Friday, October 10, 2014

The Secret to Nordstrom’s Success: Inventory Management

During the U.S. recession, Nordstrom was outperforming its rivals like Macy’s and Saks. Shortly after the recession in 2009, its overall sales reached $8.26 billion[1]and its gain outpaced the 13 percent advance of the Standard & Poor’s 500 Retailing Index, while Saks had dropped 50 percent and Macy’s has lost 0.3 percent[2].

How could Nordstrom survive and thrive the recession? The secret is not involved a piercing insight into customers. Rather, it is inventory management that contributes to success.

Nordstrom introduces a single view of goods, which combines its in-store and online inventory systems, and displays stock from both the Web warehouse and its stores all at once. Say that if a customer is looking for a CK coat via, she can see whether the coat is available at nearby stores and reserve it for pickup the same day. More significant, ithe coat is out of stock on the web warehouse, you can still order it from any other regular stores.

By comparison, Wal-Mart can ship online items to nearby stores, and Target just displays items in different stores without selling them in advance.

However, inventory itself is a problem. Since there always exist incongruity among customer service, inventory-related costs and operation, maximizing customer service somewhat indicates expand inventory, and correspondingly increase cost. Therefore, Nordstrom make a trade-off between inventory and customers’ need by confining inventories to a stage where orders are well correspond with recent sales trends. If the sales of certain merchandise fell 4 percent in the previous 2 months, for instance, the order must be limited in the coming quarter.
The inventory management has significant impact on Nordstrom. The inventory turnover of Nordstrom shifted from 4.84 in 2005 to 5.41 in 2009, indicating that very little markdown should be performed late in the season. Under that circumstance, the company does not need to figure out an approach to maximize the profit by calculating relativity and relationship between the original one and the discounted one. Compared with the sale before the implementation of inventory management, Nordstrom sales have increased by 8 percent[3].

Therefore, the inventory management of Nordstrom is of great significance since it reduces costs as well as increases the efficiency.

But there comes a question, why other peers like Saks do not operate this way?

1 comment:

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