Many companies have implemented online shopping, but Nordstrom has combined online shopping with inventory management to serve customers better. While Walmart allows customers to buy online and to pick up items at nearby stores, and Target tells customers if products are available in a particular store, Nordstrom went with a slightly different approach. Managers at Nordstrom combined online shopping capabilities with modern inventory management systems to accommodate customer needs better.

 

Here's how Nordstrom's system works. Let's say you want a certain pair of Prada shoes. You go online to check if they are at your local store. While the shoes may be available in some stores, they may not be available at your city's Nordstrom. You are in luck, however. Those Prada mules can be overnighted to you from any Nordstrom store. Even if your closest store is out of the shoes you want, you can still wear them the day after you order them.

This approach has had a powerful effect on Nordstrom financially. Shipping items to other stores and customers means that fewer products are discounted at the end of season because online customers can search inventories from anywhere. Also, customers can access bargains at Nordstrom Rack (their discount arm of Nordstrom) online.

One drawback to this system is that if a store clerk enters inventory data incorrectly, the entire system will be in error and customers will be left dissatisfied.

Besides adding to Nordstrom's bottom line, the web-based sales system has increased inventory turnovers from 4.8 to 5.4. Faster inventory turnover is very good for the retail world. According to a Nordstrom manager, "[W]e can sell more without having to buy more inventory. That plays through to margins and ultimately, earnings."

Questions

1. How was Nordstrom's approach different from that of other retailers?
2. Briefly describe the different costs associated with inventory in retailing.
3. How did Nordstrom's approach enable its stores to increase same-store sales?
4. How was Nordstrom able to increase customer service without increasing inventory?
5. Did inventory turnovers improve for Nordstrom because of its new strategy? Why is increasing inventory turnover important for a retailer?