Macy's Takes a Page From Amazon's Playbook

Guess which retailer just broke ground on a new $170 million fulfillment facility?

May 28, 2014 at 12:27PM

If you heard that a well-known retailer had just opened a brand new state of the art fulfillment facility, you might be tempted to think that this facility was owned by top online retailer (NASDAQ:AMZN) -- but you would be wrong. In fact, the $170 million facility is being constructed by none other than department store retailer Macy's (NYSE:M). Recently, Macy's broke ground on this facility in Owasso,Oklahoma. This not only has ramifications for Macy's, but for retail in general as retailers adapt to the increasing importance of e-commerce.

Stores may become a thing of the past
This move represents a major shift in how Macy's business works. For almost its entire history, Macy's has been a simple department store. However, this has changed over the last decade as the Internet provides more avenues for announcing promotions and further increasing sales. In addition, the benefits of growing the top and bottom lines by adding more stores are becoming increasingly smaller. Just look at Macy's store counts over the last three years:


FY 2010

FY 2011

FY 2012

FY 2013

Total Store Count





It is no doubt a surprise to many readers that Macy's store count has actually shrunk since 2010. It seems that J.C. Penney (NYSE:JCP) and Sears Holdings (NASDAQ:SHLD) aren't the only department stores that are shutting down locations. However, as you can see from the table below Macy's is doing this from a position of strength:


Est. Sales Growth FY 2013

Sales Growth FY 2012

Sales Growth FY 2011

Sales Growth FY 2010

J.C. Penney










Sears Holdings





Of these three national department store chains, Macy's is the only one that is currently profitable and has the highest growth rate. This has all been done without increasing its store count. Clearly, the company's management sees more opportunity in opening large fulfillment centers for more efficient product distribution than it does in opening new stores. Instead of opening new stores, the retailer is opening a massive fulfillment center as part of its e-commerce focused omnichannel plan. According to its latest 10-K annual filing:

The Company's omnichannel strategy allows customers to shop seamlessly in stores and online, via computers or mobile devices. A pivotal part of the omnichannel strategy is the Company's ability to allow associates in any store to sell a product that may be unavailable locally by selecting merchandise from other stores or online fulfillment centers for shipment to the customer's door. Likewise, the Company's online fulfillment centers can draw on store inventories nationwide to fill orders that originate online, via computers or mobile devices. As of February 1, 2014, 500 Macy's stores were fulfilling orders from other stores and/or online, as compared to 292 Macy's stores as of February 2, 2013. During fiscal 2014, nearly all Macy's stores are expected to be fulfilling orders from other stores and/or online. Also in 2014, nearly all stores are expected to be fulfilling orders for pick-up related to online purchases.  

Long-term shopping trends
The reason retailers are choosing not to open more stores is simple -- e-commerce and online shopping is where society is headed. There will always be a need for physical stores, but what if they don't have a particular clothing item in your size? What if you know exactly what you want and don't need to try it out? This is where the company's fulfillment centers will come in handy. This is also exactly why Amazon has been so successful over the years. Total Revenue:





Total Revenue

$48.08 billion

$61.09 billion

$74.45 billion

As you can see from the table above, Amazon's sales have continued to increase strongly and steadily over the last few years thanks to consumer trends playing in its favor as well as its success in managing its fulfillment centers. Amazon is aware that in the world of e-commerce, its fulfillment centers are a big key to its profit gains. Its annual report even has a legal disclaimer to that effect which states the following:

If We Do Not Successfully Optimize and Operate Our Fulfillment Centers, Our Business Could Be Harmed.

If we do not adequately predict customer demand or otherwise optimize and operate our fulfillment centers successfully, it could result in excess or insufficient inventory or fulfillment capacity, result in increased costs, impairment charges, or both, or harm our business in other ways. A failure to optimize inventory will increase our net shipping cost by requiring long-zone or partial shipments. Orders from several of our websites are fulfilled primarily from a single location, and we have only a limited ability to reroute orders to third parties for drop-shipping. 

Foolish takeaway
This fulfillment center marks a great move by Macy's and shows why it is ahead of other traditional department stores. It may not seem like a big deal now, but as Americans shop more and more online they will be doing it through the likes of Macy's and Amazon. Given its latest move to further its ability to fulfill customer orders online and quickly get needed inventory to its physical stores, Macy's is worth a closer look by Foolish investors looking for a strong retailer that will continue growing in the future thanks to its investments in e-commerce. 

Leaked: Apple's next smart device (warning, it may shock you)
Apple recent recruited a secret-development Dream Team to guarantee their newest smart device was kept hidden from the public for as long as possible. But the secret is out...and some early viewers are even claiming its everyday impact could trump the iPod, iPhone, AND the iPad. In fact, ABI Research predicts 485 million of these type of devices will be sold per year. But one small company makes this gadget possible. And their stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers