Nordstrom's Perpetual Inventory System

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Case Details:

Case Code : OPER025
Case Length : 16 Pages
Period : 1994 - 2003
Organization : Nordstrom
Pub Date : 2004
Teaching Note :Not Available
Countries : USA
Retail

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Nordstrom has always been torn between the art and science of retailing. It mastered the art -beautiful store designs and marketing, for example. But it always stumbled on the science - inventory management."

- 'Can the Nordstroms Find the Right Style?' BusinessWeek, July 30, 2001.

"They have the gold standard of service, but that has come with higher costs, outdated inventory management and point-of-sale systems.

- 'Nordstrom Loses its Luster,' Forbes, January 05, 2001.

Inventory 'Mis' Management

In 2001, the United States (US) retailing industry was abuzz with rumors of one of the oldest and largest specialty retailers, Nordstrom, being sold off by its promoters/owners, the Nordstrom family. The reason behind this was company President Blake Nordstrom's quote, "I can not guarantee we would never be for sale. If we were to fail, I am sure the board would have to revisit all options."¹

This development was not very surprising since the company had been performing poorly for quite some time - while total square footage and net sales had increased since 1998, net profits and shareholder returns had declined considerably (Refer Table I).

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The fact that Nordstrom had been scaling down its growth plans in the wake of declining sales (especially men's merchandise) further fuelled the rumors. The 2001 annual shareholders meeting of Nordstrom thus saw Chairman of the Board, Bruce Nordstrom, having a tough time trying to convince shareholders that there were no plans to sell the company. The scene was reminiscent of the 2000 annual shareholder meeting when the company had to accept openly that the management had gone wrong with a faulty marketing initiative called 'Reinvent Yourself.'

Between the 2000 and 2001 meetings, a lot had transpired at Nordstrom. The first ever CEO who did not belong to the founder (and 30% shareholder) Nordstrom family, John Whitacre (Whitacre) was asked to leave in August 2000. Various other corrective actions were taken with respect to the management team. Many senior executives were dismissed as the Nordstrom family members once again took complete control of the company.

Industry observers, however, commented that the Nordstrom family had taken these steps only to cover up certain mistakes it had committed regarding the way Nordstrom was being managed.

Analysts said that a majority of the company's problems could have been avoided had it been careful enough to understand the changing dynamics of the retailing industry. Nordstrom had for long been criticized by industry observers for not focusing enough on its inventory management/merchandising practices. It had not invested in the required technology for this purpose even as the other players put in place sophisticated, state-of-the-art inventory management systems.

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1] 'Can the Nordstroms Find the Right Style?' BusinessWeek, July 30, 2001.