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How Macy’s Outmaneuvered Rivals Without ‘Overcommitting’ on Inventory

When Macy’s Inc. launched an inventory management overhaul three years ago, it turns out the Bloomingdale’s and Bluemercury owner was onto something big.

“We recognized that inventory productivity was an opportunity for us way back in 2019,” said Dennis Mullahy, Macy’s chief supply chain officer and a 2022 winner of an award by Alcott Global, a recruitment firm specializing in supply chain and logistics, recognizing top supply chain leaders.

Since Mullahy joined Macy’s in April 2019, he’s been hard at work figuring out how to leverage the supply chain both from an operational and data analytics perspective to better get a grip on inventory.

Doing so, he said, is instrumental in understanding “how to leverage our inventory to really help support and drive our profit margins by making inventory more accessible to customers.”

In-depth reporting knowledge was Macy’s first priority. This would equip the department store company to better understand product flow and delivery delays, Mullahy said. From there, Macy’s looked at making better buys, as well as where to allocate inventory.

It’s this considerable analytical investment that put Macy’s in a relatively clean inventory position versus retail rivals.

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“Looking at Holiday 2021, when a lot of supply chains were congested and product was failing, people struggled to keep things available to customers. Because of the work we had done to modernize our supply chain to get in front of lead times, we had more products available,” Mullahy said. “That led us going into 2022 with a lot less of an inventory glut, or hangover from 2021, allowing us to really focus on what those [2022] sales were going to look like.”

Macy’s CEO Jeff Gennette said “disciplined purchasing behavior, coupled with leaner inventories entering the year” was responsible for the retailer outperforming competitors affected by a sudden demand implosion and difficult supply trends. Net income for the first quarter more than doubled to $286 million on a net sales gain of 14 percent to $5.35 billion.

Nine months later, third quarter sales reflected how inflation was impacting spending trends. Yet Macy’s still managed to beat Wall Street’s expected adjusted earnings per share (EPS) by a wide margin. Net sales fell 3.9 percent to $5.23 billion, while net income fell 55 percent to $108 million, or 39 cents a diluted share. On an adjusted basis, diluted EPS was 52 cents versus Wall Street’s consensus expectations of 19 cents.

Macy’s turned in that financial performance at a time when many retailers were still trying to get rid of a massive inventory overload. Most miscalculated and over-ordered, leaving them stuck with out-of-step merch. In contrast, Macy’s stock was up just 4 percent in the quarter from year-ago levels, and 12 percent off from 2019.

“We are not saddled with older receipts and pandemic category overstocks across nameplates,” Gennette told investors on a quarterly conference call, crediting its supply chain upgrade for its strong performance. Chief financial officer Adrian Mitchell chimed in that the retailer is getting smarter about where demand is and how to service it.

So while Gennette said last month that it was too early to tell how willing inflation-scarred consumers would spend, Macy’s will lean on its strong vendor relationships and ability to “chase into areas of strength.”

Mullahy said Macy’s is now able to check on demand at multiple levels from the macro—to better understand where the business is headed—all the way down to a category level to inform sales trends. This data can guide decision-makers on what’s trending by category, how those sales are unfolding and even where the shifts might be underway. “And then we work forward out of that based on our lead time analytics to determine how we impact future orders because of that information,” Mullahy said.

Macy’s now has the intel to move inventory around to where it has the best chance of selling. Stores now can take advantage of the retailer’s common inventory.

“We built that in throughout the entire timeframe of the pandemic to give ourselves that level of agility with our inventory placement. There’s a lot of analytics at multiple levels that coalesced together to give us a picture of what we believe is going [to happen] in the future and then we manage our inventories towards what is ahead of us,” Mullahy said. “Within that, we create the right amount of liquidity to be able to chase products that are out there and available. We can get into trends faster and we don’t over commit ourselves to things that we don’t want to be stuck with.”

Much of Macy’s private brand products are bought far in advance, while the company can work with market partners and pull in national brand product as needed.

“We also build in capabilities throughout the pandemic to do forecasting on what we think those lead times will be. So as we saw disruption on ports, as we saw disruption in the lead times, we were able to re-forecast what the [new] lead times [will] look like,” Mullahy said.

The supply chain team still makes educated estimates based on their interpretation of the data analytics as the reports became available.

“We recognized during the pandemic that there was a shift towards casual wear, and we knew coming out of that it was going to shift back,” Mullahy said. “The question was what are the triggers that [would] drive that and [when would it] really start to get back to tailored dressing,” Mullahy said.

“We were able to find that trend quickly, make adjustments based on what our lead times are by forecasting what it was going to look like and then really tighten up our orders on any of those pandemic categories without overextending ourselves,” he said. “And then we’ve built in a lot of mechanisms for [what you hear] people refer to it as chase inventory. Those mechanisms enable us to continue to go after inventory when we see sales accelerating with again, [while] not overcommitting ourselves to incremental liability.”