Retailers look to productivity, process improvements, automation to juggle supply chain, inflation, customer experience

Retailers are looking for efficiency and productivity gains to offset inflation and supply chain disruptions while preserving operating margins.

Earnings conference calls from the likes of Home Depot, Walmart and Macy's highlight the productivity tightrope retailers have to walk. Retailers want to make sure they have the right amount of inventory to account for supply chain disruptions and have to balance how much inflation to pass along to customers with their own cash flow.

Here's a tour of what retailers are saying about their productivity balancing act, supply chain transformation and continuous improvement.

Home Depot

Home Depot has been on a tear as sales have surged from $110.2 million in fiscal 2019 to $151.2 million for the fiscal year ending Jan. 30. Home Depot has invested heavily in a multichannel shopping experience that has paid off through the COVID-19 pandemic.

Richard McPhail, CFO of Home Depot, said the retailer is aiming for $200 billion in annual sales due to an expanding total addressable market of more than $900 billion. Speaking on the company’s fourth quarter earnings conference call, McPhail said Home Depot will refine its processes and "continue to optimize assets and capabilities to compete in a more disruptive way."

That optimization will be critical since inflation also remains a big issue. Edward Decker, President and Chief Operating Officer, at Home Depot said lumber prices are volatile. "In the fourth quarter alone, the pricing for framing lumber ranged from approximately $585 to over $1,200 per 1,000 board feet, an increase of more than 100%," said Decker.

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Home Depot executives also noted that the company is navigating cost increases in freight, transportation and logistics. Supply chain transformation has become a boardroom issue for most companies.

Decker said Home Depot is also building out its supply chain network, which will be connected to its overall fulfillment and store ecosystem and aim for faster and more reliable delivery options. In addition, Home Depot is focused on "the end-to-end cost and the value chain" as well as balancing what costs it absorbs to provide customers the best pricing, said Decker.

He added:

As we move forward towards this next phase of growth, we will remain focused on driving productivity, a long-standing hallmark of The Home Depot. Enabled by technology, we are focused on eliminating unnecessary tasks and making our processes more efficient while also making our shopping experience the best in home improvement. When I think about our stores, I think about the tremendous amount of productivity over the years, all of which helped us achieve over $600 in sales per retail square foot in 2021.

As we set our sights on our goal of $200 billion in sales, we have many opportunities to improve freight flow throughout the store and drive further space optimization and SKU productivity. The productivity initiatives don't reside solely in our stores. We see many opportunities across the business.

Macy's

Macy's CEO Jeff Gennette credited digital investments for the company's transformation into an omnichannel retailer. In addition, Macy's has created a central data science and analytics team to balance inventory, customer value and pricing.

Gennette said on Macy's fourth quarter earnings conference call:

In 2019, we had just created a new integrated team to reimagine our supply chain that previously segregated store and digital inventories and relied on a distribution network that lacked efficiency. Today, as a result of our investments, we have a more modern supply chain network that is agile, data-driven and increasingly automated. We've seen the results of this work pay off throughout 2021 from increased speed of delivery to operational efficiency and to better inventory utilization.

By leveraging data science throughout its operations, Gennette said Macy's is using analytics in every business. The goal is building "profitable lifetime customer relationships," he said.

Macy's CFO Adrian Mitchell said the company is also focused on reducing delivery expenses focusing on lowering split shipments and efficiency of in-store fulfillment. The company is also simplifying its technology architecture, said Mitchell.

The retailer's sales for the year ending Jan. 29 were $24.46 billion, up from $17.35 billion a year ago and flat relative to pre-COVID-19 pandemic levels.

Lowe's

Lowe's CEO Marvin Ellison said supply chain efficiency will win the retail market share. Speaking on Lowe's fourth quarter conference call, Ellison said:

We are aware that there are winners and losers in retail based on the efficiency of your supply chain. We are fortunate that we are one of the largest importers of containers. And we have great supplier relationships that the merchants continue to foster.

William Bolts, Lowe's executive vice president of merchandising, said the company worked early to ensure it has the inventory for its peak season. "Consistent with our approach over the past year, we have worked hard to land our spring product early. Through an expansion of our network of coastal holding facilities, we are better able to manage the flow of imported product enabling us to quickly flow product where needed as spring arrives across the country," said Bolts.

Walmart

Walmart CFO Brett Biggs said the company is looking to leverage its scale, automation capabilities and technology to continue to transform while keeping costs down for customers.

"We'll continue the multiyear journey of accelerated capital investment focused on increasing fulfillment capacity, automation and technology to enhance productivity," said Biggs on Walmart's fourth quarter earnings conference call.

CEO Doug McMillon said the retailing giant is more digital than ever and new businesses and models are transforming the company. "The headlines are the company is becoming more digital, it is starting to become more automated and over time, will become even more automated," he said.

Larry Dignan

Editor in Chief (former)

Larry Dignan is the former Editor in Chief of Celonis Media. Before joining Celonis, he was Editor in Chief of ZDNet and has covered the technology industry and transformation trends for more than two decades, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine.