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Against a backdrop of growth in digital sales, Macy’s announced that it will not spin off its ecommerce business into a separate company.
After facing pressure from an activist shareholder to spin out its digital business, Macy’s board of directors conducted a review of potential paths forward. Ultimately, it decided that an “integrated, omnichannel” Macy’s was the best path forward.
In making the decision, Macy’s cited “high separation costs and ongoing costs from operating separated businesses, as well as high execution risk for the business and the company’s customers.”
“We are more confident in our path forward as one integrated company. The Board’s review reaffirmed our conviction that we are pursuing a robust strategy, and it provided us with greater clarity on several initiatives that could be further accelerated to unlock additional value for our shareholders, which we are pursuing,” said Gennette. “Our team will continue our work to deliver an even bolder and brighter future for Macy’s, Inc. and all its stakeholders, including our shareholders, our colleagues and our customers.”
Macy’s began its review after activist shareholder Jana Holdings took a stake in Macy’s in October. CNBC reported at the time that Jana cited figures showing a digital business would be worth “a multiple” of its current business, which is valued at $7 billion. It would’ve followed fellow department store retailer Saks Fifth Avenue, which spun out Saks.com to form a $2 billion standalone company last year. Macy's even hired AlixPartners, the same firm used by Saks to conduct its fourth-month review. However, a move by Jana Holdings to cut its stake in Macy's last week preceded the latest announcement.
Macy’s will move forward by pursuing initiatives that “span digital, brand partners, private label, marketing and loyalty and the expansion of off-mall, small-format Market by Macy’s and Bloomie’s stores,” the company said. Macy's will also delay the further closure of its physical stores, with Genette citing changing consumer habits that could position the company's physical footprint to play a role in both online and IRL retail.
“Our stores are also fulfillment hubs supporting our digital operations through ‘buy online, pick up in store,’ curbside pickup and same day delivery,” he told analysts. “Keeping these cash positive stores open also helps us to fund the investments we're making to reposition our fleet over the next several years."
The company’s 2021 earnings reported Tuesday indicated the company’s digital sales increased 13% over 2020, 39% over 2019. Digital penetration was 35% of net sales, which was a 9% decline from 2020, but a 10% improvement over 2019.
When it comes to total sales, Macy’s beat Wall Street expectations to increase comparable sales 43% from 2020 and 3.1% from 2019. Notably, more than 70% of its sales were tied to its loyalty program for the fourth quarter.
The company has been in the midst of a transformation effort that began two years ago. This has included a shift to more ecommerce offerings as consumer shifts toward online retail were accelerated by the pandemic. In November, the company announced plans to launch a curated digital marketplace, powered by tech company Mirakl. It is expected to launch in the second half of 2022.
“Our team began the large-scale work of transforming Macy’s, Inc. two years ago when we launched the Polaris strategy, and today we believe the evidence is clear – our business is stronger, more agile, and financially healthier. We are more digitally led and customer centric and believe we are better positioned for long-term sustainable and profitable growth,” Gennette said. “Thanks to the hard work of our colleagues, successful execution of Polaris, and the strategic allocation of our capital, we believe we are well-positioned to successfully navigate the macro-economic headwinds we expect in 2022.”
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Microservices architecture allows the company to give retailers ownership over omnichannel software.
With the growth of digital commerce, providing consumer choice is at the center of all of a retailer’s operations.
In recent years, that became especially evident in the area of fulfillment.
Ecommerce made the process of moving an order into place for delivery a crucial function, as the ability to source products close to demand quickly was an imperative.
“Retailers are looking to own more of their fulfillment destiny because consumer expectations have increased,” Chap Achen, VP of product strategy and operations at Nextuple, told The Current on the floor of the NRF Big Show 2023. “Fulfillment is now a competitive weapon.”
As digital operations increasingly blend with the physical store, a host of new fulfillment options are coming online. They can have an item delivered from the store on the same day, or they pick it up. Even a wider offering such as in-store pickup has a host of different choices inside of it. Consumers can pick up an item at a counter, or a locker. They can stop by anytime, or schedule a pickup on Saturday.
While this optionality helps retailers meet customers where they are, it also adds complexity to the systems that run them, and requires operational adjustments to put them in place.
It means the software that powers fulfillment operations must also meet retailers where they are, Achen said. Many retailers have specific setups and processes. They may have a store located in a mall with a nearby distribution center, or a series of small storefronts. At the same time, retailers need to have flexibility with the software that they use so they can provide options to consumers.
For Nextuple, the vehicle to provide this is microservices, which describes a software architecture in which the parts of an application work independently, but are also built to work together. The company harnesses microservices to offer an ownership-centered approach to deploying its software through a product called Nextuple Fulfillment Studio.
“Today, there are only two ways to buy software: [software as a service] or custom building,” Achen said. “You can do it yourself or with a partner. We are a third option. We will help you accelerate your time to market because we've already developed 80% of your requirements, and then we'll give you that as source code.”
The software is composable. Retailers own the source code, and they can iterate. Along the way, they have the ability to swap out components of the software for pieces that enable them to better respond to the needs of customers, if they choose.
It shows how composable commerce is spreading throughout retail operations. A first wave of development applied the approach to the “front-end” of commerce, such as operating an ecommerce store and marketing. With fulfillment software such as Nextuple coming online, there are signs it is being applied to backend operations, as well.
In all, Nextuple offers 14 microservices as part of the Studio, including engines for same-day delivery, storage, inventory management and sourcing.
At the NRF Big Show, Nextuple announced that it is live with five national omnichannel retailers. Together, they have $50 billion in annual revenue and 7000 store locations.
The company is aiming to serve a group of retailers that are widely known, but still looking to hone operations for omnichannel retail. When it comes to fulfillment technology, the retail landscape has distinct tiers.
The largest players have built their own fulfillment tech to power logistics networks that reach across the country.
Name brand retailers with a national presence also want to offer competitive fulfillment, but haven’t made the move to acquire platforms or developed their own software in-house. Typically, they would seek out a software provider that offers a set platform on a subscription model. But the particular needs of commerce require software that powers physical operations with digital tools. That requires a different type of solution, Nextuple believes.
“We want to level the playing field,” Achen said. “We're helping the mid-tier [retailer] compete with Target, Amazon and Walmart.”