In August of 2016, this blog’s parent, The Ferrari Consulting and Research Group, published a research advisory titled: The Beginning of a New Phase of Online and Omni-Channel Fulfillment for B2C and Retail Supply Chains. The prime takeaways from that advisory was that 2016 marked the beginning of the newest phase of B2C online retail fulfillment, namely the consequences of permanent changes in consumer shopping habits beginning to impact the long-term presence of brick and mortar retail and their supporting supply chain strategy frameworks.

In a commentary, earlier this week, we highlighted how the Amazon effect continued to make a profound presence over the past holiday fulfillment quarter.

Over a period of two days this week, significant announcements from well-known U.S. retailers, Macy’s, Kohl’s, and Sears, adds more evidence to the reality of a disrupted and quickly changing retail industry.


Yesterday, Macy’s again alerted investors to disappointing holiday sales indicating that comparable sales declined 2.1 percent in November and December and warned of even lower full-year earnings. The broad-based full line retailer announced a series of actions to streamline its retail store presence, intensify cost reduction efforts and execute a revised real-estate strategy.

Included is the closure of 68 retail stores, part of the 100 retail store closings previously announced in August 2016. Most of the store closures are expected in early 2017. The total retail store count for Macy’s was 730 stores prior to this week’s actions. The planned store closures will be accompanied by the reorganization of the retailer’s field structure that will manage remaining retail stores. An additional 3900 workers are expected to be displaced or reassigned because of such closures.

The retailer’s ongoing strategic real estate strategy calls for securing added value from existing store real-estate. Macy’s remains under pressure from activist investor Starboard to garner more cash from its real-estate holdings. To that end, this week’s announcement points to upwards of $95 million in cash proceeds already garnered from real-estate transactions involving stores. That is further validation of our conclusion that declining foot traffic makes the cost, service impact and financial value of the physical store the new determinant of long-term presence.

Additional actions initiated are elimination of current layers of management and other efforts to reduce non-payroll costs. Reports indicate that upwards of an additional 6200 employees will be impacted by job cuts, bringing the total impact from actions taken to upwards of 10,000 jobs.

These combined actions are expected to generate annual expense savings of $550 million beginning in 2017, enabling the retailer to invest an incremental $250 million in existing online retail platforms. Retiring Chairman and CEO Terry Lundgren indicated in the announcement: “Our omnichannel strategies continue to evolve based on the changes in our customers’ shopping behaviors, including a focus on buy online, pickup in store and mobile-enabled shopping. In addition, we have invested in and enlarged our customer data and analytics team, which will help drive our new marketing strategies for 2017.”

Sears Holdings

In a prior Supply Chain Matters blog posting in December, we questioned whether there was s more immediate financial crisis involving Sears after the sudden departure of two high-ranking executives and increased speculation among internal employees and suppliers that this retailer may soon file for bankruptcy.

Today, Sears Holdings announced that retail sales have continued to be challenging during the quarter to date. Same store sales at Sears and Kmart branded stores for the first two months of Q4 reportedly declined in the range of 12-13 percent, which is rather significant in the most critical sales period.

Hedge-fund manager and Sears Holdings Chairman Edward Lampert disclosed a series of actions to infuse an additional $1 billion of cash to revive operations and execute a revised strategy. The additional financing includes a $500 million loan secured by mortgages on 46 existing properties, a $300 million secured letter of credit, and a $200 million unsecured loan from Seritage Growth Properties, a real-estate trust that was previously spun-off that predominately consists of Sears and Kmart retail properties.

Sears Holdings further announced a series of additional strategic actions to increase its financial flexibility and improve long-term operating performance. The actions were billed to facilitate the transformation of Sears from a store-based, asset-intensive business model into a membership-focused, asset-light business model. Actions include:

  • Intentions to close an additional 108 Kmart and 42 Sears unprofitable stores over the next few months, as the holding firm looks to stem its operating losses. These retail stores collectively generated about $1.2 billion in sales over the past 12 months.
  • An agreement to sell the iconic Craftsman tools business for a cumulative $775 million, together with use of a perpetual license for the Craftsman brand, royalty free for 15 years, coupled with a 15-year royalty stream on all third-party Craftsman sales to new customers.
  • The formation of a special committee reporting to the Board of Directors tasked to market certain real estate properties with the goal of raising over $1 billion.

Industry watchers and this blog itself question how long Sears Holdings can continue to stem the tide of declining sales and the loyalty of consumers who now shop online.


Kohl’s Corporation today reported that its comparable sales decreased 2.1 percent in the fiscal months of November and December 2016 combined, compared with the prior year period. Total sales for the combined fiscal November and December period decreased 2.7 percent. The retailer further lowered prior guidance on earnings and margins as a result of the announced holiday sales declines. Kohl’s had already undertaken store closures in 2016.

As a consequence of today’s news, Kohl’s stock plummeted 19 percent to mark their biggest-ever one-day decline.


Our August Advisory outlined the tenets and impacts of the current new phase of an omni-channel driven retail business model. This week’s news, and similar type news to follow will add additional evidence as to the implications of an industry that is increasingly impacted by disruptive market forces that challenge prior strategy.  Consumer preferences and desires have permanently changed in retail, and online platforms and consumer loyalty programs such as that of Amazon are rapidly garnering consumer loyalty and dependence.

With the accelerating trend toward the closing on non-performing brick and mortar retail stores, supply chain strategy and tactics must now align around unified organizational leadership. Investments need to support capabilities geared to a digitally-driven retail customer fulfillment business model driven by demand-driven response vs. traditional merchandising linked to bulk store replenishment.

Today’s online world requires analytics-driven planning, agile marketing and multi-channel customer fulfillment capabilities, supported by advanced inventory management with flexible and adaptable logistics. The physical store is now the virtual store, merchandising is now about analytics-driven knowledge of customer needs, and inventory management is anchored in more sophisticated item-level planning and pooling algorithms.

The industry implications and trends are compelling as well as inescapable.

Bob Ferrari

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