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Nordstrom Case Study Analysis
Nordstrom—“High Touch” with “High Tech”
How does Nordstrom stay profitable despite dips in consumer spending, changing fashion trends, and intense competition among retailers? One answer: Acute attention to detail and well-laid plans.
All in the Family
The fourth generation of family members that runs Nordstrom has brought the store’s time-honored and successful retail practices into a new era. “Nordstrom, it seems, is that rarity in American business: an enterprise run by a founding family that hasn’t wrecked it,” says one business writer. The company provides a quality customer experience via personalized service, a compelling merchandise offering, a pleasant shopping environment, and increasingly better management of its inventory.
Secret of Success
The secret of this company’s success lies in its strategic planning efforts and the ability of its management team to set broad, comprehensive, and longer-term action directions, all of which are focused on the customer experience. The current generation of Nordstrom family members was quick to spearhead an ultramodern multimillion-dollar, Web-based inventory management system. This upgrade helped the company meet two key goals: (1) correlate purchasing with demand to keep inventory as lean as possible, and (2) give customers and sales associates a comprehensive view of Nordstrom’s entire inventory, including every store and warehouse.
Demand Planning
Instead of relying on one-day sales, coupon blitzes, or marking down entire lines of product, Nordstrom discounts only certain items. “Markdown optimization” software assists in planning more profitable sale prices. According to retail analyst, Patricia Edwards, this helps Nordstrom calculate what will sell better at different discounts and forecast which single items should be marked down. If a style is no longer in demand, the company can ship it off to its Nordstrom Rack outlet stores. It’s all 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.”
Inventory Planning
Although inventory naturally fluctuates, Nordstrom associates can easily locate any item in another store or verify when it will return to stock. Customers on their smart phones and associates behind sales counters see the same thing—the entire inventory of Nordstrom’s stores is presented as one selection, which the company refers to as perpetual inventory. “Customer service is not just a friendly, helpful, knowledgeable salesperson helping you buy something,” says Robert Spector, retail expert and author of The Nordstrom Way. “Part of customer service is having the right item at the right size at the right price at the right time. And that’s something perpetual inventory will help with.”
The upgraded inventory management system was an immediate hit. As of launch day, Nordstrom found that the percentage of customers who purchased products after searching the website for an item doubled. It also learned that multi-channel customers—those who shop from Nordstrom in more than one way—spend on average four times more than one-source customers. This profit more than offsets the cost of hiring additional shipping employees to wrap and mail items from each store. Now Nordstrom doesn’t have to turn away the customer who spied a red Marc Jacobs handbag but found it out of stock in her local store. She can buy it online or at the store counter and it will be shipped to her, even from a store located across the country.
Keeping It Lean
By displaying stock both on its website and in its stores, Nordstrom has realized some very meaningful sales and customer service results. Items don’t stay in stock very long. The chain turns inventory about twice as fast as its competitors, thanks to strong help from online sales.
Fast-turning inventories are a sign a retailer is well managed, making it more attractive to investors. “The old, classic Nordstrom way is that if you sell more stuff, that compensates for any deficiency you may have in terms of technology,” says Robert Spector. “They didn’t want to replace the high touch with the high-tech. The challenge, not only for Nordstrom, but for other retailers, is how you strike that balance between having up-to-date systems and giving that personal service.” “Traditional retailers have traditional ways of doing things,” echoes Adrianne Shapira, Goldman Sachs retail analyst, “and sometimes those barriers are hard to break down.” But Nordstrom’s commitments to planning are paying dividends.
Source: Schermerhorn Jr., J.R., Bachrach, D.G. (2016) Nordstrom—“High Touch” with “High Tech”. In Exploring Management (Cases for Critical Thinking).
Case Analysis Questions
Answer the following in up to 350 words each.
Determine the specific planning objectives and measures Nordstrom could use to assess the success of its Web-based inventory integration.
| Web-based inventory management is the way for a business to monitor the inventory levels of the store with the use of an online software. Nordstrom has done a great job so far to follow some of the steps in determining the success of their web-based inventory integration. In order for Nordstrom to continue with their multi million dollar web-based inventory system, it is important that they continue to implement the five step planning process. The five step planning process is used to define objectives, determine where you stand, develop premises for future conditions, plan and implement that plan, and lastly evaluate those results. Nordstrom has already been able to set a goal and start to accomplish these goals, so now they should focus on being precise. Their web-based inventory system can let them know if they have enough inventory for forecasted sales or if they will need more of something. For Nordstrom to remain successful, they should definitely continue paying close attention to this as they can make proper adjustments as needed to grow or improve on sales. When reviewing the inventory system, they can evaluate the items that are not selling as much product, and start to remove that inventory as it is not bringing in a profit. By doing this, Nordstrom is able to make room for inventory that is selling, thus creating more profit. |
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Explain how Nordstrom could make use of participatory planning for continuous improvements in areas such as product purchasing, floor displays, and sales associates’ job satisfaction.
| Participatory planning is when residents of a community, stakeholders, or leaders have meetings to discuss and make decisions on goals. The first thing that Nordstrom would need to do for this would be to include all of their employees in the planning process. It is important to hear the opinions of the employees to help ensure the goal is met. The benefit of this would be having a diverse group of people coming together with their different ideas, as this can stimulate more innovative ideas. It is also important for the community to be involved, as these are the people who are buying the products, so you would want to know what types of inventory these consumers are interested in. Investors are also important when it comes to the planning process, as these are the individuals loaning money or buying into the company. The input of the employees is very important though, as these are the individuals dealing with the daily operations of the company, and also dealing with the customers. If everyone can come together to conclude on the goals of the company, then there is likely to be more success, as everyone is on the same page and understands the goal and what needs to be done to reach said goal. |
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Nordstrom wants to grow in a number of different areas.
Research one of its strategies and project it into the future.
| After doing some research, I found that Nordstrom’s founding family members hope to take the company private. According to Hirsch (2017), the Nordstrom family has been working with the private equity firm Leonard Green to provide financing. There is no official agreement between Nordstrom and Leonard Green, as there is stil some hesitation due to some financial difficulties. The hope that Nordstrom has with going private is that they could make investments to better adapt to changes taking place in the retail world, without having to stress about the short term reactions from stakeholders. Being private would allow for management to really put their focus on growing the business without having to worry as much about regulations. When it comes to going private, there are many reasons why a company may choose to do so. One of the biggest reasons that company’s choose to go private is to in a sense separate themselves some from the public shareholders. There are of course pros and cons to going private, but Nordstrom has been in business for a great deal of time to where they will make sure to put the best interest of the company first. I think that if Nordstrom is able to go private, they would be very successful in the manner of being able to focus more on growing the company in a way that would not hurt the company overall. It is important for Nordstrom to follow the five planning steps before fully deciding whether or not going private is the absolute best option available. |
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Refer back to one of Nordstrom’s strategies for growth.
What changes, revisions, or updates would you plan for the company? What stretch goals come to mind?
| I feel that the growth strategies that Nordstrom has are great. They really put their focus on customer service, through personalized service, the merchandise they offer along with a great shopping environment, and a good management of their inventory. I truly feel that they are doing an excellent job and do not feel a need to make many updates or revisions to the company’s plan. Nordstrom seems to have a great management team in place, as they are able to dissolve inventory at a fast pace. Nordstrom really seems to be doing very well when it comes to their inventory management and customer service abilities. In this case analysis, it states that the success of the company lies in its strategic planning efforts along with their management teams ability to set broad, comprehensive, and long term action directions, which focus on customer service. This is one of the best plans to have in place. The success of a business comes from planning smart and focusing on the customer needs. A stretch goal is an additional goal that someone sets that is better than their initial target goal. The one thing I can really think of would be for Nordstrom to look at going private versus remaining public. When a company has the ability to go private, they are able to have more freedom when it comes to decision making. Aside from the possibility of going private, Nordstrom seems to manage their company very well. I think it is good for Nordstrom to continue to involve everyone in the planning process, as this provides them with different outlooks and inputs for what they could improve on for the future of the company. Nordstrom seems to lead in the technology aspect when it comes to their inventory management system, but it is important that they continue to be in the front of this, as technology continues to improve over the years. |
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