Nordstrom, Inc. announced Monday that it would reduce approximately 350 to 400 corporate and regional support positions through a phased approach that should be completed by the end of the second quarter.
In order to continually evolve with the expectations of its customers, ensure it is best positioned to respond to the current business environment, and meet long-term growth plans, the company is making a number of changes to its operating model.
In an effort to minimize impacts on current employees, the company will first look at options such as closing unfilled open positions. Employees whose roles are eliminated will receive separation pay and benefits. These changes are estimated to generate savings of approximately $60 million in fiscal 2016.
Changes to the operating model are part of the company’s broader strategic plans to strengthen its foundation for future growth and improve productivity and service. The company has previously shared that it is continuing to make fundamental changes to serve customers better by leveraging its enterprise capabilities.
Initiatives include a new operating model in its technology group focused on strengthening its ability to deliver on e-commerce and digital initiatives, and proactively addressing opportunities to improve supply chain and marketing effectiveness.
“We will never change our commitment to serving customers, but recognize how they want to be served has been changing at an increasingly rapid pace,” said Blake Nordstrom, co-president, Nordstrom, Inc. “Meeting our customers’ expectations means we must continually evolve with them. We see opportunities to create a more efficient and agile organization that ensures we’re best positioned to achieve our goals.”
While Nordstrom’s sales were up 7.5% in fiscal year 2015, its profitability was down. Nordstrom reported that gross profit, as a percentage of net sales, of 35% decreased 92 basis points compared with fiscal 2014 primarily due to increased markdowns from lower than planned sales and in response to an elevated promotional environment during the second half of the year.
During the company’s fourth-quarter earnings call in February, Nordstrom CFO Michael G. Koppel said the company had made significant investments to enable customers to shop in multiple ways. While that resulted in market share gains, it also structural changes to Nordstrom’s operating costs.
For example, ecommerce now represents more than 20% of Nordstrom’s sales, an increase from 8% five years ago.
“This business model has a high variable cost structure driven by fulfillment and marketing costs in addition to ongoing technology investments,” Koppel said. “With our increased investments to gain market share along with the changing business model, expenses in recent years have grown faster than sales.”
In technology, Koppel said Nordstrom was planning productivity improvements by focusing on fewer, more meaningful projects, such as a scalable merchandising solution that supports seamless integration across multiple channels. In addition, Nordstrom was accelerating its efforts to re-platform our architecture to streamline development while reducing costs.
In fulfillment, Nordstrom was assessing ways to improve efficiencies around delivering product to customers, which is expected to generate lower shipping costs. Nordstrom was also refining its online assortments with a focus on unit profitability.
In marketing, Nordstrom was focusing on improving its effectiveness across all channels. Consistent with its fulfillment efforts, Nordstrom was measuring enterprise profitability of its total marketing spend.