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In Association With

A Supplement to Chain Store Age

May 2006

Wall
Streets
Darling
A technology overhaul
helped Nordstrom
get analyst
and investor
attention
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Handheld devices could change the

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Wall Streets
Darling

ILLUSTRATION BY VIRGINIA DICKENS

A technology overhaul helped Nordstrom

get analyst and investor attention

ordstrom is an IT success story. The retailer is in the midst of a multiyear technology overhaul that is
widely credited with propelling the department store chain out of the slump it experienced between 1999
and 2001.
The benefits of Nordstroms IT-upgrade campaign are unmistakable. Between 2001 and 2005, the retailer saw
an increase in sales per square foot from $321 to an estimated $370; an improvement in gross margin from 32.9%
to $36.6%; and a reduction in sales, general and administrative expenses from 30.3% of sales to 27.2%. All these
improvements contributed to an increase in Nordstroms pre-tax earnings from 3.7% of sales in 2001 to an estimated 11.2% in 2005.

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Wall Street has taken notice. The retailers stock

price has nearly quadrupled to $38.75 per share since
January 2002. The retailers technology upgrade is
credited as one of the major reasons why.
But at the A.G. Edwards & Sons Retailing 2006
conference held earlier this year in Coral Gables,
Fla., Nordstrom CFO Michael Koppel said that the
success of the retailers IT initiative had to do with
more than just the technology involved. This has
been a people story. For a long time, our company
hadnt been known for technology. It wasnt the fault
of anyone here, it was just the way it worked out. But
when we decided to update it for the times, our folks
adapted well. They saw success coming along, and
they got on board with the technology, he said.
Nordstrom set the ball rolling on its technology
overhaul in the first quarter of 2002 with the deployment of warehouse management technology from
Manhattan Associates. Koppel called the project a
success, as it lopped two days off the movement of
inventory through the supply chain, and slashed DC
labor costs by 45%. 2005 was the second year in a
row that our supply chain cost-per-unit was down,
he said.
Also in the first quarter of 2002, Nordstrom rolled
out Oracle financial systems. These gave the retailer
greater access to its financial data, with enhanced
analytical capabilities, resulting in improved financial
controls and cost savings, Koppel said.
Perhaps the system that has done the most to
boost Nordstroms performance is a perpetual-inventory solution the retailer put in place in the first quarter of 2003. The solution, from Retek (since acquired
by Oracle), gave the retailer a level of visibility into
location-specific, SKU
performance data that had been unprecedented at
Nordstrom. Additionally, the solution brought new
markdown-management and replenishment capabilities to Nordstrom. The rollout kicked off 32 consecutive months of same-store sales growth and expanded
the retailers gross margins by 300 basis points,
Koppel said.
Those benefits stemmed as much from the new
functionalities introduced as from the centralization of
processes that had historically been scattered across
Nordstroms enterprise. Nordstrom has always been
rather unique in that each of our stores had its own
buyers, so they could be very close to the customers.
But at a point, your company gets too big for that to be
effective, Koppel said. Weve always been decentralized in our buying. To bring it all together has been a
big win for us, because now we can leverage the value

from these tools across the entire company.

The tools bring us SKU information much faster
than we used to get it, Koppel added. When something has poor sell-throughs, we find out about it
much sooner and can act more quickly.
Even with the addition of these significant merchandising technologies, Nordstroms IT-upgrade initiative was far from over. In 2004, the retailer spent
more than $100 million to install a new POS platform based on Fujitsu hardware and a software platform developed in-house. In addition to speedier
checkout, the upgrade granted Nordstrom store associates access to its Web store, enabling them to place
orders for out-of-stock items and have them shipped
to the customers address.
The new POS system also gives Nordstrom greater
visibility into its inventory transfers. This visibility
enables the retailer to cross-dock 80% of its inventory
transfers today.
Furthermore, Nordstroms new POS supports a
Blue Martini CRM application that the retailer
deployed in the same year. Dubbed Personal Book,
the application keeps track of customer contact information and preferences.
Previously, this information was kept at the cash
wrap, on paper. But by converting this data to an
electronic format, Nordstrom has made it easily
searchable. Custom-made customer lists are readily
made, and the system generates automatic reminders
for store personnel to contact specific customers
upon certain events, such as the seasonal arrivals of a
favorite fashion label. The system also tracks customer response to these personalized alerts.
Personalized customer service is seen as a key part
of Nordstroms value proposition, so it made sense to
give the retailer the benefit of technology in that
area, Koppel said. He added that although one might
expect the addition of technology to depersonalize the
retailers CRM, it actually has had the opposite effect.
The success of the solution is illustrated by higher
incremental sales at stores with heavy personal-book
activity, according to Koppel.
2004 also saw Nordstrom improve its labor management with a new human-resources solution from
Oracle. That addition gave Nordstrom greater recordkeeping capabilities in its HR department, and
upgraded its ability to conduct labor-planning and
reporting functions, Koppel said.
Nordstroms technology push continued through
2005 with the rollout of Oracle replenishment-optimization and markdown-optimization solutions. The
replenishment-optimization application, previously a

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Retek offering before that companys acquisition by

Oracle, raised Nordstroms in-stock percentage by
500 basis points, and enabled the retailer to reduce
its inventory by 3% despite an 8% increase in sales.
The deployment of the markdown-optimization
tool, previously a part of ProfitLogic before it too
was bought by Oracle, is too new to deliver measurable results, but Koppel said an incremental
sales improvement is expected.
Nordstrom also added a management dashboard solution in the fourth quarter of 2005.
That solution, from MicroStrategy, enables
Nordstrom to keep a closer watch on key-performance indicators, and aggregate information
from disparate systems into a single data warehouse. It also has helped consolidate the retailers reporting functions, Koppel said.
There are still more technology upgrades to
come at Nordstrom. In the third quarter of this

centralize Nordstroms management of company

planning and streamline business processes,
Koppel said.
Other upgrades are in the offing for
Nordstroms merchandise planning and perpetual
inventory systems. In the merchandise-planning
area, Nordstrom will gain more granular detail in
planning at the SKU-level, and will add the ability
to plan activities week by week. These will help
Nordstrom capitalize on fashion trends, Koppel
said. As for Nordstroms perpetual-inventory
upgrades, they will align the retailers bricks-andmortar and e-retail channels under a single system.
Koppel said Nordstroms technology push will
continue even further. Work on the addition of
employee self-service features will be added to
the retailers HR platform sometime this year or
next. And the retailer plans to add more
advanced merchandise-planning capabilities in

Nordstroms perpetual-inventory solution has given the retailer

an unprecedented level of visibility into location-specific SKU
performance data.
year, the retailer plans to add new POS functionalities for customer credit-card applications, and
employee time-and-attendance.
Other projects are planned throughout the
remainder of 2006 and into 2007. Slated to
begin later this year is an upgrade of Nordstroms
warehouse-management system to Manhattan
Associates latest version. The new iteration will
extend control to the merchants e-retail fulfillment center. The retailer also will adopt a
Cognos financial package, which will further

2007, 2008 and beyond, though Koppel didnt

elaborate.
The sum effect of the technologies Nordstrom
has put in place is a stronger, more satisfying
shopping experience for the Nordstrom customer.
Our goal is obviously to have industry-leading
performance, but also to offer great value to the
customer. To do that, we needed to become more
effective both on the sales floor and on the back
RTQ
end. Thats what weve done, Koppel said.
Dan Scheraga

Posted by permission of Chain Store Ages Retail Technology Quarterly, Copyright 2006 Lebhar-Friedman, Inc., 425 Park Avenue, New York, NY 10022
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