How Macy’s "P2LU" Program Revolutionizes Inventory Management
"Accurate inventory is the single thing retailers have got to get right for everything else to work."
So said Bill Hardgrave, professor at Auburn University at the National Retail Federation (NRF) conference in January last year. And he’s right. Ever since shoppers began to buy across multiple channels, the whole inventory management process became a lot more complicated.
The omnichannel imperative dictates that shoppers should be able to buy anywhere, and stores should be able to fulfill anywhere – and the whole process to be made as seamless and as faultless as possible.
However, in order to deliver this true omnichannel experience for customers, retailers are faced with the task of having complete vision and control over their inventory at any given time. But, ensuring that there is complete transparency across multiple channels is no mean feat. It means retailers seeing their entire inventory as one complete stock pool, as opposed to separate stock levels scattered across different channels. Without this, Hardgrave says, the entire digital effort behind omnichannel initiatives is wasted – unless retailers know exactly where stock is in real-time.
Macy’s Leads the Way with Inventory Management Technology
It’s no secret that Macy’s is one of the true market leaders in terms of omnichannel – and this is a feat that the retailer has achieved in no small part thanks to its innovations in inventory management.
Indeed, according to Terry Lundgren, CEO of Macy’s Inc., omnichannel is in fact all about “inventory optimization through technology”. In order for omnichannel experiences to be successfully delivered, the basic principles that form the foundations of any bricks-and-mortar store – i.e. providing an inventory of products that a shopper can browse and purchase – need to be expanded so that the same experience is made possible across multiple interconnected channels. It is only through the utilization of appropriate technology that this can be achieved.
Macy’s has long realized this important fact, and, through an initiative that involves the employment of radio frequency identification (RFID) technology, is now selling products down to the final unit in stock at its stores.
Pick to the Last Unit
Macy’s has named the program Pick to the Last Unit (P2LU). It enables omnichannel fulfilment of consumer purchases right down to the very last unit of in-store merchandise. This means that the retailer is able to list products for sale on its website even when there is only one such item available at the store.
This is a huge improvement upon what Macy’s was able to achieve in the past. Before the launch of P2LU, inventory counts were simply not accurate enough to ensure that individual units were actually in-stock and therefore available for sale. However, through the use of the RFID technology, Macy’s says that inventory counts are now so precise that the retailer knows with certainty exactly what products it has available in real-time, and can thus advertise them for sale (at full price) across any channel until the very last unit is sold.
Reducing Risk While Increasing Sales
With this level of inventory accuracy and visibility, Macy’s is able to provide a better customer experience and increase sales of products that would otherwise be destined for the sales-rail. Typically, when products are sold down to the last one or two items, retailers will remove them from online purchasing – due to a lack of confidence in inventory accuracy and ability to locate such items in stores – and will put them on a sales rack at a reduced price.
“About 15% to 20% of inventory is accounted for by the last unit in the store,” says Peter Longo, President of Logistics and Operations at Macy’s. “It’s a massive amount of budget, either marked down or not sold, and it is curable through RFID.”
The RFID system used by Macy’s is provided by Tyco Retail Solutions. The P2LU program makes available the last unit of an item in any store, and Tyco’s RFID locates it. This change to inventory management to support Macy’s omnichannel strategy has enabled the retailer to reduce $1 billion worth of inventory from its stores. According to Tyco, fulfilment sales are up significantly, and markdowns on items have also been improved upon. And the result is that Macy’s now has the confidence to fulfil customer demand across multiple channels even if only a single item is left in stock.
In addition to sales lift and reduced rate of markdowns, this leveraging of single unit inventory means that Macy’s has also been able to reduce inventory costs by lowering interim inventory requirements by one-third. The last word goes to Nancy Chisholm, President, Tyco Retail Solutions.
“Macy’s is a great example of how item-level RFID bolsters inventory optimization and opens up a world of possibilities for omnichannel fulfillment success. By utilizing our unique RFID Inventory Visibility offering, Macy’s has a complete view of enterprise-wide inventory to satisfy customer demand and achieve their ‘buy anywhere, fulfill anywhere’ vision. It not only allows them to enhance the overall customer experience, but also to maximize revenue opportunities from omnichannel programs.”