Macy’s is an icon of American retail and one of the oldest and largest department stores, with 775 stores in the US . The traditional business model of the company consists of purchasing high quality merchandise from many suppliers and reselling the goods in their stores . By offering a superior selection of products, an exciting shopping environment, and superior service, the company creates value for customers .
The company has been impacted significantly by the entrance of online retailers. The Amazon effect  has negatively impacted the financials of the company over the last 5 years. The penetration of new competitors has incentivized cost-reduction initiatives as well as the digital transformation of the company. The use of data has been critical for understanding customers behaviors to increase customer spend and loyalty, and for analyzing operations to reduce costs. Those initiatives have enabled Macy’s to capture value by sustaining healthy margins.
Use of data and its challenges
To combat the new entrants, Macy’s has strengthened its omnichannel experience. One of the 5 pillars of its new strategy is to adopt new consumer and technology trends to improve its value proposition.
Use of AI for enhancing customer service
Macy’s developed a website virtual agent based on the Microsoft Dynamics 365 AI solution for customer service. The virtual agent answers more than one quarter of customer queries, reducing the company’s costs. The roll out of the initiatives was not difficult since it was based on an external solution. Although this initiative reduces Macy’s cost structure, I believe it is not a competitive advantage since it has been implemented for multiple companies.
Use of predictive analytics to grow customer spend
Macy’s has invested in a predictive analytics solution from SAP to better understand customer buying behavior and optimize email and website marketing campaigns . Based on past consumers behavior, the software helps the company to target customers more efficiently to increase their spending. Since Macy’s decided to implement an external and standardized solution, the initiative’s roll out only took 3 months. The initiative has increased online sales by 10% through more targeted emails to customers.
Use of Google Cloud data management for warehouse optimization
Warehouse optimization is critical for reducing costs and meeting shoppers’ expectations. By having all the information centralized and by applying real-time inventory management, Macy’s has been able to optimize the inventory allocation and reduce costs . Although the implementation of the technology provided by Google seems to have been a success, the company’s cultural transformation has been challenging. To successfully implement the cloud technology, it is critical to have leadership on board, training the employees and selling the benefits of the new solution .
Experiment to improve customer experience
In addition to using external solutions, Macy’s has deployed an internal team to analyze data . The team members work as consultants within the organization and support other teams in analyzing data for improving decision making process. Macy’s uses experimentation to improve customer experience. By conducting A/B testing, the team optimizes different website elements such as layout, design, style, pricing, promotions, headlines, and photos . The company uses the t-test to analyze if a change in the website (e.g. color of the button) increases the conversion ratio of customers. The company has invested in increasing the size of the team.
The digital transformation of Macy’s and the use of analytics represents an opportunity for the company, but also a challenge. Educating the organization to make data-driven decisions requires continual efforts as an important strategic imperative. Creating a robust team to conduct experiments that increase customer conversation is also a critical task that requires time and capital investments.
To reduce the impacts of the Amazon effect, in February 2020 Macy’s announced that it will double down on its digital growth strategy and will reduce elements of its traditional business. The company plans to close 125 stores in the next three years, cutting 2,000 jobs and reducing costs by $1.5 billion in 2022 . I believe that Macy’s has implemented a robust strategy for improving its omnichannel customer experience and reducing costs. Going forward, the company should take advantage of its physical stores by personalizing its in-store experience with data analytics, providing a competitive advantage versus online retailers. Boosting loyalty program and being obsessed with customer experience are critical for thriving in the fourth industrial revolution.
Appendix: how Macy’s uses advanced analytics and big data