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Macy’s: Adding Same-Day Delivery Would Cost Us Next To Nothing

Written by Frank Hayes
August 15th, 2012

The big news from Macy’s earnings call on August 8 isn’t that the department store giant might someday offer same-day delivery if customers ever show a desire for it. The real news is that same-day would require almost no capital outlay, nor will expanding Macy’s current store-to-door delivery program beyond the currently planned 290 stores, according to the person who should know: Macy’s CFO.

By not building out its delivery capabilities according to some grand plan, the 800-store chain has put itself in a position to do almost anything it wants. And because the CapEx is so low, the ROI is essentially instantaneous.

Adding a store to the store-to-door effort involves “a small amount of capital,” said CFO Karen Hoguet, responding to an analyst’s question. “It is more expense, obviously, to have these people available to fulfill throughout the store.”

Part of the reason there’s little capital expenditure required to add a store to store-to-door is that Macy’s isn’t doing anything fancy in the back room where orders are filled. Orders come in, mostly from other stores (“The lion’s share of what they’re fulfilling are orders from other stores, not from dot-com,” Hoguet said). Then the associates assigned to store-to-door collect the merchandise, and pack and ship it from previously unused back-room space.

There’s no fancy automated pick-and-pack, no special technology involved. The whole effort does depend on a major IT project—a chain-wide view of inventory and a fulfillment algorithm that picks the best store to ship an order from, based on whose inventory is moving slowly. But aside from that, it has been done on the cheap.

The result: The original, small-scale store-to-door project had something very close to instant ROI. (Well, except for the odd Loss Prevention issue.) And expanding it cost very little per store, so the payback on that was very fast, too.

Then, once store-to-door was in place, bolting on E-Commerce fulfillment was almost zero-cost. Nothing changed in the stores—an order that originated online was just another order to pick, pack and ship. The fulfillment logic for the online orders was the same as that for store-to-door orders.

No grandiose plan, little risk, fast payback.

According to Hoguet, “By and large, our fulfillment rates coming out of the stores are getting very close to the same accuracy and on-time rate as that in the distribution center,” she said, adding, “In total, we are doing a spectacular job in fulfilling the orders out of the stores, frankly better than I thought we could do. So it’s really quite encouraging.”

Hoguet probably really is surprised. Maybe she shouldn’t be.


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