Teibel 1

Nicole Teibel

Professor Fowler

BUS 340, Section 1

April 20, 2009

The Apparel Retail Industry

Did you know that the United States actually has more shopping malls than high schools?

Well, it’s the truth; the US apparel retail industry is composed of one hundred thousand, plus,

stores, with combined annual revenue of more than one hundred and fifty billion dollars

(Clothing Stores 2005). This industry is shaped by personal income and desire for the latest

fashion trends. Each individual firm’s profitability is dependent on effective merchandising and

marketing strategies to keep their products in demand. “Women’s clothing stores dominate the

retail landscape accounting for over thirty-five percent of all clothing stores” (Clothing Stores

2005). The industry ranges from smaller boutiques to outlet stores, to flagship stores in well

known shopping areas. The larger stores are known for offering a wide variety of merchandise,

having advantages in purchasing, distributing and marketing, whereas smaller stores can offer

more unique merchandise, providing far superior customer service. The clothing retail industry

ranges from discount retailers TJ Max’s to Targets to the higher end retailers such as Sak’s Fifth

Avenue and Nordstrom, these being some of the top competitors in the apparel industry.

Porter’s five forces model is utilized to explain the average level of profitability in an

industry, the industry structure in which the firm competes is one of the major factors underlying

competitive strategy (Kenneth and Laudon 82). The top companies and competitors in this

industry are Target Corporation, Nordstrom, Saks, and TJX Companies Inc. Historical and

current economic structures define industry competition, and it is dependent on five basic
 Teibel 2

competitive forces: potential entrants, buyers, substitutes, suppliers, and rivalry among existing

firms. When looking at competition that occurs among existing firms in the apparel industry, it

is largely dependent on the number of firms in a given market, the different products each retailer

carries (whether they are different or similar to those of other firms) and the prices. When there

are few firms, there is less competition than if there are a large number of firms in an area, such

as in a mall where there are a hundred stores to choose from, naturally more competition will

occur than in a smaller shopping center, because of the fewer amount of substitute products

(Kenneth and Laudon 83). Also, the amount of product diversity in competing firms plays a big

role in competition among firms in the apparel retail industry. If there is a lack of diversity and a

lack of product differentiation or brand identity then there is nothing setting apart one firm’s

products from another. An example of this being how smaller boutiques are known to offer

unique brands, or how high-end/luxury retailers such as Saks and Nordstrom are known to offer

high-end brands, differentiating their stores from others in apparel market. Without product

differentiation pricing is left to define a firm’s competitive position, although it is difficult to rely

on price alone as a marketing strategy, unless you are a “low cost leader” such as Wal-Mart.

Nordstrom, the company that I chose to research, relies heavily on customer service, and

carrying the newest and latest trends in fashion (new garments) from high end designers, to keep

their customers coming back for more; although their prices may be slightly higher than an

alternative such as Macy’s. Competition can arise from potential entrants in the apparel industry

occurs if there is brand equity or barriers to entry, such as high customer loyalty, patents,

government policies, or regulations that prevent a new firm from entering an existing retail

market (Clothing Stores 2005). An example would be if a retailer has a patent on the items they

carry, then another retailer cannot come into the market selling the same product. Since margins
 Teibel 3

happen to be low for any typical retailer, cost control is considered another crucial issue. As costs

related to the management of inventories are in the hands of the retailer, inventory management

has emerged as one of the key attributes that help derive a competitive advantage in the apparel

industry (Clothing Stores 2005). The threat of substitute products and services competition

occurs in this industry when one firm’s prices are too high and customers as a result, seek an

alternative product or service, this especially being seen today, how people are turning to “low

cost leaders” such as the Wal-Mart’s and Targets, and not the pricy Saks and Nordstrom’s

(especially in the current state of the economy). The last two forces that play a role in defining

competition in market are the bargaining power of customers and suppliers. The bargaining

power of customers describes how loyal and powerful apparel retailer’s buyers are, and how

much their customers can impose pressure on margins and volumes. Customer bargaining power

is likely to be high when inventory is not unique and there are substitutes available. On the other

hand supplier bargaining power is high when the retail market is dominated by few suppliers,

there are no substitutes, and switching costs from one supplier to another are high (Clothing

Stores 2005).
 Teibel 4

New Botiques,
Target brands,
Department Stores,
Walmart brands,
Discount Stores,
Marshalls, TJ Max
and Outlet Stores

Target,
Marshalls
Nordstroms Macy’s
Lord &
Taylor
“Well-off” women, men
Upcoming and families, young
Designers, New fashionistas, business men
Brands, Abroad and women, & trendy
Suppliers people who love to shop

After the competitive forces in an industry have been recognized with the help of Porter’s

five forces model, a strategy can be put into place and a business plan can be developed to find

specific business activities where a business can achieve a competitive advantage (Kenneth and

Laudon 91). The business value chain model outlines a businesses infrastructure and its primary

business activities where a firm “can use information technology most efficiently and effectively

to enhance its competitive position in an industry” (Kenneth and Laudon 91). Specifically in the

retail apparel industry, the business value chain recognizes key primary activities in the areas of

inbound logistics, operations, outbound logistics and sales, marketing and the actual service

itself. Inbound logistics involves dealing with receiving of the textile materials to be used in the

production of garments and then storing these materials to later be produced into the final

product. The operations involve transforming the inputs (textile materials received) into the final

product (through assembly and packaging) to then be distributed through the use of outbound
 Teibel 5

logistics. Outbound logistics of this industry involve receiving shipments of new

inventory/apparel, and storing the apparel in warehouses, until they can be transported, and

distributed to retailers. The support activities of the business value chain of the retail apparel

industry, consists of the actual infrastructure that makes the primary activities possible (Clothing

Stores 2005). It is the management of the retailers themselves that organize the flow of primary

activities, the HR department that hires and trains all of the workers involved in the process, and

the technology and information systems that carry-out the overall plan to achieve the business

objective to get the final good to the consumer. An actual example of a retail apparel industry

value chain would be the a cotton farmer producing cotton to be shipped to a supplier who then

turns that cotton into fabric, the fabric is then shipped to a retail firm that develops/designs the

fabric into the desired garment, and last the distributors will distribute the finished garment to the

final piece of apparel to the store in which a customer can then purchase it.

Who would have guessed, that what once started as a small shoe store in Seattle,

Washington, after John W. Nordstrom invested his stake from the Alaska gold rush into

developing a company, built on the simple principles of quality, value, selection and service,

could turn into one of the nation’s leading fashion retailers. “From those origins, the family-run

enterprise expanded into a 180-outlet, 27-state chain, which tallied $6.49 billion in sales in 2003”

(Nordstrom Inc. 2005). Nordstrom is one of the most well known, respected, successful

department stores in the apparel retail industry today. “Nordstrom is best known for offering a

wide variety of fine quality accessories for men, women and children in stores across the

country, committed to earning the trust of their customers, one at a time” (Nordstrom Inc. 2005).

From the 1900’s when the company was established to today, Nordstrom has undergone a

variety of different changes and developments in their business plan and model. What started as
 Teibel 6

a business model designed simply to sell shoes, was expanded and restructured to apparel retail,

then to carrying luxury apparel and accessories, then to creating a deluxe department store

(café’s and espresso bars included) far above all Macy’s and Lord & Taylor’s. It wasn’t until the

1980’s when Nordstrom customer service became legendary, and the basis of their company

grew upon their customer friendly store environment, which eventually became the center of

their business model, their primary business objective (and focused on as the company’s core

competency.) Superior customer service became their “niche” in the apparel retail industry, and

Nordstrom became a huge success because of it. Rush delivery’s were made available to

customers, returns were made easier, a free coat service was developed, restaurants and cafes

were conveniently placed in their stores, and tailors were even provided and could be sent to a

customers home (Nordstrom Inc. 2005). Nordstrom strives to provide unique designers, lines,

and products to their stores, but at the same time is able to educate, and help customers on what

is “in,” and fashionable and right for them (all while charging a lower price than Saks.) Both of

which have helped them to obtain a competitive advantage in both the fashion and apparel retail

industry. Employee empowerment is also key objective of the company’s business plan, and as a

result of motivational pep talks, exercises, and selling incentives their workforce became a huge

success. Expansion into new markets has also been a key concept and longtime goal of the

Nordstrom brand, although, the company has yet, to enter markets overseas and outside of the

US, and plans to continue to solely focus on US markets in the near future. “Nordstrom growth

in the latter half of the 1980s stemmed from a combination of expansion into new territories and

the creation of larger stores in existing Nordstrom territory. In 1986, when the firm operated 53

stores in six western states, Nordstrom began to turn its sights to the East” (Nordstrom Inc.

2005). Nordstrom’s finally went public and stock began trading on the New York Stock
 Teibel 7

Exchange in June of 1999 (Nordstrom Inc. 2005). Shortly after that Nordstrom.com was

developed to promote business online and further enhance the company’s profitability.

The company has without a doubt has faced some challenges both in the past and now

current economy. Nordstrom went through three generations of management before 2000, when

Nordstrom was returned to family management, after sales and earnings has been down and

Blake Nordstrom came out of retirement to become president, and regain control of the family

business. He launched an aggressive new strategy that introduced newer computer technology

for tracking sales and inventory while reviving the company's longstanding commitment to

customer service (Nordstrom Inc. 2005). Another problem in the Nordstrom business plan

occurred when unlike most retailers in the apparel industry who held regular sales, Nordstrom

held few promotions besides two half-yearly sales and one anniversary sale in July, and decided

to turn that concept around and hold more regular sales to reduce their excess inventories.

“By 2003 Nordstrom appeared to have regained its lost luster through cost containment,

technology initiatives, and a refocusing on its niche: luxury goods at affordable prices”

(Nordstrom Inc. 2005). Within four years he had improved Nordstrom's profitability. Its sales

and stock prices had risen measurably by 2004, which allowed Blake to turn his attention once

again to expanding the chain into new locations. While stores expanded in size, restaurants and

espresso bars were added to the department stores, to help add to sales, and Nordstrom’s Rack’s

(outlet stores) continued to be built and have success. Over the years, new brands continued to

be added, and used to substitute less favorable brands, to help keep Nordstrom inventory fresh

and new for aspiring shoppers, (yet still at a price lower than that of Saks Fifth Avenue and Merle

Norman to achieve a competitive advantage.) Nordstrom’s business plan and strategy as you can
 Teibel 8

see, has changed, developed and restructured over time to adapt with the growing technology,

competition, and new trends in the apparel industry.

Over the years, Nordstrom has adapted with the growth of technology...but slowly

tending to spend more on resources for their customers than technological tools to improve

service. A reporter from BusinessWeek states, “Nordstrom has always been torn between the art

and science of retailing. It mastered the art -beautiful store designs and marketing, for example.

But it always stumbled on the science - inventory management." Nordstrom had a history of

been criticized by industry observers for not focusing enough on its inventory management/

merchandising practices, and Nordstrom sources claimed that the reason behind this lack of a

focused inventory management strategy was that the company relied more on its excellence at

customer service to lure customers than the use of technological tools to improve service. The

company had not invested in the required technology, even as the other players and competitors

in the apparel retail industry put in place sophisticated, state-of-the-art inventory management

systems. As a result sales were declining and in efforts to survive and to remain a top competitor

the company finally found it necessary to adapt (Nordstrom Perpetual Inventory 2005).

Nordstrom made its first move towards modernizing its inventory management practices in the

form of a new Windows NT based inventory management system, launched in 1993. The new

system was very basic initiative that offered information to buyers as to the items that were to be

stocked; all Nordstrom stores were networked using this solution, which made it easy for sellers

to find out the exact position of a particular item across the store’s system. The effects of this

initiative were felt within a year when the company reported an increase in net earnings from

$141 million for the financial year 1994 to $202 million for 1995 (Nordstrom Inc. 2005). From

there on out, Nordstrom continued to modernize and update its inventory system. Blake
 Teibel 9

Nordstrom stated “We recognize that Nordstrom was founded on the simple idea of taking care

of customers. We want to reconnect with them through improved merchandise execution. Our

focus is taking appropriate steps toward implementation of a perpetual inventory system in

2002.” Shortly after Nordstrom’s 100th anniversary, in 2002, Infosys Technologies Ltd.

announced its partnership with Nordstrom to install and launch an Oracle Financial system that

increases flexibility and back-office efficiencies, replacing the outdated financial system and to

help build a foundation for future growth (Nordstrom Financial Systems). Then further

advancement occurred in 2005, when “Fujitsu Transaction Solutions Inc. has completed the

rollout of a point-of-sale (POS) technology replacement for Nordstrom, one of the nation's

leading fashion specialty retailers” (Naumann). The contract covered more than 150 U.S. stores,

which were transformed with new TeamPOS 2000 POS terminals, GlobalSTORE® software and

professional installation services. The new store systems technology is assisting salespeople to

improve the transaction flow at POS. According to Jan Walsh, vice president and business

information officer for Nordstrom, the company undertook several strategic initiatives beginning

in 2001 that involved system upgrades designed to enable process efficiencies and improve

decision-making (Naumann). "This new generation of technology systems provides our

salespeople with enhanced tools to service our customers," said Walsh. Lastly in most recent

news, Accenture is collaborating with Nordstrom on one of the company’s top strategic

initiatives—perpetual inventory. These tools and processes will provide merchants and stores

with information that will allow them to make better decisions about their customers and

vendors. Nordstrom’s customers should benefit from improved "right product, right place, right

time" and product locate capabilities (Accenture 2009). As you can see, Nordstrom has ditched

once old fashioned ways and is working towards technological advancements in all areas of their
 Teibel 10

business model.

To reach a conclusion, the Nordstrom brand and business model, was founded on the

concept of superior customer service, and still to this day the same concept remains its core

business objective in all aspects of the business. Nordstrom has been extremely successful, and

one of the top retailers of its class, having one of the highest customer return rates, because of the

exceptional service they provide each and every customer. It has become nationally known as

the “Nordstrom Way,” (even having an author publish a book upon their unique business

strategy.) Although, they were late to update old inventory and financial systems, they managed

to make strides to remain continuous with technologies and other competitors in the apparel

retail industry, to survive in rapidly transforming industry towards technological advancements.

In the future I think that they should look into globalizing their business and further their reign of

success, and expand there markets even further. They should also look into advertising and

informing the public of their business objectives, and reformed business model. I have not once

seen a commercial for Nordstrom, on television, in a magazine or newspaper. The company

should inform the public of the few sales that they host, for example how Victoria Secret heavily

advertises their “Semi-Annual Sale,” to promote business, which is a huge success for them.

Also, with the struggling economy in a current recession, most consumers would be enthusiastic

to be informed of any sales, and promotions. Overall, I think Nordstrom does an amazing job of

sticking to the underlying principles that the company was once founded on, yet at the same time

being able to adapt when need be while remaining a top competitor in the apparel industry

market place.
 Teibel 11

Works Cited

"Clothing Stores." July 2005. Hoovers. D&B. 7 Feb. 2009 <http://http://www.hoovers.com/clothing-

stores/--ID__182--/free-ind-fr-profile-basic.xhtml>.

David, Naumann. "Nordstrom Completes Rollout of Fujitsu POS Technology : United States."

FUJITSU. 19 July 2005. Fijitsu. 09 Feb. 2009

<http://www.fujitsu.com/us/news/pr/ftxs_20050719.html>.

High Tech&Retail Writers, ed. "Nordstrom Partners with Infosys to Install Complex Financial System;

Partners Rely on Relationship for Flawless Execution of Oracle Financials." BNET. 7 Feb. 2009

<httop://findarticles.com/p/articles/mi_m0EIN/is_2002_April_16/ai_84832925/pg_1>.

Laudon, Kenneth C., and Jane P. Laudon. Essentials of Management Information Systems. 8th ed. Upper

Saddle River: Prentice Hall, 2009.

 Teibel 12

Nordstrom, Inc. Spring 2005. Funding Universe. 8 Feb. 2009

<http://www.fundinguniverse.com/company-histories/Nordstrom-Inc-Company-History.html>.

"Nordstrom: Inventory Management Transformation." Nordstrom: Inventory Management

Transformation. Fall 2009.Accenture. 9 Feb.2009<http://www.accenture.com/Global/Services/

By_Industry/Retail/NordstromTransformation.htm>.

Nordstroms, Inc. 7 Feb. 2009 <www.nordstroms.com>.

"Nordstrom's Perpetual Inventory System." 2003. ICMR. 7 Feb. 2009

<http://http://www.icmrindia.org/casestudies/catalogue/Operations/OPER025.htm>.

Starling, Jean. "Business Strategy - Using A "Nordstrom" Business Strategy Might Be The Key To Your

Success." EzineArticles Submission - Submit Your Best Quality Original Articles For Massive

Exposure, Ezine Publishers Get 25 Free Article Reprints. 09 Feb. 2009

<http://ezinearticles.com/?Business-Strategy---Using-A-Nordstrom-Business-Strategy-Might-

Be-The-Key-To-Your-Success&id=932727>.