Do bricks and mortar cost more than bytes and channels? For Macy’s Inc., the question may not matter as much as whether the two investments, combined, sell more sweaters, suits and shoes.
Macy’s is willing to pay to find out. The nation’s largest department store chain has distinguished itself over the past few years by testing new technologies, including omnichannel distribution strategies that enable customers to order items straight from the warehouse, as well as in-store iBeacon communications.
It is part of a steadfast effort by Macy’s to be where its customers are. In mid-September, the Cincinnati-based merchant announced a series of additional technological advancements and partnerships, including the testing of same-day product delivery, participation in Apple Pay, and a snappy image search app that will respond to any digitally submitted photo with a similar item available at Macy’s. It’s pretty sharp stuff.
And it is expensive. Macy’s second-quarter report, filed Sept. 8, details that the cost of sales rose $139 million in the quarter, due in part to higher markdowns “as well as the growth in the omnichannel business and the resultant impact of free shipping.” Likewise, the investments in Macy’s omnichannel strategy partially offset higher income from the company’s credit card operations.
The fact that Macy’s is upping its investment, post report, makes it clear the retailer and its CEO, Terry Lundgren, expect a payoff.
And why shouldn’t it? Macy’s at this point is not only besting its peers in terms of its investment in innovations, but also in terms of risk. By incorporating the ability to order a specific product in a select size and color, at the store, online or by phone, Macy’s has removed many barriers to sale. Added services such as same-day delivery eliminate a lot of the remaining barriers, and it has upped the ante for others.
Further, Macy’s early embrace of new technologies, from iBeacon to Apple Pay, indicates the company executives are inside players with many innovators, giving Macy’s a leg up on tomorrow’s trends.
So to me the question is not about the cost of bytes and channels, but the extent to which Macy’s loyalty data is informing these decisions. The company’s Star Rewards program includes a “My Wallet” feature that stores offers and payment options online, as well as an app through which members can manage their accounts and receive Macy’s texts. This translates to lots of brand interactions, yet the program is not mentioned anywhere in Macy’s quarterly report and gets only a brief description in its annual report.
It’s a notable omission, but despite it, Macy’s clearly must be using its program data to support these initiatives. I can only imagine how customer data could help shape the offers it provides to customers and the way it prioritizes its investments in new technologies. Evidence of its potential already exists in its performance: Macy’s posted second-quarter sales of $6.2 billion, up $200 million from the year before.
That’s a lot of sweaters, no matter how they are purchased.
