Macy's warehouse at the mall

If you order something on-line, where do you think it ships from? If you’re ordering from Macy’s, the answer may be the local mall. The Wall Street Journal reports that Macy’s is planning to dedicate space in over 200 stores to picking and packing orders to ship to customers’ homes (Macy’s Regroups in Warehouse Wars, May 14).

The retailer plans to convert 292 of its 800-plus stores for the task, with expanded storerooms and new technology that dynamically updates the status of every item in every store. The goal is to better manage inventory.

For instance, if stores have too much of an item, the excess can be shifted to the website, where it might be selling better and at full price. Likewise, out-of-stock items won’t disappear from Macy’s website if they can be found in a physical store. Online orders will be filled by stores closest to consumers, saving time and money on shipping.

Before it started shipping from stores, Macys.com removed thousands of sold-out items from its website each week, Mr. Sachse said. When the chain carried a limited-time line from Chanel creative director Karl Lagerfeld last year, half the online inventory sold out in the first day, yet Macy’s stores had to discount the collection to get it sold, he said. If Macy’s had been able at the time to meet online demand with Lagerfeld items shipped from its stores, he said, sales would have been much better.

In the video below, the reporter gives more details.

So a couple of points are worth making here. First, Nordstrom got to this idea before Macy’s. (See here.) Nordstrom’s experience shows, not too surprisingly, that savings from sending stuff from the closest store ain’t where the real action is at. What really matters is making better use of the available inventory and selling more items at full price.

“We’re able to sell more without having to buy more inventory,” said Jamie Nordstrom, president of Nordstrom’s online operation. Mr. Nordstrom said shipping from stores has cut the level of markdowns and improved margins, and has sped up the rate the rate at which the chain turns over its inventory.

Second, the article describes the challenges of fulfilling orders from a store. It is distinctly more challenging to find the right style in the right color and in the right size out on the store floor as opposed to in a warehouse. The labor cost to pick and pack have to swamp whatever shipping savings are. Said another way, without better overall inventory management, this idea is dead in the water.

Finally, here is the most surprising part of the article: They are shipping lots of stuff.

Both opportunity and cost were on display at Macy’s high-end Garden State Plaza location in Paramus, New Jersey. In the store’s back recesses, Macy’s converted an area where it once took telephone orders into a dimly-lit, makeshift packing area. There employees packed handbags, kitchen appliances and shoes into cardboard Macy’s boxes. By noon or so, employees filled some 400 boxes, which were then put into plastic bags awaiting afternoon pickup.

By 2:30 p.m. 100 more orders had come to the store, totaling $5,091 in sales. Danya El Zein, director of store fulfillment, scoured the sales floor for a white Michael Kors purse for a customer in Bowie, Md., and a Fossil wallet for a customer in California.

This scale is certainly more than I would have guessed. Admittedly, they have yet to get all 292 stores set up for order fulfillment, so the folks in Paramus might become less busy as other stores come on board. Still, even if they continue to ship a few hundred items a day, that will take several people to pull off.