Page 192 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Unit 12: Inventory Management

Over the next three decades, the business survived the Great Economic Depression and the Notes
Second World War, growing at a slow, but healthy pace. By the beginning of the 1960s, the
number of stores had increased to eight, spread across Washington and Oregon.
Having made its mark in the country’s shoe retailing landscape, the company began
looking for avenues to grow further. A decision was taken to enter the promising apparel
business and in 1963, Nordstrom purchased a clothing store, Best Apparel. This store was
refurbished and reopened in February 1965. To reflect the change in its business model
(from selling only shoes to selling apparel as well), the company renamed the stores
‘Nordstrom Best’ in 1966. In the same year, it began offering men’s suits, sportswear and
children’s clothes as well. By 1968, two more stores were added under the Nordstrom Best
label, bringing the total to a dozen. Nordstrom was generating $57 million every year in
sales by then.
In the early 1990s, the third generation of Nordstroms was ready to retire, but they did not
feel that the fourth generation (most of them aged below 30) was quite ready to take over
the company’s reins. In a major departure from company norms, a few outsiders (not
belonging to the Nordstrom family) were brought in to handle the business as
Co-Presidents. Bruce Nordstrom remained Chairman along with the other two
Nordstroms, John and Jim.
Meanwhile, the company got entangled in a series of controversies due to its strained
relationships with employee unions. The problems did not end here. In the highly
competitive US retailing industry, efficient supply chain management practices are not
considered just a tool for deriving competitive advantage. Rather, putting in place a
structure to manage the entire supply chain as effectively as possible is seen as a key for
survival itself.

Since margins happen to be low for any typical retailer, cost control is considered another
crucial issue. As costs related to the management of inventories are in the hands of the
retailer to a large extent, inventory management has emerged as one of the key attributes
that help derive a competitive advantage in the industry.
Nordstrom made its first move towards modernizing its inventory management practices
in the form of a new Windows NT based inventory management system, launched in
November 1993. It was a very basic initiative that offered information to buyers as to the
items that were to be stocked. Since all the stores were networked using this solution,
sellers could find out the exact position of a particular item across the Nordstrom system.
The effects of this initiative were felt within a year. The company reported an increase in
net earnings from $141 million for the financial year 1994 to $202 million for 1995.

While this could be attributed to the overall improvement in the US economy, company
sources agreed that the new system had played a major role in increasing the sales.
Nordstrom’s CFO, John Goesling said, “It is too early to measure the full impact of the
system, but we like what we have seen thus far. We are going to continue to invest in
merchandising information systems.” Industry observers felt that Nordstrom had still
not done enough to sustain this performance in the long run. As compared to the industry
norms, its inventory management practices left a lot to be desired.
As a result, Blake Nordstrom withdrew the ‘Reinvent Yourself’ campaign and made large-
scale changes in the top management cadre. But, like his predecessors, he realized that
many of the problems could be controlled by setting right the inventory issue. Talking of
how inventory management scored over the other strategic options he was pursuing to
set things right, Blake Nordstrom said, “The schedule that was on the drawing boards had
little chance of being successful. I did not think the timeline and resources were realistic.”
Contd...

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