Macy’s, the largest U.S department store company by retail sales, boasts an impressive 159-year history as one of the country’s oldest iconic brands1. But the rise of fast fashion, eCommerce, and supply chain digitalization have challenged Macy’s standard approach to doing business. Perhaps the most salient signal that Macy’s requires an operational step change is evidenced by their financial performance. Since 2015 Macy’s has reported net loses year-over-year as in-store sales decline and competition rises from fast-fashion competitors like Zara and off-price retailers such as TJ Maxx2. This has pushed the retail giant to close more stores but also to consider ways to digitalize its supply chain as they face working capital challenges in an industry experiencing rapid disruption. As Macy’s prepares to adopt more high-tech logistics systems to increase visibility within its supply chain, it ultimately poses two questions: can the retailer keep up with it’s tech-savvy competition and will this be enough to raise and sustain profit margins moving forward?
Earlier this year Macy’s announced that 100 percent of its inventory will be tagged using radio frequency identification technology (RFID) by the end of 2018. In a nutshell, RFID automates the tracking of inventory throughout the retail supply chain — from the warehouse to the store floor — replacing the process of employees scanning products manually3. Macy’s aims to leverage RFID in order to improve inventory accuracy, reduce out of stock incidents and, ultimately, increase sales4. Bill Connell, senior vice president of transportation, store operations and process improvement at Macy’s, adds, “With an increase in the inventory accuracy, out-of-stocks are significantly reduced. And by cutting the out-of-stocks, item availability is increased, which can lead to substantial and measurable sales increases5.” Given Macy’s net loses the past two years, these working capital improvements are very important to Macy’s bottom line and one reason why the company is investing so much in the technology. Moreover, the company plans to leverage the new tracking technology to aid its distribution center (dc) bypass strategy. DC bypass allows retailers to circumvent traditional distribution centers but requires synchronization of various information technology systems at the manufacturer and retailer level6. By incorporating RFID tracking, Macy’s hopes to further reduce transportation, inventory-carrying, and material handling costs via its dc bypass strategy and ultimately reduce throughput time in its supply chain as it speeds fulfillment requests.
In addition to Macy’s short-term strategy to digitize its supply chain management process, the company also plans to transition slowly from a push model of supply chain management to a pull model in the coming years. According to John S. Thorbeck, Chairman of Chainge Capital LLC and an expert on the application of Fast Fashion business principles at retailers and brands, pull models of supply chain management are characterized by:
“Procurement, production and distribution that is demand-driven rather than by a forecast. This approach follows the “supermarket model” where limited inventory is kept on hand and is requested as it is consumed. Another attribute of Pull is a supply chain where a customer purchase initiates real-time information flows through the supply chain that consequently causes movement of product through the network7.”
Given Macy’s investment in RFID technology, this shift in supply chain management is a natural progression for the business as it aims to compete in the fast fashion retail space and adopt an integrated, demand-driven planning and execution platform8.
As Macy’s plans to implements it short and medium-term strategies in the coming years, the company should also consider investing more in information technology (IT) infrastructure and consistent software updates in the short term as it relies more on IT to meet consumer demand. In addition, the retailer should consider opportunities to integrate vertically in the medium term to further optimize its supply chain strategy and increase margins on private label products.
Despite the changes in supply chain management that Macy’s aims to make over the next few years, tons of questions remain unanswered. In a world increasingly becoming more crowded with fast fashion rivals such as Zara, Uniqulo, and H&M, can Macy’s regain market share given its slow move into supply chain digitalization? Furthermore, will Macy’s move to adopt more high-tech logistics systems to increase visibility within its supply chain be enough to grow and sustain profit margins moving forward? Lastly, how does Macys plan to keep costs low for customers while also implementing expensive technological enhancements?
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- National Retail Federation, “Top 100 Retailers 2016”, https://nrf.com/resources/annual-retailer-lists/top-100-retailers/stores-top-retailers-2016. Accessed November 10, 2017
- The Wall Street Journal, Dow Jones & Company, quotes.wsj.com/M/finacncials/annual/income-statement
- Thau, Barbara. “Is The ‘RFID Retail Revolution’ Finally Here? A Macy’s Case Study.” Forbes, Forbes Magazine, 15 May 2017, https://www.forbes.com/sites/barbarathau/2017/05/15/is-the-rfid-retail-revolution-finally-here-a-macys-case-study/#28bd69d43294
- McKevitt, Jennifer. “Macy’s Inventory will be 100% RFID-Tagged by 2017.” Supply Chain Dive, 25 Oct. 2016, https://www.supplychaindive.com/news/Macys-RFID-inventory-tracking/428937/. Accessed November 10, 2017
- ARC Advisory Group. “Bypassing the Distribution Center” (PDF file), downloaded from Descartes website, [https://www.descartes.com/content/documents/bypassing_the_distribution_center.pdf], accessed November 10, 2017
- Lopez, Edwin. “Retailers are reducing on-hand Inventory for the holidays.” Supply Chain Dive, November 10, 2017, https://www.supplychaindive.com/news/retail-supply-chain-shift-turn-times-holidays/510607/. Accessed November 10, 2017
- “Digital-Transformtion-Review-5”. EBooks – Capgemini Consulting, http://ebooks.capgemini-consulting.com/Digital-Transformation-Review-5/#/52/. Accessed November 10, 2017.
- Schrauf, S. and P. Berttram, Industry 4.0: How Digitization Makes the Supply Chain More Efficient, Agile, and Customer Focused, PWC Strategy& (2016)