashion retail has struggled for decades to balance time-sensitive inventory. Fulfilling to a shopper not standing in the store that has the inventory is a much shorter supply chain at a much higher margin. This is a great example of riding the Internet retail wave versus being washed away by it.
I think this is a great move on the part of Macy’s. My only question is whether they have the technology required to get this right?
It remains to be seen what the totality of this type of Macy’s experience will be like.
That said, Macy’s (and most other brick & mortar retailers) delude themselves by thinking that Amazon has a logistics edge (or a sales tax edge, or a “showrooming” edge, or a pricing edge, etc.). Amazon has put together (and continues to enhance) the ‘total package’ experience which is, ultimately, how customers determine the best option for them at any given moment.
This total package edge only gets larger as Amazon evolves and the consumer base continues to use technology at a greater rate.
Judging from some of the comments here, there seems to be confusion as to what Macy’s is doing: at least according to (the full text of) the WSJ article, they’re using in-store stock to fill online orders (when the original warehouse has been exhausted); they’re not using the store as a pickup point, or “integrating” (beyond having the store as a reserve stock). This may or may not make sense, depending on how the actual numbers turn out, but it hardly seems very innovative (much less a “game changer”). Score one for the PR dept, I think, that they’ve made common sense sound like strategy.
In the long run, Macy’s has the winning strategy. My students who work at Best Buy jokingly refer to themselves as “Amazon’s show room.” And there is tremendous truth in that.
Would Amazon be as big as it is without brick and mortar stores delivering the communication that can only be made in person? Absolutely not. Consumers do NOT want to live in an all online world.
Now, does that mean Amazon is in trouble or that Macy’s will easily win this? Not at all. It will be years before it all shakes out. But unless Amazon cracks a brick and mortar strategy, over the next couple of decades they’ll take a smaller role in online sales.
But all brick and mortar should be leveraging their physical presence with an online offering to give consumers what they really want: lots of options including immediately running to the store to pick it up.
Kudos to Macy’s.
Smart move, absolutely the right thing to do from an efficiency and customer experience standpoint. On yesterday’s RetailWire webinar, we discussed the imperative for retailers to integrate channels and Macy’s is taking the lead here. May not close the gap with Amazon, but it will help retain their core consumer and give them an advantage against other multichannel players who are moving more slowly on this front.
Macy’s is brilliant. It goes beyond using stores to fulfill online orders. Macy’s goal is to meet a customer’s needs online or in stores as quickly and as easily as possible. My understanding is that if you cannot get your size in store they use technology to ship from the nearest store warehouse direct to your home. Great combination of bricks & mortar and online capabilities. Kudos.
I am totally surprised by the comments. This is something that has been going on for decades in the brick and mortar world of department store world.
Customer: Do you have these pants in my size?
Store Clerk: I am sorry, we don’t have that in stock, let me check a location across town and if they have them, we’ll bring them here for you.
It happens every day!
The fact that retailers like Macy’s and others with multiple outlets in the same market haven’t drawn this solution into online fulfillment is quite amazing. It’s not brilliant or anything of the sort. It’s something that has been going on in this channel forever.
What it does show is the weakness of the players in this channel to tie their systems together both at the brick and mortar and online levels to have a full view of all inventory on hand, regardless of where it is placed.
This strategy is about inventory management. Nothing else. It is the result of comparing lost sales due to lack of inventory against mark-downs of the same SKUs.
Customers don’t care from where the product is shipped. But, they care a lot if the product is out of stock.
This is a GREAT article about nothing and I give Macy’s a lot of credit for getting attention, and for getting us to discuss this! Of course they should be doing this and HAVE been doing this. The business has to be one, and complete, and integrated, to reach its fullest potential. If someone orders online, they couldn’t care less if the item came from a warehouse two states away or the store 5 miles away, and it truly does not matter as long as the customer is pleased.