Macy’s is opening e-commerce distribution centers inside stores

Macy’s (NYSE: M) said its digital business was trending to 33% of total sales this year, up from 25% in 2019 but down from the pandemic high of 40%. Increased online sales is leading to higher shipping costs, spurring the company to implement the mini-DC approach.

“When you look at the inventory allocation, we’ve got a lot of our inventory that is forward deployed,” said CEO Jeff Gennette. “These 35 mini-DCs that Adrian spoke of, it’s about 1 million square feet of supply chain we didn’t have last year.”

Delivery expenses accounted for 4.3% of net sales, the company said, with higher fuel prices offsetting a reduction in delivery cost per package.

“The investments we’re making in our supply chain, both upstream and downstream, and our focus on simplifying our processes and modernizing our technology, are further enhancing our [ability] to move product to our customers faster while driving greater supply chain cost efficiencies,” Mitchell said.

Gennette noted that Macy’s has expanded its Market by Macy’s locations, first introduced in February 2020. These stores are smaller, between 25,000 and 50,000 square feet, than the current Macy’s model, which runs about 185,000 square feet. There are eight Market by Macy’s locations. A similar effort is being conducted at Macy’s business Bloomingdale’s, where those locations have been met with customer satisfaction.

Gennette said the company is exploring locations where a full-scale store doesn’t make sense but a strong digital presence is evident. The goal is to ensure the customer can get the items they want the way they want.

“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,” Gennette said. “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.”