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Nordstrom: The TurnaroundCase 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

Vendors

Customers

Sales Force

Investors (before it went

Nordstrom)

“The Five”

Stakeholders

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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 didn’t 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. Macy’s) NORDSTROM NEIMAN MARCUS SAKS FIFTH AVENUE

Age 35-64 25-64 43-64 35-55

HH income $50K-60K $75K+ $200K-300K $100K

Income Bracket 55-70% 80%+ 98%+ 90%+

Fashionability Moderately Fashionable

Fashionable Fashion Driven Fashion Driven

Women’s Apparel 27-29% 36% 33% 42%

Men’s Apparel 5-22% 17% 13% 13%

Home Goods 4% 16-20% 12% 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

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Leadership

• Indiscriminate attitude towards employees• Non interference at store level (except overbuying)

SYSTEM FUNCTION BENEFIT

PERPETUAL INVENTORY • Increased SKU visibility• Tracking OOS merchandise• Facilitation of merchandise

orders

• 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 • Automated reminders• Facilitation of information

• Enhances CRM initiatives

REPLENISHMNET • Accurate & timely info about stock level

• Precise open to buy and faster re-orders

VENDOR TICKETING • Elimination of merchandise ticketing

• Reduction of labor costs & saves time

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Product & People

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- 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 buyer’s 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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- 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

1990’s Department

Stores

Nordstrom Differentiators

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Financials

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Particulars 2001 2004 % Change

Sales/Sq ft $330.49 $367.65 11.25%

GMROI $2.11 $2.80 33.09%

Working Capital Ratio 2.17 1.92

Debt Equity Ratio 0.5206 0.3654

Return on shareholders equity 9.78% 23% 135.17%

Return on Invested Capital (ROIC) 4.54% 13.96% 207.31%

Merchandise Intensity $52.10 $47.28 9.24%

1.Optimizing buying operations led to rise in Sales/Sqft.2.Better quarterly earnings & demand prediction.3.Lower Merchandise Intensity.4.Less overbuying & favorable credit terms result in better

WC Ratio.5.Pared down debt.6.Increase in GMROI because of perpetual inventory

system.

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Issues after Turnaround

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1. Expansion was a major issue in planning company’s long term future2. 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 Wallet4. Uncertain future of departmental stores

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Alternatives

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Alternative 1

Related DiversificationExplore all Cities within the US, with major markets likely to support a store of type: a Racks or Nordstrom’s.

• Will increase the Nordstrom image, and reach a larger customer base.

• Utilizes Nordstrom’s perceived customer service excellence advantage.

• 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 Nordstrom’s.

Growth Strategy

Advantages Disadvantages

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Alternative 2Pause/Proceed with Caution• Must gather all the facts concerning International

markets and Minority markets penetration.

• 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

Stabilizing Strategy

Advantages Disadvantages

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Alternative 3Divestment• Sell off Racks stores and anything else that gets away

from original culture of affluence

• Overhead greatly reduced

• Less inventory• Consolidation will

hone focus and reinvent themselves simultaneously.

• Will allow focus on Minority target markets and International pursuits

• Stakeholders’ and Shareholders’ relations may become strained.

• Net assets will be reduced.

• Public image may be negatively affected – ‘wishy-washy.’

Retrenchment Strategy

Advantages Disadvantages

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Alternative 4Divestment• Sell off Racks stores and anything else that gets away

from original culture of affluence

• 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

Acquisition Strategy

Advantages Disadvantages

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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 Nordstrom’s in-house marketing – affluent customer base, regardless of ethnicity.

• 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.

• 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.

Advantages Disadvantages

Biggest Challenge / Greatest Opportunity

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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 exploringSelect clothing onlineProvide 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 boutiquesTheir vast offerings of private labels could lend themselves well to stand-alone boutiques internationally.Moving into adjacent and complementary product-linesMen's and women's formal wear, designer suits, and other specialty clothing lines like golf apparel under private labels. Expand into Home sector

Nordstrom’s extensive research learning their customers’ clothing needs and this can easily translate to the home

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Thank You