Nordstrom cuts inventory 26% in Q1 by cancelling orders, shipping from stores

Date: Monday, June 1, 2020
Source: Supply Chain Dive

Dive Brief:

  • Nordstrom decreased its inventory 26% in the first quarter of 2020 compared to the same period last year, according earnings results released Thursday. Sales decreased 40% in the quarter year over year, and the company posted a $521 million net loss.
  • "With inventory as our biggest lever of flexibility, we reduced receipts by 30% during the first quarter, generated customer demand through increased marketing and promotions, and utilized our fulfillment capabilities to clear inventory held in our stores," CEO Erik Nordstrom said on a conference call with analysts Thursday.
  • The retailer will reduce capital expenditures for the year by 30%, but supply chain investments remain a top priority, CFO Anne Bramman said. "This includes scaling our end-to-end platforms to support a single view of customers, inventory and product, and integrating physical and digital capabilities in off-price," said Nordstrom on the call. The company is in the process of merging its full-price and off-price teams in the name of labor efficiency — reducing corporate staff.

Dive Insight:

The significant inventory reduction will give the retailer room to bring in new product as early as June while boosting liquidity, Nordstrom said. To reach a 26% year-over-year reduction, the company drastically reduced incoming product — 30% down for the quarter, but 80% down during April and May.

In a time when many apparel executives have held up their ability to "pack and hold" product until next season or next year as a prudent option to weather the demand drop the coronavirus pandemic has brought, Nordstrom described the retailer's inventory as "very perishable."

"We leveraged data to analyze our inventory content and composition, including the seasonal nature of certain items," Bramman said.

Nordstrom has been focused on omnichannel operations for years, and though store fulfillment has been a fixture of that work, optimizing digital inventory availability has been a more recent development. Nordstrom emphasized on the call that selection and delivery speed are key to converting new digital customers. So, shipping from stores and making as much in-store inventory visible and available to online shoppers as possible is key.

"We’ve had store fulfillment capabilities in place for over a decade, which generally supported 20% of online units," Nordstrom said. "This ramped to more than 50% while our stores were temporarily closed, contributing to our reduction in inventory."

In the first quarter, the company extended ship-from-store to its off-price banner, Nordstrom Rack, for the first time, which saw 25% of e-commerce orders ship from a store. The company also launched a new website shipping to Canadian customers in order to make inventory in Canadian stores accessible online.

Even with inventory significantly reduced and new product coming in this month, the retailer would still be marking down merchandise much more than usual in the quarters to come.

"Our scenario plans and stress testing contemplate a slow recovery and a continued promotional environment," Bramman said.


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