Inventory Control at Nordstrom

April 10, 2009

DISCUSSION TOPIC

Nordstrom Doing More With Less 4/3/09

TOPIC SUMMARY:

Nordstrom is all about inventory reduction. Okay, maybe not all, but as a Bloomberg report points out, the company has made a concentrated effort going back to 2000 to reduce its inventory levels. Based on the same report, Nordstrom has been successful in its endeavors, cutting days of supply to 62 days on average versus competitors such as Macy’s (119 days) and Saks (140 days).

“If Nordstrom were a car, it would be a hybrid Cadillac Escalade that gets 20 miles per gallon instead of the normal 12,” Patricia Edwards, founder of the research firm Storehouse Partners, told Bloomberg.

“Nordstrom’s investment to drive sales is lower,” said Liz Dunn, an analyst with Thomas Weisel Partners. “They are doing more with less.”

Nordstrom is also not hanging on to merchandise that won’t sell at department store rates. Instead the company looks to move the items to its Nordstrom Rack discount outlets.

“If we can identify what is not performing and move it out to bring in fresh merchandise, that’s a decision we want to make,” Peter Nordstrom, president of merchandising, told Bloomberg.

Discussion questions:  Is inventory management a greater piece of the success puzzle now than it has been in the past? What is your take on the Nordstrom approach to the challenge? Where do you see further opportunities for Nordstrom and others to get better control over the goods sold in their stores?

My post: 

Particularly in the context of American retail, Nordstrom’s ability to manage down its inventory levels over the years is impressive.  It starts with the Nordstrom senior management’s focus on inventory control as a driver of profit growth via lower inventory carrying costs and avoiding restrictive credit covenants.  With great systems, combined with an unusually talented buying and product sourcing group, Nordstrom continues to increase sales with less inventory.  Most department stores lack the focus and the tools to manage inventory effectively.  Plus, many “bought” gross margin by agreeing to ever-growing buy commitments from suppliers in exchange for season-saving margin checks.  The result is an ever-growing hangover of unsaleable merchandise sitting in stores and clearance outlets.  This is one of the reasons others have succumbed bankruptcies and liquidation.  Nordstrom has the right formula and it can be learned and implemented elsewhere.

Mike Osorio, your Dare to be Contagious! TM strategist

www.OsorioGroup.com

What do you think?  Please add your comments and add to the discussion!

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Go to the full discussion at RetailWire.com:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13667

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Is ‘Martha Fatigue’ Possible at Macy’s?

January 29, 2008

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Destination: Wedding – Martha Stewart Collection with Wedgwood Launches in Macy’s Stores – 1/29/08

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For those who love all things Martha Stewart, you will be thrilled to know that she has partnered with Macy’s and Wedgwood to bring Martha-branded china, crystal & flatware to a Macy’s near you (and online).  From this morning’s press release:

NEW YORK–(BUSINESS WIRE)–Jan. 29, 2008–Shopping for those special items to last a lifetime will be a little easier for nuptial-bound couples this spring with the launch of the Martha Stewart Collection with Wedgwood exclusively at Macy’s. This new tabletop line, featuring 10 fine bone china patterns, six crystal stemware patterns, and six stainless steel flatware patterns, is now available at Macy’s (NYSE:M) stores, macys.com and macysweddingchannel.com. 

“I have always been an avid collector of fine china, crystal and silver, and my personal collection includes many Wedgwood pieces I am very proud to own. Our line with Wedgwood offers a range of beautiful and timeless pieces that can be collected and enjoyed for years to come,” said Martha Stewart, Founder of MSLO. 

I absolutely applaud Macy’s strategy of negotiating exclusives with mass-appeal designers like Martha Stewart and Tommy Hilfiger, to name just two.  Target has certainly shown us the power of the excusive deals which positioned them as relevant arbiters of trends – even in a discount environment.  Of course, Macy’s is not Target and is supposedly courting an aspirational customer, including those who may now be shopping at Target.

Macy’s is seeking to make department stores relevant again and this is one of many well-considered strategies they are employing, as well as effectively positioning their own brands (INC, Hotel Collection, etc.), improving the store environment, etc.  

Here’s my question:  Will the consumer (particularly the aspirational customer) ever tire of the next great Martha collection?  

I was shopping in my local Macy’s in December.  I was amazed by the percent of the housewares department devoted to the Martha Stewart Collection.  I did think the Collection was quite good – nice product, effective packaging, good value and quality.  I noticed also the nice chunk of real estate in bedding and furniture devoted to the exclusive Martha products.  And now, the table top department will likely carve out an equally impressive space for the Martha/Wedgwood product.  

My concern is that like anything that seems to be working, stores often find a way to beat it to death. In this case by devoting potentially too much space and crowding out and marginalizing other options. 

The whole idea of “exclusive” in aspirational product includes some level of scarcity.  No scarcity here – you and your entire neighborhood can have the same products in your kitchen (and bath and more).  The mass customer doesn’t mind as much, but the aspirational customers (which Macy’s is trying to court) do care.  They want to feel like what they buy for their homes is a signature of their taste and personality.  Make it look too huge, and this customer will look elsewhere for her kitchen gadget, saucepan, bedding, or china.

A second point particular to the housewares product was that the brand image presented here through packaging, signing and presentation clearly screamed “gift”.  This might help explain the size of the presentation in December, but it makes me concerned for February and beyond.  This gift-oriented packaging and presentation will not play well to customers wanting to pick up a new sauce pan for themselves.

Please, Macy’s.  As you score more of these incredible exclusive deals (i.e. the recent Tommy Hilfiger coup), keep your aspirational customer in mind.  We want the products – but we want them to feel special.  Don’t overdo the presentation or the marketing. 

Mike Osorio, your Dare to be Contagious! ™ strategist

www.OsorioGroup.com

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