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Macy's teams up with Google to help run its warehouses

Key Points
  • One way Macy's is trying to improve its business stems from the work it's doing on the back end, at its more than a dozen fulfillment centers.
  • It's joining Google's Cloud platform made for retailers.
Shoppers at a Macy's department store
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One way Macy's is trying to improve its business stems from the work it's doing on the back end, at its more than a dozen fulfillment centers.

CEO Jeff Gennette briefly mentioned during a post-earnings call with analysts on Wednesday that Macy's had started working with Google to power its new Macy's Backstage distribution center in Columbus, Ohio, which officially opens on Thursday. He said the Google Cloud platform will allow Macy's "efficiency, speed [and] scale." The Google Cloud platform is going to be rolled out to all other Macy's distribution centers next year, he said.

Macy's has six so-called mega centers in the U.S., fulfilling customers' online orders directly to their homes, and then 16 fulfillment centers servicing its stores.

Google is already helping to power the supply chains of other retailers including Kohl's, Home Depot and Target. At the core, Google assists with managing merchandise and keeping items in stock, while ensuring deliveries arrive on time. It uses data analytics and other algorithms it's created to do this.

"This is a muscle we are building," Naveen Krishna, Macy's chief technology officer, said in an interview. "We can then extend this to other parts of Macy's ... not just the supply chain." The total cost to Macy's to manage the software in its distribution centers will also be going down, he said. "This is solving a key problem for us."

When it reported fiscal second-quarter earnings on Wednesday, missing analysts' expectations, Macy's said its inventories were about flat at the end of the quarter, as it's been working toward improving the amount of excess merchandise left sitting in warehouses, or unsold goods in stores. It said online sales were again up double digits.

Thomas Kurian, CEO of Google Cloud, explained in an interview that its Cloud platform will help Macy's fulfill more online orders from its stores, and also figure out how to better ship bulky items like furniture – some of the key challenges the department store chain has been trying to work around.

Kurian's team announced its new Google Cloud for retailers earlier this year, as part of its own bid to take on Amazon. He said the platform will help manage peak traffic around Black Friday, as one example, and keeps a real-time tab on inventories and stocks in stores.

Time will tell if Macy's move to Google's Cloud platform pays off and starts to show up in its results.

"We're collectively learning how we [can] get more nimble," Macy's Krishna said. "We will get better ... the software will get better." And it will lead to "higher performance."

Macy's shares, valued at $5.19 billion, closed Wednesday down more than 13%. Earlier in the day, the shares hit a low of $15.82, a level not seen since February 2010.

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