The Internet of Things has drastically changed all aspects of retail from the discovery of brands and products to the means and places of purchase to the returns process. Further the number of times and ways in which a brand or retailer engages with a consumer has increased exponentially since the introduction of the digital age (i.e., omnichannel). While it is a boon for retailers and brands to have access to consumers in more ways, the omnichannel world forces the brand to create experiences across all channels that are consistent. For example, Brand X must have the same in-store and online experience (from a story, service and product perspective) to retain existing and add new consumers. A critical, yet challenging element in creating this consistent experience is omnichannel fulfillment. Customers expect to be able to purchase, pick-up and return product across all retail locations, and responding to that expectation requires significant flexibility in distribution systems.
A solution: retail locations as distribution centers
To address changing consumer demands, Macy’s has turned its retail locations into mini distribution centers. Macy’s operates 870 stores, including Bloomingdale’s and Bluemercury locations, and every one of the Macy’s stores double as mini distribution centers for online orders.1 By leveraging its stores as fulfillment centers for online orders, Macy’s can fulfill an online order more quickly and provide the consumer with more shopping options such as reserving in store or buying online and in-store pick-up.2 These mini-distribution centers augment an already robust distribution logistics network: as of January 30, 2016, Macy’s operated 23 mega distribution centers, 5 of which are focused on e-commerce exclusively.3
Adding fulfillment capabilities to 500 stores is no easy task. Macy’s had to invest in infrastructure to make this happen. Fortunately, Macy’s leveraged the digitization of inventory management and point of sale programs to make the execution easier. Macy’s implemented hardware and software solutions to help handle in-store and online transactions, replacing approximately 40,000 cash registers nationwide with more modern machines that could handle both types of transactions.4 Additionally Macy’s invested in technology that created inventory management of in-stores and online inventory in one program.7 Lastly, Macy’s partnered with third parties to build efficient packing stations in the stores without taking up too much space.5
Example of efficient packing station 5
While there is no metric that clearly indicates whether the strategy of retail stores as mini distribution centers is working well, the continued growth of online sales indicates that something must be clicking. In its latest fiscal year ended January 30, 2016, Macy’s reported that online sales grew by double-digits year-over-year while overall sales were down 4%.6 If consumers were having issues receiving product or felt that the wait time was too long, they could find another solution to shop such as Amazon. Further, this strategy offers two additional benefits to Macy’s. First, by bringing in-store inventory and online inventory under one program, Macy’s is better able to manage inventory and meet demand. Macy’s can shift inventory from store to online to fulfill unexpected online demand or reduce stock in-store if demand is lower than forecasted.7 Second, the mini distribution centers allow Macy’s to compete more effectively with Amazon by lowering shipping costs. Instead of shipping from one central location and paying for delivery through several zones, Macy’s can ship from the store and only pay for delivery through one or two zones. This savings helps Macy’s fight Amazon who can reach customers easily by leveraging its logistics platform.8
Macy’s is one example of a company leveraging technology to improve operations and meet shifting consumer demands. Macy’s added a fulfillment function to its retail stores to satisfy the consumers’ increasing desire to have the product at that moment wherever they are. Unfortunately, it does not seem like these changes are enough to offset the growing competition from pureplay e-commerce retailers like Amazon and the declining mall/department store traffic that is plaguing traditional North American retail. To stem the decline in sales, Macy’s has been expanding its outlet offering as well as continuing to invest in omnichannel marketing and operations to better access and service the consumer. It will be interesting to see where the Internet of Things drives this iconic retailer next.
 http://www.retaildive.com/news/how-macys-plans-to-revive-its-american-department-stores/405576/, accessed November 2016.
 http://www.innovativeretailtechnologies.com/doc/macy-s-puts-customers-first-with-omni-channel-initiatives-0001, accessed November 2016.
 file:///C:/Users/admin/Downloads/2015%20Macys%20Annual%20Report.pdf, accessed November 2016.
 http://www.innovativeretailtechnologies.com/doc/macy-s-grows-order-fulfillment-centers-to-0001, accessed November 2016.
 http://www.cisco-eagle.com/case-studies/Distribution-Case-Studies/Macys-micro-distribution, accessed November 2016.
 https://www.internetretailer.com/2016/02/23/mobile-sales-double-macys-fiscal-2015, accessed November 2016.
 http://www.wsj.com/articles/SB10001424052702303505504577404123150295102, accessed November 2016.
 https://www.emarketer.com/Article/Stores-Distribution-Centers/1011402, accessed November 2016.