Macy’s Cuts Costs After Hammering Out Carrier Deals

Renegotiating carrier contracts in the second quarter helped Macy’s secure better rates and trim delivery expenses.

According to Macy’s chief financial officer Adrian Mitchell, the company reported a 0.5 percent decrease in delivery costs from a year ago, when they accounted for 4.5 percent of total net sales.

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The department store chain delivers orders with UPS and the U.S. Postal Service, but didn’t specify which contracts it adjusted. The news came as FedEx raised 2024 rates and peak season fees. UPS hasn’t announced any rate hikes yet, but they’re often on par with its biggest rival

“Delivery expense has been a part of some of the cost-savings initiatives that we’ve thought about, which impacts the combination of the placement of our goods within our system and also how we think about the processing of our delivery,” Mitchell told Wall Street analysts last month. “It continues to be an opportunity for us. We continue to benefit from some of the renegotiated terms with regards to our carrier expenses.”

Mitchell has been vocal about cutting delivery costs after the expense equaled 5.9 percent of net sales. Macy’s is trying a few different tactics like sending fewer split shipments and making in-store fulfillment more efficient, with a special focus on improving order throughput per labor hour.

Macy’s delivery cost cuts come as more retailers are feeling the benefits of declining freight rates from last year, with the department store also experiencing improvements in inbound container costs. As of Aug. 31, the Drewry World Container Index (WCI) of $1,739.59 per 40-foot container is down 69 percent from the $5,661.69 per container last year, and 83 percent below the peak of $10,477 reached in September 2021.

On a weekly basis, the composite index has fallen by 1.6 percent from $1,768.33, the second week in a row the index dropped after rising for six straight weeks.

Despite the positive trends, Drewry doesn’t think shippers should lock in long-term rates just yet.

Tommy Hilfiger and Calvin Klein owner PVH Corp. said ocean freight rates are less than half of what they were a year ago and spent “significantly” less on air freight in the quarter. It expects favorable freight rates to improve this year’s gross margin versus 2022.

The apparel giant used “virtually no air freight” in the period, continuing the first quarter trend.

PVH made “significant progress with our delivery times, now shorter than pre-pandemic levels,” according to CEO Stefan Larsson.

Lululemon also saw healthier supply chain costs improve profits. It reported $1.3 billion in second quarter gross profit, or 58.8 percent of net revenue. This was 2.3 percent better than last year’s comparable quarter, thanks to 3.3 percent product margin increase from better freight costs.

Lululemon forecasts a full-year gross margin increase between 1.9 and 2.1 percentage points versus 2022. Lower air freight expenses, which should decline approximately 210 basis points (2.1 percentage points) for the full-year, are behind the outlook.

Meghan Frank, the yogawear seller’s chief financial officer (CFO), told investors that lower air freight costs helped cut inventory more than the chain expected. The retailer thought it would have 20 percent more inventory than 2022, but reported just a 14 percent increase, or $1.66 billion.

Freight tailwinds also materialized for Academy Sports + Outdoors and improved its gross margin.

The sporting goods retailer is working toward a 1 percent adjusted EBIT margin improvement from supply chain operations.

“We intend to do this by increasing our unit productivity, leveraging existing distribution capacity, lowering our e-commerce fulfillment costs, decreasing lead times and leveraging transportation costs,” said president Michael Mullican during a recent earnings call. “We are also taking other steps to improve supply chain logistics and productivity by implementing consistent processes and procedures, increasing cross-stocking and multi-store deliveries, and investing in technology to improve visibility of product flow.”

Academy is switching over to Manhattan Associates‘ warehouse management system and expects one of its distribution centers to be live on new system next year.

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