Macy’s to Downsize Fulfillment Operations in $235M Cost Cut

Glenn Taylor
·4 min read

Macy’s Inc. is undergoing a consolidation of its logistics and distribution network as the department store aims to cut $100 million in expenses across the 2024 fiscal year.

In a fourth-quarter earnings call in February, Macy’s chief financial officer Adrian Mitchell said the retailer is looking to save roughly $235 million in supply chain-related costs by the end of 2026 as part of its “Bold New Chapter” initiative.

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The move is yet another form of downsizing for Macy’s as the Tony Spring era begins. During that same call, the department store also revealed it is closing 150 namesake stores over the next three years. And in January, the retailer cut 2,300 jobs, most of which were corporate employees.

Mitchell said in the call that Macy’s would consolidate fulfillment capacity by closing multiple distribution centers with higher processing costs. The CFO and COO also said the company would “monetize select assets,” suggesting a sale or sublease could be in the cards for parts of its industrial real estate.

Spring, sitting on his first call as Macy’s CEO, said the department store would monetize $600 million to $750 million in total assets related to the closure of the stores and distribution centers. Roughly $100 million of that value is estimated to be generated from the distribution centers.

However, Mitchell did not share specifics of what distribution centers, or how many, would be closing. A Macy’s representative told Sourcing Journal the retailer still has not disclosed any of the locations.

Macy’s currently operates 25 fulfillment centers across the U.S. Most recently, the retailer opened a new 908,000-square-foot distribution center in Tomball, Texas in September 2023, before leasing a 272,000-square-foot facility in Lathrop, Calif. in January.

Additionally, Macy’s is building a 1.4-million-square-foot fulfillment center in China Grove, N.C., which is expected to be completed by 2025. At the time the announcement was made in March 2022, the company said that building will account for nearly 30 percent of Macy’s total digital supply chain capacity once fully operational.

Macy’s has even brought its distribution capabilities to a handful of its stores, converting roughly 1 million square feet of space in 35 into “mini fulfillment centers” in late 2022. The semi-automated distribution centers were designed to save shipping costs, cut delivery times and reduce the need for split shipments.

Automation has further been incorporated into Macy’s logistics and warehousing capabilities since the early Covid-19 pandemic, when the retailer began shifting its distribution strategy to an omnichannel approach. The company initially had separate facilities dedicated to e-commerce and store fulfillment prior to 2020, when the retailer implemented its Polaris profitability strategy.

With the logistics network consolidation in play, Mitchell said Macy’s plans to further reduce fulfillment costs by increasing automation across several facilities.

“Our efforts should result in faster and more reliable deliveries, greater efficiencies, and a rightsized distribution center network,” Mitchell said. “The inventory planning and allocation changes underway should help improve how we flow products from vendors to customers. They should provide quick replenishment in stores and fulfillment centers, reduce split shipments and lead to higher in-stocks, particularly for best-selling items.”

Within select distribution centers in Portland, Tenn. and Martinsburg, W.V., Macy’s leverages automation technology from AutoStore, an automated storage and retrieval system (ASRS) where small robots navigate a grid-like structure to retrieve and store items in bins.

Unlike traditional warehouses where items are stacked on shelves and workers have to walk to all the pick locations to retrieve a product for a customer order, the robots retrieve the items for the Macy’s workers and deliver them straight to their station, where they can pack them for shipping.

Two of the AutoStore technologies Macy’s uses include robotic goods-to-person systems and pouch sorters, which are used for store replenishment and e-commerce fulfillment, depending on the size of the order. Both technologies can better enable Macy’s workers to pick directly into a bin or pouch that goes directly to a packer, accelerating the retailer’s inventory restocking and fulfillment processing time frames.

The automation technology is expected to be extended to the North Carolina fulfillment center that will open in 2025.

“Our new strategy gives us the opportunity to simplify and modernize our supply chain, planning and allocation and technology operations, which should drive improved inventory productivity and, ultimately, better sales,” Mitchell said in the earnings call.