Macy’s Converts Store Space to ‘Mini’ Distribution Centers

• Macy’s converted space at 35 of its retail stores into “mini” fulfillment centers. 
• The department store’s CFO said the new fulfillment space accounted for about 1 million square feet. 
• The new fulfillment space will help Macy’s reduce shipping costs, better utilize inventory and increase delivery speed. 

Macy’s has converted space at about three dozen of its stores into “mini” distribution centers ahead of the holiday shopping season. 

The retailer made the announcement during its third-quarter earnings call on Nov. 17. The retailer in total converted approximately 1 million square feet of space at 35 stores into small distribution centers to handle the demand for digital orders. 

“The investments we're making in our supply chain, both upstream and downstream, our focus on simplifying our processes and modernizing our technology further enhancing our keepers to move product to our customers faster while driving greater supply chain cost efficiencies,” said Macy’s CFO Adrian Mitchell during the earnings call. 

Mitchell said delivery expenses accounted for 4.3% of its net sales in the third quarter of 2022, which was on par with the same period last year. Despite its efforts to reduce costs associated with delivery, the CFO said higher fuel costs “more than offset” reductions in cost per package. 

“We continue to get smarter about where demand is and how best to service that demand,” he told investors.

The mini distribution centers are semi-automated and will help the department store chain reduce its shipping costs and split shipments, better utilize inventory in regional markets and speed up delivery, Mitchell said. The new in-store fulfillment centers are a “low-cost” addition to its existing fulfillment network, according to the retailer. Macy’s had also made adjustments to processes and technology at other stores without the mini centers to streamline the fulfillment process. 

Also, during the Nov. 17 earnings call, Macy’s Chairman and CEO Jeff Gennette said Macy’s digital business had fallen from a high achieved during the COVID-19 pandemic but was still above 2019 levels. Macy’s digital sales accounted for about 25% of its business in 2019 but shot up to 40% during the pandemic, according to Gennette. The retailer expects digital sales this year to be about 33% of its business, down from its estimate of 37%, he said.

“These 35 mini [distribution centers] that Adrian spoke of — it's about 1 million square feet of supply chain we didn't have last year,” the CEO told investors. “We are looking at all of our ship-alone categories to get those closer to the customer to increase speed of delivery and also mitigate shipping costs. We've got great automation that's going on in our mega centers to make sure that we're hitting the customer expectations on time of delivery and reducing package cost. So all that kind of modernized supply chain applies to whatever comes our way with digital business in the fourth quarter.”