In recent months, Macy's has become something of a retail marvel.
As retailers across the market struggle to move stagnant products and strain to purge excess inventory, Macy's has managed to keep stock levels healthy, with inventory rising only 7% year over year in Q2. In comparison, Target and Kohl’s inventories were up 36% and 48%, respectively, that quarter.
The retailer attributes much of this success to a tight inventory management strategy, spearheaded by Chief Supply Chain Officer Dennis Mullahy. The first executive to hold the role at Macy's, Mullahy has brought a disciplined approach to managing the company's supply chain and inventory. This includes investing in data analytics to bolster its demand planning capabilities and inform the company’s purchasing strategy.
Sister publication Supply Chain Dive spoke with Mullahy to discuss his approach to inventory management and how the company has prepared for peak season amid volatile demand and swinging supply chain challenges.
Editor’s note: This interview has been condensed for length and clarity.
SUPPLY CHAIN DIVE: Can you give an overview of your approach to inventory management at Macy's?
DENNIS MULLAHY: Part of our Polaris Strategy that we put out back in 2020 was really around how do we drive productivity? And that was really focused on this idea of making every single piece of inventory that we have available to customers, no matter how they shop or where they shop, but also rationalizing the amount of inventory that we needed to buy to support those sales.
And so we've really done a couple of things around looking at how inventory flows. How do we get back in stock faster? How do we get analytics and information on inventory management of movement to really know where it's at and how it's flowing?
But also, how do we plan inventory differently? Through having that visibility, how do we get better insights into what we're going to own, what sales are going to look like and then how fast can we react?
Really, it is this balancing of "If I own a piece of inventory, if somebody wants to buy it, how do I make it available to them without having to buy incremental inventory to support that in different channels, different locations, all those things?"
SCD: In the last few months, Macy’s inventory has been in good shape, especially compared to a lot of competitors. What do you attribute that to?
MULLAHY: When you look at our Polaris strategy, it really included all those things, in terms of how do we drive inventory in perpetuity?
When the pandemic occurred it really required us and allowed us to accelerate some of those things. So: Thinking differently about ports that we're going to land stuff at; running our fulfillment centers on a regular basis with cross-dock operations; reducing our reliance on manufacturers that don't have transnational capabilities, so [we have] the ability to move inventory where we want it to be produced.
And then honestly, a lot of focus on getting information and insight to project what we think is going to happen in the future farther out so that we can take action. So we're doing that now, not just on how much inventory do I need, but where can I get it from?
We're predicting as far out as we can what is going to happen in a certain country to realize whether we should be placing an order in that country, or should we pull that order to a different country with the same manufacturer and produce somewhere else. Because if we think there's going to be a problem with a port, if we think there's going to be a problem with production, we have that flexibility now to move. What's really helped us be significantly better and avoid the glut of inventory that a lot of our competition is facing is that level of flexibility and insight that we've built and that agility that we put into our operations.
SCD: You mentioned data analytics as part of your strategy. Can you expand on that?
MULLAHY: We're implementing some sophisticated technologies around demand forecasting. I used to work in a grocery company, where you can easily forecast how many boxes of cornflakes you're going to sell. That's a lot harder than say, you know, how many size small green sweaters we're going to sell.
We've leveraged that technology to really aggregate up on the fashion side and say, "What do we think our fashion business forecast is going to look like from a demand perspective?" And using more sophisticated algorithms to forecast that out going forward at a category level.
And then on the replenishment pieces, which is a good piece of our business as well, we have way more sophisticated algorithms on how many pairs of underwear am I going to sell, socks and those things that are more commodity type that I can get a better forecast on. So we've been leveraging those forecasts to really drive changes in our open-to-buy and inventory management. We work really closely with the merchant team to say, "Okay, this is where demand is going. This is what the product profile looks like, this is what we own. What should our receipt base look like in order for us to continue moving forward based on forward-looking demand?"
SCD: Now that we're moving into peak season, how have you planned your fresh assortment versus discounted products? What is the promotional environment that you're looking at?
MULLAHY: I'm really excited about the assortment that we have because over 50% of our product that's going to be on the floor is going to be new. We're in a significantly different place than the majority of our competition who's dealing with some of those blocks, so I am excited about the freshness and newness of our product.
We continue to be heavily focused on inventory and productivity and that availability of inventory. All of those things are really just opportunities for us to continue to lean in to say, "How do we make sure that inventory moves forward?"
But we continue to adjust our lead times, adjust our orders based on what we see happening. We're trying to project out in the future. I mentioned demand forecasting is one thing that we do, but we also do lead time forecasting on if we think there's going to be a problem at a port. Our teams are working that far in advance to say, "Okay, if we see something coming, what are we going to do different to react to that so that we don't get caught up as the 100th boat stuck outside of LA, but we've already moved that boat to a port in Savannah, we've already got our product coming in.”
The whole intent [is] recognizing that as a retailer, a significant amount of our spend is on inventory. So buying the inventory that's right, that our customers are going to buy from us, is really what our business is all about. So the better we can be at that, then the more productive that inventory is going to be, the more we sell at regular price, the less markdowns, all those other things.
It really drives a lot of benefits throughout the company.