Macy’s is accelerating its omni-channel retail strategy by rapidly deploying RFID technology. The progressive retailer plans to extend its store-based fulfillment capability to 500 stores this year, powered by the inventory accuracy provided by item level RFID.
Nearly 50 percent of Macy’s replenishment vendors are committed to deliver RFID-tagged products in the future, and the retailer expects that 10 percent of its total replenishment inventory will carry RFID tags by August.
During an investor and analyst meeting last week, chief omni-channel officer Robert Harrison said that RFID will allow Macy’s to conduct monthly inventory cycle counts. Harrison said that RFID and omni-channel represent “a huge sales driver” for Macy’s.
Macy’s is emerging as a clear leader in the race to omni-channel retailing, where customers can purchase items in a number of ways, often on mobile devices, and pick up their order at a nearby store or expect same-day delivery. The key to achieving an omni-channel strategy for retailers is to have a highly accurate inventory so that orders can be fulfilled at the store level.
“We are extremely excited about the accuracy [RFID] brings to our business because having the exact quantity of product in the stores when we think we have it will be a huge sales driver,” said Harrison, who assumed the newly created title of chief omni-channel officer last year.
Harrison revealed that Macy’s has deployed RFID in all stores for shoe sampling. The technology allows the retailer to have all shoe styles on the sales floor at once, eliminating missed sales.
“If you go down to our Herald Square location or any other store, each shoe has an RFID tag and that has [reduced] our missed samples on the floor, which used to be a huge problem,” said Harrison. “We had scary numbers, with 20 or 30 percent of our samples not represented on the table. The customer won’t buy it if they can’t see it. With RFID technology we have driven that way down and we’ve seen the sales change because shoppers can see the entire assortment.
“We see RFID as a very big part of our future, not just on how we run our business, but certainly from an omni-channel perspective as well.”
Macy’s CEO Terry Lundgren is so impressed with RFID and the omni-channel platform that Macy’s has expanded in-store fulfillment to 292 locations in the past 12 months, with the goal of hitting 500. Lundgren even projects that Macy’s will no longer need some of its expensive fulfillment centers in the future.
“Some day the stores will catch up in terms of inventory accuracy and we will no longer need fulfillment centers,” he said. “We already have 800 of them; they are called Macy’s stores.”
RFID is in the early stages of forever changing the retail landscape, and enabling omni-channel retailing could bring dramatic changes to the customer shopping experience. Lundgren expects more and more customers to visit a Macy’s store to get a live feel for a product, and then order it on their mobile device after leaving the store, or at home after conducting more research. He even says that pure online retailers may need to alter their bricks and mortar strategy.
“I passionately believe that there will be more and more pure play online businesses that will be opening stores just to reinforce that point,” Lundgren said during the analyst meeting. “Before the customer makes the decision to buy, they want to try on or experience the product.”
Some industry analysts believe that the new inventory visibility enjoyed by retailers that have deployed RFID could severely threaten online retailers like Amazon because of improved distributed order management, which is a key component of omni-channel retailing.
“With omni-channel, companies are going to have to figure out where to source products,” says Dr. Bill Hardgrave, Dean of the College of Business at Auburn University and the founder of the RFID Research Center. “If you order from a mobile device, where are they sourcing from? From the DC? The back room of the store or the brand owner?”
Today, retailers don’t have the full supply chain visibility required to make optimal sourcing decisions. RFID, however, will enable optimal distributed order management.
“Nobody can do that right now,” says Hardgrave. “Those that figure that out will be way ahead of the game. I believe that online retailers like Amazon will be in trouble. They’ve had their day in the sun because they have that Internet channel and a great distribution network, but when we move to true omni-channel and other retailers figure out how to do distributed order management, Amazon’s lack of a physical presence will be a hindrance to them.
“This is coming and it will change the nature of retailing. RFID and the visibility it provides will enable Macy’s or anyone who already has a large physical presence to treat each store as a node in the distribution network and a potential source. Suddenly, their distribution network now becomes so much more significant than the traditional distribution network.”