Macy’s in the Digital Age
This retail dinosaur is using digital to mount a comeback.
Macy’s predicament
In August, Macy’s announced that it would close 100 of its stores after recording six quarters of declining sales.1 There are many reasons why Macy’s is struggling, some that are unique to its business and others that plague brick-and-mortar more broadly. On the latter point, retail analysts agree that millennials prefer the convenience of shopping online. Mallory Schlossberg, contributor at Business Insider, explains, “If people can shop online, why bother going into the store? If it’s an unpleasant experience – and shopping at Macy’s can be – why even try to sort through the mess?”2 However, Macy’s is not giving up on its stores that easily. Instead, it is digitizing them to create a more seamless, exciting shopping experience for its customers.
Macy’s business and operating models
Macy’s offers customers a range of high-value and high-quality fashion and household products, served via a convenient in-store and online shopping experience.3 To deliver on this promise, the Macy’s operating model must ensure that customers can easily locate and purchase whatever merchandise they want, whenever they want it.
Bringing digital to stores
RFID
One way that Macy’s is digitizing stores is by adding RFID (Radio-Frequency Identification) tags to its products. The tags contain a chip and antenna, which transmit a unique signal. Reader machines interpret these signals and generate reports detailing store inventory.4
Macy’s plans to roll out RFID technology to all stores by the end of 2017.5 One of the key benefits to RFID is that it enables Macy’s to build an accurate, consolidated view of inventory across its stores and warehouses. This enable Macy’s to buy product more efficiently and leverage stores as nodes within its broader distribution network. For example, suppose a customer in Massachusetts orders a toaster oven from Macys.com. Instead of shipping that product from a distribution center in California, Macy’s may be able to achieve a faster, cheaper delivery by shipping it from a local store. Alternatively, Macy’s may ship it from a store that is holding excess inventory, lessening that store’s need to eventually discount the product.6
The implementation of RFID tags also improves the customer’s shopping experience. A study led by GS1 US concluded that inventory accuracy improves from 63% to 95% among retailers that implement RFID.7 The more refined its inventory tracking capabilities, the better prepared Macy’s sales associates are to serve customers. For example, if a customer is unable to find her size, her sales associate can easily survey inventory across nearby locations and request that the item be shipped to her. Additionally, RFID technology enables customers to buy online and pick up in-store, a time-saver for those who need an item ASAP.6
Overall, Macy’s estimates that RFID has helped reduce its inventory position by $1B across stores, while simultaneously improving customers’ ease of shopping.8
Beacons
Macy’s is also innovating its in-store experience by using beacons to serve custom messaging to shoppers’ smartphones. Beacons are devices that transmit Bluetooth signals to nearby smartphones.9 Customers with the Macy’s app can opt into receiving push notifications and other marketing communications as they pass by beacons throughout the store. The goal of these communications is to generate excitement and drive purchases. For example, during Black Friday last year, Macy’s launched the “Walk in and Win” campaign, which allowed users who visited a store to play a beacon-activated mobile game offering $1M in prizes. Other applications of beacon technology include surfacing discounts, as well as product recommendations, information, and tutorials.10
Next steps
As it looks to the future, Macy’s should identify new opportunities to integrate technology into its stores, taking cues from other fashion retailers that have innovated successfully along these lines:
- Marketing personalization: Leverage data on a user’s interactions with the Macy’s website and app to tailor her in-store experience. For example, if she demonstrates affinity for a certain brand online, utilize beacons to guide her to that brand and similar ones when she visits the store.
- Interactive merchandising: Like Burberry’s smart stores, install interactive displays that offer product recommendations. For example, if a customer brings an RFID-tagged dress to the display, it should be able to present recommendations for accessorizing the look.
- Service delivery: Utilize technology to efficiently enhance customer service. For example, install smart dressing rooms, like those at Rebecca Minkoff, that enable the customer to request new sizes from the sales associate with the touch of a button.
Although ecommerce is rapidly changing the retail landscape, there is still room for brick-and-mortar. Per Macy’s CEO Terry Lundgren, “I very strongly believe that consumers are not only going to shop online, they’re going to start their journey on their phones, they’re going to enter our stores … They may not buy in store that day. But without that store interaction, it’s likely the sale would not occur.”11
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Works Cited
1) Egan, Matt. “Macy’s is closing another 100 stores.” CNN Money, http://money.cnn.com/2016/08/11/investing/macys-closes-100-stores.
2) Schlossberg, Mallory. “Millennials only want to spend money on one thing – and it’s killing Macy’s. Business Insider Nordic, http://nordic.businessinsider.com/macys-trying-to-survive-in-the-experience-econmy-2016-7.
3) “Evolving Our Strategies with M.O.M. 2.0.” Macy’s Inc., https://macysinc.com/macys/m.o.m.-strategies/default.aspx.
4) “Chapter 03. The different types of RFID systems.” IMPINJ, http://www.impinj.com/resources/about-rfid/the-different-types-of-rfid-systems.
5) “Macy’s to RFID-Tag 100 Percent of Items.” RFID Journal, http://www.rfidjournal.com/articles/view?15081.
6) Tenser, James. “Omni-Channel at Macy’s: It’s About Inventory Too.” Retail Wire, http://www.retailwire.com/discussion/omni-channel-at-macys-its-about-inventory-too.
7) “RFID is Gaining Traction!” GS1 US, http://www.gs1us.org/DesktopModules/Bring2mind/DMX/Download.aspx?command=core_download&entryid=1620&language=en-US&PortalId=0&TabId=785.
8) “Macy’s Leverages the Power of RFID to Fuel Successful Omni-Channel Fulfillment Strategy.” Yahoo Finance, http://finance.yahoo.com/news/macys-leverages-power-rfid-fuel-111100028.html.
9) “What is iBeacon? A guide to iBeacons.” iBeacon Insider, http://www.sdcexec.com/article/12130780/radio-frequency-identification-spells-holiday-season-sales-opportunities-for-retailers.
10) Chamberlain, Lauryn. “Macy’s To Test Beacon Messages Outside App, Explore Retargeting.” Geo Marketing, http://www.geomarketing.com/macys-to-test-beacon-messages-outside-app-explore-retargeting.
11) Wahba, Phil. “Macy’s CEO Defends Role of Stores in E-commerce Era.” Fortune, http://fortune.com/2015/11/11/macys-ecommerce.
Awesome article! As someone who worked for a subsidiary of Macy’s, I know first hand how many opportunities this legacy department store has for innovation and you touched on basically all of them!
In terms of RFID, one interesting thing is that the technology has been around for decades, and Walmart tried to get their suppliers do move from UPC to RFID tracking almost a decade ago but failed spectacularly due to the price per RFID chip. Its interesting that we are now at a critical point where the cost of an RFID tag is under 1 cent, down 90+% over the last decade. Something to consider next time you think about adoption of existing technologies would be why now, and why not earlier? There is also still tremendous vendor resistance to RFID due to their implementation costs, especially among some old school fashion brands, so how might Macy’s convince them to change?
I also liked your three main points on what Macy’s can do going forward to drive sales and customer interaction. Personalization will be huge over the next few years in getting the right product, size and assortment to the customer, where at what speed and how he or she wants.
This was super interesting! I’m one of those people referenced by Terry Lundgren who needs an in-store interaction before buying online so I loved reading about how Macy’s is using technology to transform the in-store experience. A few questions that I had after reading your post:
1.) Adding RFID and beacons to stores sounds exciting! What are the secondary spillover effects? For example, do you think there will be changes to Macy’s staffing models?
2.) In the case of Macy’s, what are ways in which you see the online site and in-store experience complementing or cannibalizing each other? Should Macy’s target different types of shoppers with these mediums? How should they decide what the store displays should be versus products featured on the website?
3.) Do you think other department stores will follow suit? Should they? What other approaches are available?
Great article! Do you think Macy’s should also explore smart fitting rooms? Smart fitting rooms are fitted with technology that automatically records the items a customer is trying on. A touchscreen in the fitting room can be used to suggest complementary goods and also allows customers to request items in alternate size/colors. I believe Nordstrom and Ralph Lauren have already explored this technology. Do you think Macy’s should also consider it or is their market segment too different? Would smart fitting rooms make lines even longer or would it help make the shopping experience more efficient?
Nice post! Seems like Macy’s is in need of quite a turnaround. As you mention, one worry is the declining appeal of the brick and mortar shopping experience to the millennial generation. An added benefit of the RFID could be the shopping experience itself. What if they incorporated automatic checkout i.e. a customer scans his items with his smartphone Macy’s app instead of relying sales person? If they could overcome the other logistical challenges, the novelty of the new shopping experience would certainly be a draw for the tech-enabled millennial generation, and RFID could have an even bigger impact on Macy’s logistics. Either way it sounds like Macy’s is ready to step up to the plate and use digitization to augment its brick and mortar stores rather than detract from them – great article!
This is a very interesting post, BM. Digitization in brick-and-mortar stores are a real challenge and it seems that its effect on increasing profitability is still unclear but Macy’s is very focused on using it to solve its own operating problems. Inventory has been a major problem for the retailer and it seems that adding RFID will greatly help them control overall inventory and free up cash. Beacons also seem a very effective way to make the customer interact more with the physical store and encourages it to explore further the different departments, similar to what Pokemon Go does to cities.
The question still remains if it’s enough to fight against Amazon and other smaller retailers as they transform the customer experience.