How Macy’s ‘vendor direct’ model helps it compete against Amazon and eBay

Macy’s is taking a page from the Amazon playbook by letting third-party brands fulfill orders and ship directly to customers.

Through a program the company calls “vendor direct,” Macy’s can add and modify product selection based on what it knows about customers. Since it rolled out the feature on its e-commerce store in April, it has doubled the number of products available. While brands can ship directly to customers, they can also send them its more than 650 stores which double as delivery hubs.

“We curate for our customer through a highly edited assortment that is localized to a specific market, using our enhanced data and analytics, we are able to efficiently influence assortment down to the store level,” said CEO Jeff Gennette, in a call with investors Wednesday. Macy’s attributed its 3.3 percent same-store growth in part to vendor direct, a connective tissue enabling e-commerce powered by its store network, along with a mobile shopping experience.

The company is building out the program to appeal to online shoppers and draw customers to stores. A recent job posting for a vp of vendor direct said the program is expanding rapidly and is a top priority for the company’s enterprise growth strategy. It has similarities to third-party marketplaces from Walmart and J. Crew, but by keeping the products embedded within the Macy’s ecosystem, the retailer exerts control of over the end-to-end experience of the customer.

“It makes sense that Macy’s as a brand on their own can carry a lot of SKUs; they want to offer the right type of product assortment, and they won’t have to worry about warehousing and buying, and they can change the assortment in an agile way,” said Corey Pierson, co-founder of Custora, a predictive marketing analytics platform for online retailers.

By curating product selection based on data on purchase history and geography, Macy’s is able to enhance its direct relationship with the customers by keeping them within its platform instead of sending them to other marketplaces, he added. It will also help drive traffic to stores through in-store pickup, an important differentiator against online-only players.

Enhancing Macy’s product assortment online can also result in a marketing lift for Macy’s through search.

“Search is a huge acquisition channel; it can help funnel more shoppers to Macy’s digital storefront,” said eMarketer e-commerce and retail analyst Andrew Lipsman. “If you don’t have an expanded assortment, you lose those sales to Amazon and eBay.”

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Despite the flexibility and curation enabled by vendor direct, large retailers still need to tread carefully when letting third-party vendors fulfill orders. Empowering vendors to play a role in the customer relationship opens up the risk that the customer will go directly to them instead of through the retailer, said Griffin Carlborg, senior research associate at Gartner L2. In addition, if the vendor can’t meet shipping and service standards, the retailer’s credibility may suffer.

“It could come at a risk when the vendor is fulfilling items digitally and shipping directly to customers — vendors are responsible for the quality of the product shipped,” he said. “It’s going to be all about standards, the rules and relationships [Macy’s] develops with vendors to make sure they maintain the integrity of the customer experience.”

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