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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Nordstrom expands during the downturn

April 18, 2008

DISCUSSION TOPIC:  Is Now a Good Time for Retailers to Build?

TOPIC SUMMARY:

The economy is slumping and retailers, at least some, are still opening new store locations. Does that make sense and what will the push to open new units mean for retailers once the current downturn is history?

Nordstrom is among those opening new locations even as consumers curtail spending. The company plans to open eight locations this year including a new unit opening in Clinton Township, Mich. today.

Discussion questions:  Is now a good time for retailers to be looking to build new stores? Do economic slumps, particularly those that have hit the real estate market, represent an opportunity for retailers? Does the process for site selection change during economic slumps?

My post:

Retail has in general become an over-leveraged business, increasingly owned by private equity and other financial interests.  This model requires an ever-increasing store base fed by strong economic growth.  As long as the sales increase, private equity can flip their holdings every 3 years or so at increased multiples.  Other financial owners can leverage the value of their holdings into additional growth or to purchase additional assets.  

It all falls apart, however, during a persistent downtrend such as the one we’re experiencing now.  The lesson we learn from Nordstrom’s continued expansion strategy is that when a retailer can stay focused on driving financial success through excellent service to their core consumer vs. artificial leveraging, cash flow will always exist to take advantage of real estate expansion opportunities during economic downturns.

Mike Osorio, your Dare to be Contagious! TM strategist

www.OsorioGroup.com

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Go to the full discussion at RetailWire.com:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12899    

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