Nordstrom Doing More With Less – 4/3/09
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?
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
What do you think? Please add your comments and add to the discussion!
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