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customer service” got outdated in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($)