The advent of digital technology has completely disrupted the retail industry. Traditional brick and mortar retailers are struggling to remain relevant in the digital age, facing fierce competition from new brands and more efficient ecommerce players. Macy’s, a 158-year-old department store, offers an example of a retailer that has made strides in evolving its business model through digital technology while also showcasing the additional work to be done.
Macy’s was one of the first retailers to develop an ecommerce sales platform, as it launched Macys.com in 1998 as a Silicon Valley subsidiary (its main operations remained in New York City). However, as many retailers have found, simply having an online presence isn’t enough to counteract competitive threats and changing consumer behavior. Macy’s needed to fundamentally change its business model from that of a traditional physical retailer to a truly hybrid brick and mortar/digital retailer. It wasn’t until 2010 that Macy’s digital transformation truly started to gain traction when it announced a holistic omnichannel strategy focused on creating an integrated customer experience across physical and digital channels.
Ship from Store
The chief way in which Macy’s has executed its omnichannel strategy is through leveraging its expansive store network – 868 total stores at the beginning of 2016 – to serve as online order distribution centers . By building out “ship from store” capabilities, Macy’s is simultaneously maximizing both its inventory management and its customer experience. Rather than housing additional inventory exclusively for ecommerce orders in warehouses, the retailer can ship an online order from a store anticipated to have excess inventory of the items requested, thus minimizing its total inventory costs and reducing potential markdowns. Additionally, the customer benefits from the quicker delivery of items from local stores rather than national distribution centers.
Buy Online, Pick Up In-Store
Macy’s “buy online, pick up in-store” program also utilizes its store network to bridge the physical and digital divide. The customer benefits from ease and convenience, while Macy’s benefits from the incremental sales driven by these customers – those who came in to pick up their online order, but discovered additional items while in the store. The program also allows Macy’s to compete more effectively with the ecommerce behemoth that is Amazon and its free two-day delivery Prime membership program.
RFID (Radio Frequency Identification)
Adopting RFID technology is another way in which Macy’s executes on its mission to become “America’s Omnichannel Store.” RFID allows the company to precisely track the location of a product within a store or within its supply chain, which is critical to the fulfillment of its “ship from store” and “buy online, pick up in-store” programs. It serves as an example of a digital technology that has changed both the business and operating models of Macy’s. According to the company’s Chief Omnichannel Officer, RB Harrison, “There’s an omnichannel component to RFID. We’ve always said RFID would help us maintain more accurate inventory, and with more accurate inventory we would buy the right stuff, have it in the store and in turn take care of the customer more efficiently” . RFID allows Macy’s to improve product assortment and service (its core business model) while leveraging its existing inventory to fulfill customer demand (its core operating model). The inventory management changes produced by RFID enabled Macy’s to reduce $1 billion of inventory from its stores .
Since launching their digital transformation strategy, Macy’s profit margin grew by 257% in 2014 (versus 3% for Walmart and -14% for Target) .
The company has achieved this success by recognizing that its core customer (women ages 25-54) “shops online, offline and everywhere, so Macy’s has adapted its inventory, marketing and internal team structure to let her research, buy and collect her purchases where and when she wants” .
While Macy’s has proven itself to be a retailer that is ahead of the curve in embracing digital technology, it needs to continue to innovate in order to stay competitive in the industry. Macy’s has begun testing same-day delivery of online orders and image search, but this continues to prioritize the online shopper. The company needs to make similar investments in elevating the in-store experience using digital technology. As stores face increasing staffing cuts, the service levels in-store may diminish, and Macy’s must be proactive in addressing this, as its core customer still values in-store service. While it is testing “smart” fitting rooms and beacons to send personalized offers via mobile, it should also invest in educating store associates on how to best leverage these technologies to improve both the quality and efficiency of their customer service.
Although store closures and reduced physical footprints are inevitable in the current retail environment, the lion’s share of shopping still happens in physical stores, and Macy’s must be careful not to disregard this in-store experience in favor of its online presence.
 Macy’s, Inc, “2016 Store Count and Square Footage,” https://www.macysinc.com/for-investors/store-information/store-count/2016/default.aspx, accessed November 2016.
 Phil Wahba, “Macy’s aims to become retail tech powerhouse with latest moves,” Fortune, September 24, 2014, http://fortune.com/2014/09/24/macys-tech/, accessed November 2016.
 “Macy’s Leverages the Power of RFID to Fuel Successful Omni-Channel Fulfillment Strategy,” Tyco Retail Solutions press release (Neuhausen, Switzerland, January 16, 2016), http://www.tycoretailsolutions.com/Pages/ArticleDetail.aspx?ItemId=697.
 Centric Digital, “How Macy’s Implemented a Successful Omnichannel Approach,” March 30, 2016, https://centricdigital.com/blog/digital-trends/how-macys-implemented-a-successful-omnichannel-approach/, accessed November 2016.
 Think With Google, “Macy’s Goes Omnichannel,” October 2014, https://www.thinkwithgoogle.com/interviews/macys-goes-omni-channel.html, accessed November 2016.