March 30, 2016

How Macy’s Implemented a Successful Omnichannel Approach

Competition is fierce in the retail industry. As technology continues to improve, having a solid digital strategy is becoming the lifeblood of any successful company. This is the notion that the heavy hitting retail industries are adopting today--yet, only one seems to be the shining star in terms of digital transformation. Despite it’s age, Macy’s profit margin grew 257.2 percent since initiating a digital transformation, compared to 2.61 percent for Walmart, -14.19 percent for Target and -94.89 percent for Amazon.

How did a 150-year-old department store make a successful transition into the digital age?

Macy’s has a 150-year history, but it ran into early challenges when attempting to adapt to the internet marketplace. In 1998, it created Macys.com as a Silicon Valley subsidiary intended to operate as its Internet sales arm. It was one of the first retailers to move into the online market with a digital strategy, but it wasn’t able to manage a digital transformation at this time. The company acquired direct marketer Fingerhut a year later for $1.7 billion, but sold it off three years later due to a lack of strategic value. Macy’s remained committed to innovating its operations throughout the 2000s, with a $230 million investment in the Macys.com website in 2006 and 2007.

Macy’s Hit Its Digital Transformation Stride

After these false starts, Macy’s digital transformation started finding its footing in 2010. The company announced a holistic omni channel strategy focusing on evangelizing a digital strategy that spanned the business operations and its workforce. This strategy design helped Macy’s enable an integrated consumer experience.

Some ways Macy’s handled its omni channel digital transformation included cutting capital costs by positioning its store network as online order distribution centers and training front-line employees in “Magic Selling” techniques, which emphasized digital integration into the customer service experience.

Establishing Executive Support

Macy’s holistic digital strategy needed a leader dedicated to its online operations—rather than split the attention of other executives. It created the role of executive VP for omni channel strategy and placed Robert Harrison in this position.

One of Macy’s omni channel experience initiatives was a $400 million renovation of its flagship store in Herald Square. It wanted to bridge the physical and digital divide to bring the in-store experience in line with the digital experience, but that required a major overhaul to provide a seamless experience. From associates armed with iPads to expediters using technology to quickly find inventory, Macy’s is embracing digital at all levels. Like centenarian retailer, other companies need to establish high-level support and digital transformations at every level instead of relying on limited opportunities for organizational change.

How Macy’s Leveraged Omni Channel Shopping

Macy’s used digital to optimize its logistics while still making excellent use of its widespread store locations. Store distribution centers supplemented the “Buy Online Pickup in Store” program, which helped bring customers into the stores. Other companies that are working on digital transformation shouldn’t overlook the ways their existing assets can help. Thinking outside the box can put these resources to effective use for the omni channel customer experience.

The digital transformation required Macy’s to adapt to the market at an increased pace, from adopting new technology to understanding the changing needs of its core shopping demographic. Macy’s restructured its merchandising and marketing silos to support the new singular, omni channel approach. When attempting a digital transformation of a traditional business, companies need to adopt a lean governance model to properly position themselves in the marketplace.

Macy’s made other major changes to existing development methodologies. The company switched to a fail fast approach with iterative delivery, which allowed it to test many ideas that could help differentiate it in a highly competitive marketplace. The company competes with other retail department stores and online e-commerce giants such as Amazon, so it needs to always keep an eye out for the next big innovation that might set it apart.

Macy’s mobile wallet development shows how this department store keeps up with the latest technology, meeting the needs of its core demographic. Customized digital catalogs deliver a deeply relevant experience to Macy’s shoppers, making it easier for these customers to find products meeting their needs. As this retailer learned, companies need to stay on top of their customers’ expectations, delivering the technology expected within that market segment.

Macy’s Digital Transformation Success

Macy’s took a few tries to get its digital transformation right, but once it fully embraced an omni channel experience, it saw the benefits in several areas. Omni channel customers have five times the value of single-channel customers, allowing Macy’s to improve its lifetime customer value. Its online sales grew 48 percent in 2012 and showed the results of all the hard work and resources the department store placed in its digital initiatives. Mobile Marketer named Macy’s Mobile Retailer of the Year in 2014, and 70 percent of its Black Friday traffic was mobile in the same year. While Macy’s is up against many heavy hitters in the industry, its profit margin grew 257.2 percent in 2014, compared to 2.61 percent for Walmart, -14.19 percent for Target and -94.89 percent for Amazon.

Macy’s benefited in other areas outside of revenue and traffic. This successful digital transformation increased the company’s brand value by 383 percent between spring 2013 and spring 2014, according to Interbrand’s Top Retail Brands. Macy’s stock price increased over 40 percent in 2013 due to the impact of its omni channel strategy.

No Digital Transformation Is Complete

Although Macy’s has seen a lot of success with their omni-channel approach, they are not out of the woods yet. While the tremendous success of their omni channel strategy has had unintended consequences on in-store performance, they’ll need to continue to find innovative ways to enhance the customer experience. And they’ll need to do so while leveraging their brick and mortar assets efficiently.

Being at the forefront of retail innovation, instead of holding on to traditional practices is what allowed Macy’s to be where they are today, but they will need to continue to adapt to the rapidly changing environment of the digital age if they want to look forward to another strong 150 years in retail.

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