Omni-Channel at Macy’s: It’s About Inventory Too
Much thoughtful discussion about omni-channel retailing rightly addresses modes of interaction — how modern shoppers blend online, in-store, mobile, catalog and call center solutions.
While many retailers focus on making each of these touch points as convenient and consistent as possible, there are also crucial operational considerations in play.
Omni-channel is very much about "inventory optimization through technology," said Terry Lundgren, chairman, president and CEO of Macy’s Inc., in a talk delivered last week in Tucson. Inventory visibility across all stores and channels is the key enabler, he added.
Mr. Lundgren made his remarks at the Global Retailing Conference, an extraordinary annual gathering of more than 300 retailing executives and academics produced by the Terry J. Lundgren Center for Retailing, a unit of the University of Arizona.
He set the tone for the event with a frank discussion about omni-channel challenges at Macy’s.
"I have dreamed about improving our inventory turnover for 10 years," he said, "but we have not been successful yet." A critical element now nearly at hand is the ability to know where every unit of merchandise is located across the chain’s 840 stores and distribution centers.
"By the end of this year, 500 stores will be ready to pick online orders, and 90 percent of our inventory will be visible to our associates on hand held devices," Mr. Lundgren said.
This advance in inventory visibility promises multiple benefits for shoppers as well as for Macy’s:
- It allows store associates to rapidly check system-wide availability, locate an item and make it available for delivery or next day pickup by the shopper.
- It can reduce markdown costs and inventory write-offs by enabling some mis-located items to be sold, either online or in alternate stores.
- It can enable store inventory items to be available to fulfill online orders on Macys.com, even when fulfillment center inventories are depleted.
Mr. Lundgren explained that new inventory data systems are revealing that the best source of an ordered item may not always be from the nearest store. An item that is selling slowly in a remote location may be a markdown candidate, while the same item in a store across town may be in high demand.
"Avoiding a markdown is almost always a better choice. It’s well worth the shipping cost," he said.
Even if an item is sold out in the warehouse, there may be idle items scattered in store inventories across the country that are available for sale. This permits the online store to keep the items visible on the web site, and fosters greater sell-through.
He related a recent example of orphaned Fiesta ware dishes. Macy’s had 1,600 place settings remaining in many stores in ones and twos, but they commonly sell in sets of eight or 12. The goods were effectively unsalable where they were located, but the online inventory and store-level picking permitted online sales to continue until they were sold through at full markup.
"Those sales were all profit," Mr. Lundgren said with evident satisfaction.
Discussion Questions
Are omni-channel retailers turning the corner when it comes to inventory visibility? What benefit of enhanced inventory visibility (e.g., reducing the number of markdowns) is most important?
All the stated benefits are important, but which is most important depends upon the individual retailer’s issues and priorities. If markdowns are a huge problem, then advanced inventory visibility has the potential to deliver impressive results that will make shareholders very happy.
If customer loyalty is the issue, then the ability to find an item and deliver it to a customer’s home the next day will go a long way to securing that shopper as a long-term customer.
So, after identifying the most pressing need related to inventory visibility, the retailers must balance the challenges with the benefits: will the benefits of delivering products to customers at the optimum time and place outweigh the additional shipping and distribution costs?
They may be turning the corner on turning the corner, but in many cases the internal work processes have failed to keep pace with the potential of the systems.
Inventory visibility is critical and could have substantial impact on sales, margins and profits—but not unless omni-channel strategies are blended throughout the organization.
Inventory visibility is an essential step in activating an online ordering and shipping process. Of equal necessity is the development of a system that allows both the online store and the associates in the brick and mortar environment to access the inventory and be able to make it available for a shopper, no matter what store within the chain they are shopping.
I notice chains making huge progress in this area. Macy’s breakthrough is a significant one, not just for the omni-channel shopper, but also for Macy’s bottom line!
By definition, a successful activation of omni-channel must provide transparency through the entire brand-retailer-customer workflow. This includes supply-chain and inventory management. Mr. Lungren’s real-world example of consolidating the single-settings of dishware highlights the financial advantages of knowing what you have and where it’s located.
The brick & mortar channel would have sold these at a discount, the transparency of the entire eco-system to ALL channels allowed the online channel to continue to viably sell these items. It is important to note that shipping costs did not negatively impact the profitability of the sale. The other side of this story is that there were satisfied Macy’s customers on the shopper side of this equation.
In the same way that digital shopper marketing requires consolidation and accurate, intelligent management of marketing, merchandising and advertising media collateral to provide personal and relevant communication, the same intelligent visibility and management must be available on the supply chain and inventory side of the omni-channel equation.
After embarking on its item-level RFID project, Macy’s realized that, like many retailers, it had no clue of what was in the store and what was selling. When I worked for Woodward & Lothrop back in the day, we’d inventory departments after each season, which provided no insight at all.
It’s going to be increasingly tough for department stores to compete against Macy’s if they have mediocre inventory visibility.
The online retailer beats the brick and mortar retailer every time based on the business model and it all revolves around inventory. With everything being the same, the online retailer can service the same revenue base with less inventory, less obsolete inventory and more turns. Lundrgen’s comments are directly to this point and if successfully implemented, will dramatically improve the bottom line at Macy’s.
The one caveat though is, can it be executed? When retailers have difficulty finding people to work in the stores to stock shelves properly, can they be confident that they can pick and pack online orders properly? And, in the end, can they compete with the automated pick and pack systems of the leading online retailers?
Macy’s is clearly a leader in the Omni-Channel Inventory and this advantage will be a competitive asset over the next few years as others work to catch up.
Ira Neimark, the former CEO of Bergdorf Goodman speaks about the importance of inventory control and the avoidance of markdowns in his book “Crossing Fifth Avenue.” Much of his early success can be tied to his ability to control inventory and markdowns. 60+ years later the business issue and opportunity have not changed. Avoiding markdowns can greatly improve a retailers bottom line.
Mr. Lundgren, focused on the biggest opportunity (fewer markdowns) and is using advances in technology to benefit more than competitors. Nice work!
The fact that retailers have seen the need for omni-channel visibility and coordination of inventory is the first step. Then it is necessary to find the right technology that works to achieve your objectives. These are essential steps, but not sufficient for success. Employees at all levels of the organization need the training and tools to use the new system. Hearing examples of using this approach, as in the ability to sell leftover units at full price by coordinating inventory, should provide an incentive for other retailers to get involved. The leaders will be doing this and be more profitable.
Thoroughly implementing an omni-channel strategy far out muscles any risk of showrooming. This is the effort of which Amazon should be afraid.
If they ‘get it’ they will. What do I mean by this? Having visibility into their inventory is key, but only if they know what to do about and with it.
Mr. Lundgren has proven himself a true leader in an omni-channel world. He knows how to look at the data and make the right decisions about it. But more important that that is, he knows how to put the right processes and procedures in place that will push all that good sense through the organization.
Bottom line: It takes more than visibility to compete. Watch Mr. Lundgren and learn!
First, what Terry was talking about at the GRC was RETAIL. Not omni-“whatever.” In fact, omni-this or that ain’t no special thing. In fact this omni word drives old retail people like me crazy!… Okay…where was I?
Back on point…what Terry’s story really meant is that across all retail the only WAY TO SURVIVE IN THE BUSINESS is by LEVERAGING technology. Sounds simple, eh? Most of us know this. But later in the conference, Tory Burch stated more about the need for students to know retail technology. Why is it then that technology seems so “new” to some retailers? It is the MILLENNIALS!!
Yes, the Millennial factor is the core reason that the “face of retail” has changed forever. Technology surrounds us all, but some people (Millennials) make it part of all the things that they do—especially part of their retail life. Why some retailers are getting excited about the power of today’s retail technology is because they are seeing technology as more than the “omni-us-whatever-word” and seeing the new RETAIL PLATFORM that helps them differentiate their business and win more shoppers.
What Terry and Tory and others are speaking about is the major need for a MILLIENNIAL “READY” PLATFORM that can make all the critical info that drives a deal with the shopper available when it is needed in the form wanted. It might be the form of inventory availability across the country—in real-time—accompanied by margin optimization charts at the SKU level so the store associate can make a decision that keeps the shopper happy, turns more inventory, and lifts net margins.
The real word that is not secret or complex is PLATFORM. Omni is just another spin on what retail is really becoming. To deal with this new world of retail a platform that allows a retailer to see the total business—yet helps them make granular decisions and execute at that level is the secret.
Added to this all is the importance of the fact that retail destined students MUST ALSO KNOW the latest in retail technology before they land out in the real retail world. At last week’s Terry Lundgren Center Executive Board meeting, we reviewed this issue and compared the current curriculum with the speed of technology change. Bottom line is that we have a great curriculum and the new hire rate (turns) are proof. Critical to the kids is they are ready. A possible answer is a 3-DAY RETAIL TECHNOLOGY BOOTCAMP for STUDENTS. Some of you reading this may be asked to donate your time to this effort. The school needs your help—STAY TUNED. I am confident that my class will overflow….
We also discussed—based on its success—rolling this out to more schools that have retail programs. Who wants to ride on the “omni-bus” with me?
Tom…all thoughts in this post are really mine, not SAP’s or from Millennials…really!
When retailers improve inventory visibility and engage users across all channels—when convenient for the user—retailers will learn what they want to buy, and be able to sell more premium products at full price.
I see a few leading retailers, Macy’s and Nordstrom among them, turning the corner on inventory visibility. Getting to where Macy’s is now can take years of difficult and costly IT projects and those retailers that have put in the effort are starting to reap the rewards and have a chance to get on a somewhat even footing with the online pure plays.
Getting the most out of inventory visibility will also require a solid analytics strategy and capability. Not only the advanced analytics that can help a retailer get the right goods in the right place and match inventory to demand but also visualization and staging of the information so that it can easily be consumed and acted upon by front-line employees.
Macy’s certainly has some advantages when it comes to omni-channel pursuits. These include scale, brand profile, and a degree of vision in the boardroom.
As an analyst, I tend to lock on to the practices behind retail success, and that often means adoption of the right technology. My good friend Tom is perhaps more demonstrative about this thesis than I am, but I’m in strong agreement. I also commend his and SAP’s support of the academic program here at the University of Arizona.
One observation worth making here about inventory visibility might be that its methods and implications will vary with the channel and the natural speed of turn. FMCG and grocery will be different from fashion which will be different from consumer electronics.
So, “your solutions may vary,” but without inventory visibility, you are certainly flying blind.
Great moments in inventory management:
1980s – Bar Codes, Scanning, EDI, ECR
1990s – flow thru, 3PL, 4PL, Floor Ready Merchandise.
2013 – Supply side visibility and Omni channel fulfillment
Now what? Demand driven procurement and sales!
Imagine receiving this message: “Based on our view into your closet, we have something perfect for you (color-wise and fit-wise) – click here to view.”
How will we do this? Enhanced attribution in the form of color and fit information.
We tried this in 1999, when the NRF and others launched the Web Ready Merchandise Initiative, an evolutionary idea on Floor Ready. It got some traction and than was hijacked and morphed into something called digital asset management.
Omni-channel visibility has been around since 1996 when Yantra saw the handwriting on the wall. 17 years later, it’s here, another overnight success.
These things take time; bring back Web Ready Merchandise—you’re going to look great in that shirt, I guarantee it.
For omni-channel retailers to succeed, they need consistent processes to track and manage inventory across the chain. Customers want to know that the product they are ordering via computer or mobile is in-stock and can be purchased, as well as where specific SKUs are in the system, so that they can order that product shipped.
The most important benefit for retailers is increased customer satisfaction, depth of purchase and frequency, driven by an improvement in customer experience. Customer experience is at one of the worst levels of all time right now, and this initiative holds the chance to improve that performance.
Inventory is first on the agenda for all retailers attempting omni-channel. All the retailers that we work with have first the visibility goal and then the optimization goal. Inventory visibility not only reduces markdown costs, it can also help to reduce shipping costs—especially when the retailer is aiming for efficiencies in buy-online pick-up in-store or same day delivery.
Personally, I think that the greatest advantage visibility gives is the agility to react quickly and in many instances have better prediction of the demand across the supply chain.