About Nordstrom..

• 1901- started as a small shoe store in

Seattle

• With a Motto- “ offering quality,

value for money merchandise and

better customer service even

though there is stiff competition”

• From shoes to apparel to specialty

stores…

• 1985- largest specialty retailer in the

US

• Facconable- chain of fashion

boutiques

• Nordstrom Bank and Nordstrom

Rack

• 1991- $115 million sales profit

About the case…• Shareholder’s return and net profits

start declining• Board Meeting Chaos• Scaling Down growth plans

• The problem???

“Reluctance in adopting a proper

inventory

management system”

• More problems– Tussle with employee unions– Allegations of malpractice– Incompetent management in handling

the dynamic retailing industry

What is Inventory management???

• Inventaire- a detailed list of

goods• The single largest asset in many

retail and wholesale operations

• “When the customer spends, you

have got to be ready with the

goods”.

• Inventory Control and

Management

• Few questions…

• Key Terminologies

Perpetual Inventory Management

• Continuous real-time tracking of

quantities of a product

• Exact inventory status!! At any given

time!!

• Integral aspect of the ‘Q’ system of

Inventory management

• Perpetual V/s Physical Count

• Perpetual Inventory Modules

Back to Nordstrom - sliding down…

1990s- Nordstrom’s “ superior

customer service” got outdated in

the 2000s

Reluctance to invest in Inventory

Management

Lacked the tools to support

inventory management and pipeline

management

Operations personnel unaware of

inventory details

No pacing with changing dynamics

of retail industry

And the slide continues…

Over confidence on “Nordstrom image”

Decentralized- Key decisions to low-

rung employees

To avoid customer disappointment- huge

inventory

Huge holding cost, inventory carrying

cost

Loosing customer base

Wrong strategy at the wrong time

“Reinvent yourself”

Realizing the mistakes… Withdrew the wrong marketing initiative

called " Reinvent Yourself“

Made large scale changes in the top

management

Importance of INVENTORY MANAGEGMENT

Shift to Perpetual inventory-react to changes

in fashion

Focus shifts to 3 core activities—

Drive top line growth

complete system upgrades

reduce expenses

IN SHORT ENHANCING OPERATIONAL

EFFICIENCIES.

Corrective Measures..• Productivity to be increased by—

– Inventory Management– Inventory Allocation– In-stock Position– System Leverage– Expenses Leverage

• Training on the New Inventory System- Mandatory• MONTHLY RECORDS OF

– Sales and Gross Margins– Inventory Quality and Efficiency– SCM– Labour Savings

The Nordstrom revival…

Initial glitches

Declining profits

Fall in share prices

Customer service!!!!

Severe Competition

BUT!! The new inventory system was

showing its results…

Improved MERCHANDISE tracking

“ Back-on-track” strategies

BENEFITS OF PEPETUEL INVENTORY MANAGEMENT SYSTEM

More time for Merchandise Buyers to plan.

Planning regarding Discounts and Markdown.

Reduction in time required to attend the

Customers.

Information about availability of goods was

faster.

Reduction in Inventory Cost.

AFTER EFFECTS

Increase in 2nd Quarter Profit from $36.3

Million in 2002 to $65.9 Million in 2003.

Sales per square foot increased from $319

in 2002 to $325 in 2003.

Net Income: $242.8 Million in 2003

Revenue: $6.4 Billion

Ranked No.1 by Fortune in 2005 in General

Merchandise Category.

Thank You….

FISCAL YEAR 2007 2006 2005 2004 2003

OPEARATIONS          

SALES ($ MILLIONS) 8828 8561 7723 7131 6449

GROSS PROFIT ($ MILLIONS) 3302 3207 2835 2572 2233

GROSS PROFIT RATE 37.40% 37.50% 36.70% 36.10% 34.60%

NET EARNINGS ($ MILLIONS) 715 678 551 393 243

NET EARNINGS AS A % OF SALES 8.10% 7.90% 7.10% 5.50% 3.80%

SALES PER SQUARE FOOT($) 402 393 369 347 325

2003 2004 2005 2006 20070

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SALES ($ MILLIONS)GROSS PROFIT ($ MILLIONS)NET EARNINGS ($ MILLIONS)SALES PER SQUARE FOOT($)