How Macys managed to be on top in Inventory Management
Macys,
founded in 1858, is the 16th largest retail store in U.S. and almost
150 years old with 840 stores around the world. Known for its diverse
merchandise and niche in popular cultures, Macys is also famous for popular
slogans released during holiday seasons and cause events such as “Believe”,
“Macys, the magic way” and “The red shining star”. I was totally amazed to see that
in the technology driven market, Macys kept growing in profits and market size,
hence I decided to study the big secrets underlying Macy’s growth and earning high profits. How
it is able to manage multiple stores at
so many different geographical locations with millions of different items and how
it predicts customers demand in everyday changing world and able to maintain an
updated inventory accordingly to fulfill their demands.
One
big reason behind its success is the strategy behind the inventory management. Macys
has always been serious to customer’s experience and does everything possible
to provide the customer what they want. Its
core business value lies in finished goods (FG) because the finished products
are readily available for sale. According to the article, “Managing Inventory” there
exist five different types of inventory depending on the role in the supply
chain. Macys kept its inventory in accordance to changing customers demand even
it is related to one product, so called Buffer stock or safety stock, so that
it could fulfill the demand of customers. Macys, first part, localizes the
merchandise and shopping experience for each of its locations and trains its
employees to keep a track of trends and demands in every different locations
depending on the region, multicultural demographics etc. They maintain a Merchandise
planner that tracks the demands made by the customer that were unavailable at
that store. After every cycle, the district merchants get together and analyze
the planners and look for the commonalities. This planner helped Macys to
identify the high demands for Women’s Shoe Size 11 in downtown Chicago. These planners have helped Macys to sell out
the items before going for mark down by identifying stores in demand for
similar items.
The
second part of MOM strategy is Omni channel, which is an inventory optimization
through technology. This gives the employee as well as the customer to access
through different channels to search for online inventory, its availability at
the nearest store and order the item online or ship them to home from another
store, which acts as mini-fulfillment shipping centers. This gives huge advantage
to Macys compared to its competitor stores such as TJ MAXX, Marshals,
Burlington, JC Penny, and Sears. It also benefits Macys in moving its inventory
in a smarter way towards the store of demand. Macy’s inventory search database
is also designed in a smart way, such that if a customer orders a tie from
Atlanta, it may ship from New York rather than from the nearest store even if
it is available there. The reason being, the model predicts that there is high stock of tie inventory at New York store
and the probability of this store going for markdowns for tie in future in
higher than the nearby at Atlanta store. By this way it better spends on
shipping and still gains the profits on a full price item.
Macys improved its inventory accuracy by
implementing REFID technology on a pilot scale at one store. After its success,
it implemented this technology across all the stores. Wal-Mart also started
with RFID technology to improve its supply chain so that the product can reach the
right place at right time. But unfortunately, it didn’t work out for Wal-Mart’s
for various different reasons and they stopped using the technology. But Macys
has been able to successfully implement the RFID technology as it had Omni
channels to support them.
The critical element of inventory
management is identifying the location of each and every unit of merchandise
across all the 840 stores and distribution centers. It is not an easy task to
manually count each and every item but RFID technology helps with providing the
visibility to the items to the customers and also to the sales merchant in the
store available through their hand held devices. Macy’s associates perform the
cycle count 24 times a year by walking around the floors and identify which
style and size needs to be replenished based on its popularity. This increased
the accuracy by more than 90%. Macys requires its suppliers to put RFID tags
and send it to the stores and distribution centers. This technology not only
helped with the profits but also helped with serving the customers in a more
efficient way.
The advantages of using RFID technology
are:
1) It helps customers as well as Macy’s employee
to have high level of visibility for all merchandise.
2) It
helps the store associates to check for system wide availability of the
product, item location, and available for delivery or next day pick up by the
customers.
3) It
helps Macys to reduce the markdowns costs and inventory write-offs by enabling
some mis-located items to be sold, either online or in alternate stores.
4) It
enables the store items to be available for online orders through Macys.com,
especially when fulfillment center inventory is depleted.
The
technology definitely helped with reducing number of markdowns and other kind
of discounts, but Macys still puts up with many discounts offer and sale
seasons lesser than the previous times in a more strategic ways.
There
is huge hand in how you engage with your customers to keep the inventory
moving. The Magic of selling plays a big role in that. If the points of sales
personnel are not very engaging and committed to their work, the company can
never benefit even it predicts the customers demand 100% accurately. Unless there is dedication from sales
personnel to find the item in the back of their stock room or helping to find
the customer with their specific item, it’s not easy for a company to grow like
Wal-Mart. From my personal experience with Wal-Mart, I have seen that their
employees always had complaints about their payrolls and show less enthusiasm
towards customer’s demands. Macys does many promotional campaigns during
holiday seasons. It provides many sales seasons, keeping the stores open for 24
hours during Thanksgiving and Christmas seasons. This helped Macys create its
own brand image. Macys is far outperforming its competitors with its share
price up by 41% while JCP shares down by 55%, Burlington’s up by 24%, Sears up
by 12%. It had $27.7 billion revenue through sales in 2012, which was $4.2
billion higher than the sales in 2009.
After
researching related articles and papers, I think Macys has mastered the
commerce of inventory utilization perfectly. The article from HBR, “Managing
Inventory” talks about three key factors of Inventory strategy metrics such as
Customer service, Operational Performance and Inventory related costs. Macys has certainly managed to keep these odd
metrics at their best in developing their strategies. Macys is on par
excellence when it comes to customer service. As mentioned earlier, One Part of
MOM strategy is Magic Selling Customer engagement keeps a check on that. Macys
give personal touch to every customer and making sure the customers get what
they want and also at a competitive price. Macys has improved it operational excellence
by introducing RFID technology and expanding its online inventory for the
online customers. Macys is able to keep
its inventory related cost down by sending the product to its customer on the
basis of distance but also making sure that the other stores doesn’t have the
same product in excess and go for markdowns in near future. This keeps the
inventory of distribution centers, stores moving. This all enabled with the
help of technology implementing with clear goals.
The
article also aroused some interesting questions:
1) How long Macys can keep up its strategy in the
technology-changing world and will it be able to compete with market with same
effectiveness after 10 years or so?
2) Macys is building huge billion square foot of
distribution centers, Will they change any strategy to manage such large
inventories?
3) How Macys ingrained such commitments and
enthusiasm among its staff or employees to give the best customer experience?
4) How Macys can keep the cost low for customers
while also implementing costly technologies?
Sources:
3) http://www.systemid.com/learn/rfid-retail-inventory-management-increases-omnichannel-sales-at-macys/
4)
https://www.macysinc.com/macys/m.o.m.-strategies/default.aspx
6)
http://www.mmh.com/article/rfid_the_macys_way
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