LOGISTICS February 8-11, 2009 Gaylord Texan Dallas, Texas. Title Sponsor :

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1 LOGISTICS 2009 February 8-11, 2009 Gaylord Texan Dallas, Texas Title Sponsor : 1

2 Managing Supply Chain Complexity: Direct-to-Consumer Logistics Kevin P. Hourican SVP of Logistics Direct-To-Consumer 2

3 Agenda Macy s direct overview Supply chain issues / challenges 1. How do we influence vendors when our requirements contradict the needs of our stores? 2. What should we stock in our DCs vs. outsource to vendors? 3. How do we support our company s sustainability initiatives without increasing operating expense?

4 Macy s Inc. Direct To Consumer Who we are Billions in sales Millions of unique customers Millions of discrete shipments Millions of opportunities to exceed expectations, or lose a customer

5 Macy s Fulfillment

6 Macy s Fulfillment The addition of our Nashville, TN DC increased speed of delivery to 27 states

7 Macy s Fulfillment The addition of our Phoenix, AZ facility provides competitive speed of delivery to all 50 states

8 Fulfillment Center Design Requirements Comments Industry leading tilt tray sorter (1 st of its kind in the US) 1. Product combinability (reduces transportation expense) 2. Speed & accuracy (UPC driven) Paperless picking Industry leading garment on hangar conveyance (1 st of its kind in the US) Best in class receiving automation Consumer Requirements Fast shipping Accurate shipping Gift services Easy returns Business Requirements Accurate & fast receiving Accurate inventory Enable sales growth 1. Storage capacity 2. Shipping capacity Bottom line: ours new DCs will solve critical issues that are important to our customers and our business partners

9 Goodyear, AZ First Customer Shipment = June 2008

10 Supply Chain Challenges How do we influence vendors when our D2C requirements contradict the needs of our stores? Background: 1. VICS and Macy s have partnered for years to improve vendor compliance to floor ready retail standards (packaging, ticketing, hangers, etc.) 2. D2C ready standards often contradict the needs of our stores Floor Ready Master pack assorted color / size Master pack poly bagging (towels) Open to hang (e.g., kid s apparel) Price ticketing D2C Ready Single UPC per inbound carton Individual unit poly bagging Flat, not hanging, storage No price ticketing Visible UPC a requirement (E.g., Men s shirts) 3. D2C volume (as a % of company total) does not motivate vendors to change Potential Solutions / Mitigating Actions 1. Identify least cost location for creating D2C ready packaging (Asia vs. retailer DC) 2. Partner with other retailers to create critical mass production volume 3. Partner with strategic vendors to change the paradigm 4. Create win/win and implement

11 Supply Chain Challenges What should we stock in our DC vs. outsource to vendors or 3 rd parties? Background 1. Multi-channel apparel retails actively sell > 100,000 unique SKUs 2. The direct channel is an excellent vehicle for small store support (size extension) 3. Storage capacity is most often our critical dimension at peak/holiday (vs. throughput) 4. SKU stratification (A/B/C) is difficult in a fashion business (get in, get out model) 5. Vendors have limited capability to ship direct to customer at our standard of performance 6. Visibility to order status is limited or less than internal monitoring 7. Inventory availability in a multi-partner DC can be a challenge 8. Problem: we cannot keep building DCs to support our business growth! Potential Solutions / Mitigating Actions 1. Single stock slower movers (vs. regional fulfillment) 2. 3 rd party fulfill specialty categories (e.g., toys) 3. Reserve peak through 3 rd party space (mitigate the five week crunch) 4. Improve visibility to 3 rd party fulfilled orders (order management hub ) 5. A hybrid model is most likely the best solution

12 LOGISTICS 2009 February 8-11, 2009 Gaylord Texan Dallas, Texas Title Sponsor : 1

13 Marie Lacertosa SVP, Director of Supply Chain Management

14 About JCPenney Operates 1,093 department stores One of the largest apparel and home furnishing sites on the internet; JCP.com Nation s largest general merchandise catalog business Integrated channels; wide array of national, private, and exclusive brands Revenue of $19.9 billion in 2007 Every Day Matters brand positioning 3

15 About JCP.com JCPenney s largest, most dynamic store Offers largest assortment in sizes, colors and year round product categories JCP.com is one of the largest general merchandise sites on the internet Hub of JCPenney s multi-channel strategy 3 integrated shopping channels: Stores JCP.com Catalog Provides an array of information on more than 250,000 exciting merchandise offerings through online solution pages 4

16 About JCP.com Orders shipped to customers home Orders ship-to-store 1400 store/catalog desks Gift wrap Easy returns to stores with immediate refund - 91% of our customers select this option Easy return to Logistics Centers via customers choice of shipping Prepaid shipping provided to customer if return due to JCP error 5

17 JCP.com Logistics Infrastructure 4 Logistics Centers Manchester, CT Columbus, OH Lenexa, KS Reno, NV 6

18 Logistics Center Infrastructure 4 centers totaling 7.0M + square feet. A typical Direct Logistics Center covers 45 acres or more than 35 football fields It s a 1.5 mile walk around the outside of the building Inventory over 300,000 unique SKUs Pack and ship over 200,000 units per day Annually ship 27 million packages to customers homes Annually 160,000 packages to stores for customer pickup 7

19 Logistics Center Infrastructure Over 8 miles of conveyor and 8 miles of hanging garment piping 4 sortation systems that sort individual units and cartons 150 pieces of mobile equipment Over 80% of all waste from the facility is recycled 8

20 Logistics Challenge Built Network for Ship to Store Challenge Yesterday 8 years ago 70% of orders shipped to stores Stores received daily shipments Used 1 carrier for home delivery Today Currently 75% of orders shipped to home Stores receive shipments 2-3 times a week Use multiple home delivery carriers 9

21 Logistics Challenge Built Network for Ship to Store Enable Home Delivery Infrastructure Perspective Modified flow to shipping to utilize automated equipment to support multiple carriers Sort equipment provides additional options for sortation requirements Transportation Perspective Able to support multiple carriers with equipment designed to support single carrier Must be able to provide transportation choices to customers to remain competitive Support free shipping marketing initiatives efficiently and at the lowest transportation cost 10

22 Transportation Offer Customer Shipping Choices Pick up at store ( 25% of orders) Day specific that customer can pick up at store Utilize network of carriers delivering on a schedule to stores. (over 99% on time) Ship to home or office (75% of orders) Promised delivery window (over 98% on time) Need it faster Expedited next day or 2 day delivery 11

23 Enhancements JCP.com Screenbusters Exciting items on-line affordable prices Enhanced Home Page Shows customers how to save on-line or in-store Customer-Review Customers share experience Enhance Product Images and Information Product gallery and quick view features Check Store Availability of Merchandise In-store only or/and on-line Weekly On-Line Video Gift ideas and trends Weekly Sales Circulars Browse weekly deals E-Gift Cards 12

24 JCP.com As the hub of our enterprise, jcp.com has become an important vehicle for engaging our customers with the JCPenney brand. We continue to build a leading multi-channel experience that makes shopping JCPenney easier and more exciting for our customers. Mike Boylson, Chief Marketing Office JCPenney, Company 13