How Nordstrom is optimising its supply chain to overcome inventory problems

17 March 2023

Fashion retailer Nordstrom is changing ordering practices and partnering with suppliers on shipment standards to right-size its inventory.

Nordstrom began taking action to clear excess inventories after seeing reduced customer activity starting in June 2022, the company revealed in its 2022 fourth quarter earnings results, which showed a year-on-year drop in earnings.

Part of this strategy involved the “Closer To You” initiative, which “connects store and supply chain inventory” to provide customers with greater selection. The strategy aims to bring more physical locations, both stores and inventory hubs, closer to markets.

The retailer is also changing some ordering practices and partnering with suppliers on shipment standards. Costly, store-based order fulfilment was eliminated, and the minimum order amount for free ship-to-store delivery was raised.

For the year ahead, the company is now focusing on supply chain optimisation, to ensure efficiency of operations.

This is in response to lower earnings caused by higher inventory markdowns, softening consumer demand, and excess inventory levels. 

Inventory levels for the end of 2022 decreased 15.2% compared to the same period in 2021.

Nordstrom’s earnings before taxes for the quarter ending 28 January 2023 were $187m, down from $299m for the same period last year. This was partially offset by “supply chain expense efficiencies”, it said.

Erik Nordstrom, CEO of Nordstrom, said: “The substantial disruptions and volatility in our business over the past three years had a significant impact on our inventory management and outcomes, including buy plans, receipt flows, stock levels, markdowns and turns. As supply chains have stabilised, we have an opportunity to return to pre-pandemic norms across these elements of our inventory management.”

He added: “We took decisive actions to right-size our inventory as we entered the new year, positioning us for greater agility amidst continuing macroeconomic uncertainty. We also made the difficult decision to wind down operations in our Canadian business. This will enable us to simplify our operations and further increase our focus on driving long-term profitable growth in our core US business.”

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