assist planning more profitable and pro- NORDSTROM ductive sale prices. According to retall analyst Patricia Edwards, this helps Nord- strom calculate what will sell better at a 2515 discount instead of a profit-gouging 35% discount, and forecast which single itemis should be marked down. And if a style gets stale, the company can ship it off to its Nordstrom Back out- let stores. This kind of demand planning is part of Nordstrom's long-term investment in efficiency, "If we can identify what is not performing and move it out to bring in fresh merchandise" says Pete Nordstrom, "that's a decision we want to make." Total Inventory should slide according to overall demand, and by recent accounts, Nordstrom has this mastered. It shrank its recent year-end inventory per square foot 126, nearly lockstep with a 12.5% decline in fourth-quarter sales. Perpetual Inventory When profit margins are low, how has inventory as lean as possible, and present It's an axiom of sales: When a customer Nordstrom managed to stay profitable both customers and sales associates with a wants to spend money with you, make it as heads and tails above the competition? It comprehensive view of Nordstrom's entire easy as possible. Nordstrom associates had brought time-honored retail practiced- inventory, including every store and ware- this down to a selence for in-stock Items. keep customers happy and manage your house But until recently, if the customer wanted inventory tightly-into a new era. another color, size, or model, employees There aren't many bridesmaid dresses for Koop It Profitable, Koop It Loan didn't have the tools to see what choices 6'7" women. Julie learned that when she was Items don't stay in stock very long at Nord- were available at neighboring stores. asked to be the sole bridesmaid in ber best strom stores those days, and that's the point. A customer who fell in love with a pair friend's wedding. Her friend found the perfect In stock iterns should fluctuate with demand, of candy red Prada pumps one day might dress, Julle ordered it, and when it arrived it but the chain is currently turning inventory return twenty four hours later to find her didn't fit. That is, it really didn't fit. The bride about twice as fast as its competitors, thanks Nordstrom store out of her size. While took it well "I don't care what you choose" to strong help from web sales Nordstrom inventory naturally fluctuates, Nordstrom she said. "Just find the exact same dress" keeps items in its inventory for an average of associates couldn't easily locate a pair in Weeks before the wedding, Julie des- 62 days, compared to competitors Macy's for another store or verify when they'd return perately scoured shopping web sites only 119 days and Saks for 140 days. to stock. And in an era of booming online to find few tall ales and no similar styles. Not only does the company turn existing sales, Nordstrom realized they were likely to Out of choices and nearly out of hope, she stock over quickly, but they plan purchas- lose such a customer faster than you could checked Nordstrom's web site, Using their ing for future seasons to align tightly with say. "I'll just Google that' online tools to filter dresses by size, color, anticipated demand. To counteract the That changed In 2009, when Nordstrom and even occasion, she found a near match "hopeful" nature of buyers and merchandise integrated the inventory of each of its stores for The Dress. "So now," Julie says with a ers, says Pete Nordstrom, president of mer- Into Its website. After an Immense overhaul smile, "whenever I need a party dress, that's chandising, a departmental buyer would be of the chain's inventory management pro- the first place I look." limited from ordering 1056 more of a prod- crapes, customers at their laptops and asso That's just the kind of customer loyalty oct if sales slumped 5% in the previous two ciates behind sales counters see the same Nordstrom hoped to inspire with its recent months, for instance. thing-the entire inventory of Nordstrom's $180+ million investment in an ultramod- Instead of relying on one-day sales, 1.15 stores presented as one selection, which ern inventory management system. The coupon blitzes, or marking down entire the company refers to sa perpetual inventory. upgrade, spearheaded by the fourth genera- lines of product like Macy's, Nordstrom The upgrade was an immediate hit. As tion of Nordstrom family members in corpo- prefers to discount only certain items. of launch day. Nordstrom found that the rate leadership, accomplished two key goals A few years ago, the company installed percentage of customers who purchased correlate purchasing with demand to keep "markdown optimization" software products after searching the website for anitem doubled. It also learned that multi- dramatically lessened the likelihood that But Nordstrom's investments in inven- channel customers-those who shop from you'll take a markdown." tory planning and tracking have paid Nordstrom in more than one way-spend on handsome dividends. Its operating mar- average of four times more than one-source One Step Ahead of the Competition gin-operating income as a percentage customers. This profit more than offsets the Fast-turning inventories are a sign a retailer of sales-measured nearly 9% last year, cost of hiring additional shipping employees is well managed, making it more attractive to Bloomberg reports, as compared with Macy's to wrap and mall items from each store. Investors, especially in an uncertain economy. 5.6% and Saks' negative return. So now Nordstrom doesn't have to turn "If Nordstrom were a car," says retail analyst "If I am going to put my money behind away the customer who spied that pair Patricia Edwards, "it would be a hybrid Cadil- a retailer in this rocky economic environ- of candy red Pradas; she can order them lac Escalade that gets twenty miles per gallon ment, I want it to be one of the best-run online or in her local store, and they'll be instead of the normal twelve." companies out there" Patricia Edwards shipped to her door directly from a store But success has been hard fought. Since says. "Nordstrom is one of those" that has them in stock, even if it's located its inception in 1901, the Nordstrom name across the country. has been synonymous with customer ser- Discussion Questions "Customer service is not just a friendly, vice par excellence. And for decades, having 1. How does Nordstrom use demand fore- helpful, knowledgeable salesperson helping top-notch salespeople, carrying the right casting to minimize leftover inventory? you buy something" says Robert Spector, brands, and developing lasting relation- 2. What benchmarks could Nordstrom use retail expert and author of The Nordstrom ships with customers did the trick. to assess the success of its web-based Way. "Part of customer service is having the "The old, classic Nordstrom way is that Inventory integration? right item at the right size at the right price if you sell more stuff, that compensates 3. How might Nordstrom apply the con- at the right time. And that's something per- for any deficiency you may have in terms cept of participatory planning to prod- petual inventory will help with." of technology," says Robert Spector. "They uct purchasing? What groups should be Better yet, Nordstrom's finding that didn't want to replace the high touch with involved? after integrating store inventory into its the high-tech, and they faced striking "that 4. FURTHER RESEARCH Imagine you website, inventory is selling faster, and balance between having up-to-date systems have been asked to develop a long-range more profitably, than before. "If we're out and giving that personal service." of something on the website, It's probably "Traditional retailers have traditional plan to extend Nordstrom's inventory management overhaul into the future. late in the season and the stores are try- ways of doing things," echoes Adrianne What changes, revisions, or updates ing to clear it out," says Jaime Nordstrom, . Shapira, Goldman Sachs retail analyst, "and would you plan for the company? What president of Nordstrom Direct. "By pulling sometimes those barriers are hard to break merchandise from the store, you've now down." stretch goals come to mind