Finally, a retailer pools inventory

When Amazon became a real threat to Barnes and Noble (and other brick and mortar retailers) in the late 90s, the natural prediction was that the B&Ns of the world would integrate their online and store inventories to provide customers with a better experience that an online only provider couldn’t match.  But that never really happened. However, the NY Times reports today that Nordstroms has taken a big step in that direction (8/24/2010).  Apparently, when you shop Nordstroms.com you have access not only to their online warehouse’s inventory, but also to the inventory across all of their 115 full-line stores.

What’s the big deal? Well, while this might seem easy to do, it’s not. A huge difference between inventory in a store and inventory in a warehouse is that the warehouse inventory is in a much more controlled environment. Store inventory sits around consumers and consumers have a way of moving things around and not putting them back. Store employees are focused on making sales and quick check outs, so they don’t always keep proper records of what is actually in the store. In other words, to make the Nordstrom system work, the company needs to know with a high degree of precision exactly how many units it has in each store. Even in the day of barcodes and RFID tags, that is not easy.

And then there is the cost. If you sell an online customer a handbag that is sitting in a store, you are selling a bag that was needlessly shipped to the store and you are shipping it from a facility that is not designed to ship packages efficiently.

But the big upside is increased service – if it works, customers will love it – which should lead to higher sales, which leads to higher inventory turns, which leads to fewer markdowns, which means better gross margins.

So should B&N try to implement a system like this? Probably not. I suspect this works for Nordstrom because they are selling expensive items that can more easily be tracked. If you are selling a handbag for $850, then you have plenty of margin and incentive to keep an accurate record of your in-store inventory. If you are selling a $12.50 book, the economics are not nearly as attractive to provide sufficient motivation for accurate inventory tracking. But there are plenty of product categories where I suspect the economics make sense, such as appliances, electronics, high margin sporting equipment (golf clubs, not basketballs), etc.

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One Response to Finally, a retailer pools inventory

  1. […] to tackle phantom stockouts. It could be, as Gerard Cachon and Christian Terwiesch identify in their take on the story, that inaccuracies affect less retailers that, like Nordstrom, carry expensive […]

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