Nordstrom: The Turnaround

Case Analysis
Group 7

Amit Shukla
Dron Malhotra Garima Bharadwaj Gautam Malhotra Khushali Patel Tejas Nahar Vidhi Gupta
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Company Overview
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 Closely aligned getting back to the customers and the front line Culture of making decisions as close to the customer as possible to create value. Commitment to their employees and customers by providing profit-sharing and fair pricing. Decentralized buying and selling to stir an entrepreneurial spirit within each employee. Open lines of communication to the lowest reaches of the inverted pyramid. A competitive environment so that managers could compete amongst themselves Replicated the existing organizational structures across geographies.

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Stakeholders
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Buyers

The Five

Vendors

Stakeholders
Investors (before it went Nordstrom)

Customers

Sales Force

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Problems
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 Inconsistent same store sales and questionable merchandising appeal Lack of financial controls and low prospectors from shareholder growth Shareholders saw Nordstrom as too complex to be scalable and began losing confidence in the company. Organization had grown too large to continue their policy of a Nordstrom in every store. Eventually started replicating the habits of their competitors and thus didnt have any differentiation to set them apart. Extensive communication breakdown between the buyers and the sales associates. No longer any ownership at the front line and their pride was diminishing due to the lack of understanding and clarity of the management's vision. Nordstrom had completely lost sight of the customer and main market segment.
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Competition
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Departmental stores(eg. Macys) Age HH income Income Bracket Fashionability 35-64 $50K-60K 55-70% Moderately Fashionable

NORDSTROM 25-64 $75K+ 80%+ Fashionable

NEIMAN MARCUS 43-64 $200K-300K 98%+ Fashion Driven

SAKS FIFTH AVENUE 35-55 $100K 90%+ Fashion Driven

Womens Apparel

27-29%

36%

33%

42%

Mens Apparel
Home Goods

5-22%
4%

17%
16-20%

13%
12%

13%
1%

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Nordstrom differentiation
Instead of having separate departments Nordstrom used lifestyle categories like : Savvy, Individualist, Point of view, etc. which showcased various latest trends, classic designs , etc. accounting for 12 such categories Highly differentiated merchandise : entered into multilayer vendor agreements-top 50 vendors accounted for 60% of sales Unlike competitors did not install in-stall boutiques/fixtures for popular brands Occupied a niche between the luxury stores & departmental stores
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Leadership & New Systems

Leadership

Indiscriminate attitude towards employees Non interference at store level (except overbuying)
SYSTEM PERPETUAL INVENTORY FUNCTION Increased SKU visibility Tracking OOS merchandise Facilitation of merchandise orders BENEFIT Keeps track of inventory Improved visibility in supply chain

POINT OF SALES

Direct fulfillment option Enables price look up, receipt recall

Reduction of transaction time

PRSONAL BOOK REPLENISHMNET VENDOR TICKETING

Enhances CRM initiatives Precise open to buy and faster reorders Reduction of labor costs & saves time
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Product & People

- Portrayed as if they were not interested in serving the more mature customer anymore. - Store employees were forced to push merchandise - Confused Customers - Reinvent Program - Strained Relations between the floor employees and buyers - Redundancies in the merchant organization - Uneven Performance across geographies

- Increased the fashion quotient and appeal to younger customers. - Accommodated buyers choices in where they wanted to live and work - Centralized Buying Approach - Perpetual Inventory System More access to information Better decision making - Focus on keeping a close connection between the buying team and selling floor

Between 2000 to 2004, Inventory / Sq. Ft dropped by 17%, turns increased by 19% and ultimately sales rose by 29%

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Marketing Efforts
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1990s Department Stores

- High Promotional high-low price strategies - Frequent sales announced in full page newspaper advertisements - Large discount signage at stores

- Centralized Marketing - One annual and two pairs of semiannual sales each for women and men - Competitive Pricing - Proprietary Card Reward Program - Minimum In-store Signage - Sale Items were discretely displayed
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Nordstrom Differentiators

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Financials
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Particulars
Sales/Sq ft GMROI Working Capital Ratio Debt Equity Ratio Return on shareholders equity Return on Invested Capital (ROIC) Merchandise Intensity

2001
$330.49 $2.11 2.17 0.5206 9.78% 4.54% $52.10

2004
$367.65 $2.80 1.92 0.3654 23% 13.96% $47.28

% Change
11.25% 33.09%

135.17% 207.31% 9.24%

1. 2. 3. 4. 5. 6.

Optimizing buying operations led to rise in Sales/Sqft. Better quarterly earnings & demand prediction. Lower Merchandise Intensity. Less overbuying & favorable credit terms result in better WC Ratio. Pared down debt. Increase in GMROI because of perpetual inventory system.
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Issues after Turnaround

1. Expansion was a major issue in planning companys long term future 2. What should be the best strategy to adopt for expansion? International Small towns Acquisitions New Channels Direct mail / Discount stores New Merchandise categories Furniture / Home goods 3. Decrease in apparel retailers Share of Wallet 4. Uncertain future of departmental stores
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Alternatives
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Alternative 1
Growth Strategy Related Diversification Explore all Cities within the US, with major markets likely to support a store of type: a Racks or Nordstroms.
Advantages Disadvantages

Will increase the Nordstrom image, and reach a larger customer base. Utilizes Nordstroms perceived customer service excellence advantage.
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Increase in debts and possible problems with stakeholders. Expansion may diminish the Nordstrom mystique. Expansion can also threaten the normal transfer of culture to new Nordstroms.
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Alternative 2
Stabilizing Strategy

Pause/Proceed with Caution Must gather all the facts concerning International markets and Minority markets penetration.
Advantages Disadvantages

Low risk Less resources committed Less cost and expenses Debt would not increase dramatically

Low returns. Cost of investigation Potential to lose market share to competitors is great. Might lose competitive growth advantage. Might lose whole target market segments to competition
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Alternative 3

Retrenchment Strategy

Divestment Sell off Racks stores and anything else that gets away from original culture of affluence
Advantages Disadvantages

Overhead greatly reduced Less inventory Consolidation will hone focus and reinvent themselves simultaneously. Will allow focus on Minority target markets and International pursuits
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Stakeholders and Shareholders relations may become strained. Net assets will be reduced. Public image may be negatively affected wishy-washy.

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Alternative 4
Acquisition Strategy

Divestment Sell off Racks stores and anything else that gets away from original culture of affluence
Advantages Disadvantages

Higher visibility & Reach Improved financials Better insights into local markets More vendors & buyers

Mismatch in Culture & Structure Range & Assortment gets compromised Challenge to core competencies and Re -inventing policies

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Recommendations
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Mix of all alternatives

Strong footholds in Affluent Apparel and Shoes will require minimal attention and energies to maintain. Diversification into untapped minority markets will lead to exponentially increasing sales and growing markets. Examining minority markets will lead to a better understanding of them more sales, and an enhanced public image. Will provide more focus for Nordstroms in-house marketing affluent customer base, regardless of ethnicity.
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Requires long-term commitment and dedication for extensive research. Requires more R&D funds be diverted to researching potential markets. Customer service will be compromised due to changes and culture.
Biggest Challenge / Greatest Opportunity

Sharply defining their brand image. The culture within the store is well defined as a customer friendly and informed shopping experience. But the culture outside of the store is not as clearly defined.
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Implementation
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Integration of the Personal Book with internet ordering capabilities Provide customer specific recommendations can be leveraged on line to lead customers to other similar items at which they may be interested in exploring Select clothing online Provide either the standard online check-out or add the Nordstrom touch by offering to have the clothes ready to try-on and purchase at the store. International Expansion thorough exclusive boutiques Their vast offerings of private labels could lend themselves well to stand-alone boutiques internationally. Moving into adjacent and complementary product-lines Men's and women's formal wear, designer suits, and other specialty clothing lines like golf apparel under private labels. Expand into Home sector Nordstroms extensive research learning their customers clothing needs and this can easily translate to the home
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Thank You
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