Nordstrom 2005 Annual Report Download - page 14

6
ABILITY TO RESPOND TO THE BUSINESS ENVIRONMENT AND FASHION TRENDS
Our sales and operating results depend in part on our ability to predict or respond to changes in fashion trends and consumer preferences in a
timely manner. Any sustained failure to identify and respond to emerging trends in lifestyle and consumer preferences could have a material
adverse affect on our business. Consumer spending at our stores may be affected by many factors outside of our control, including consumer
confidence, weather and other hazards of nature that affects consumer traffic, and general economic conditions.
INVENTORY MANAGEMENT
We strive to ensure the merchandise we offer remains fresh and compelling to our customers. If we are not successful at predicting our sales trends
and adjusting our purchases, we may have excess inventory, which would result in additional markdowns and reduce our operating performance.
IMPACT OF COMPETITIVE MARKET FORCES
The recent retail industry consolidation changes the environment for many of our vendors and customers. In the future, our competition may
partner more effectively with vendors to serve the market’s needs. If we do not effectively respond to changes in our environment, we may see
a loss of market share to competitors, declining same-store sales, and declining profitability due to higher markdowns.
STORE GROWTH STRATEGY
As of March 2006, our plans for the next three years include opening 13 new stores and relocating or remodeling 18 existing stores. In the past,
our expected opening dates have sometimes been delayed because of development plan delays. Our future growth could be negatively impacted
by delays to our store opening, relocating or remodeling plans. In addition, our future net sales at new, relocated or remodeled stores may not meet
our projections, which could reduce our operating performance. Performance in our new stores could also be impacted based on our ability to hire
employees who are able to deliver the level of service customers have come to expect when shopping at our stores.
INFORMATION SECURITY AND PRIVACY
The protection of our customer, employee, and company data is critical to us. The regulatory environment surrounding information security and
privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements across our business units. In addition,
our customers have a high expectation that we will adequately protect their personal information. A significant breach of customer, employee, or
company data could damage our reputation and result in lost sales, fines, or lawsuits.
LEADERSHIP DEVELOPMENT AND SUCCESSION PLANNING
The training and development of our future leaders is critical to our long-term growth. If we do not effectively implement our strategic and business
planning processes to train and develop future leaders, our long-term growth may suffer. In addition, if unexpected leadership turnover occurs
without established succession plans, our business may suffer.
BOARD SUCCESSION
A number of our long-standing Directors who were instrumental in leading our Company have retired or will soon retire from our Board.
These Board members with extensive experience will no longer be actively involved in our business and development of our long-term strategy.
We are welcoming a number of new members to our Board, and we expect to benefit from their vast business experience.
MULTI-CHANNEL STRATEGY EXECUTION
In 2005, we started to make changes in our Direct business that better align our online shopping environment and catalog with the customer experience
in our Full-Line stores. These changes include: aligning our Direct merchandise offering with our Full-Line stores to create a seamless experience for our
customers between our stores, catalogs and Web site; integrating our Full-Line stores and Direct merchandise organization; recommending that our Full-
Line store salespeople utilize our Direct inventory to fulfill customer requests when merchandise is not available at the store; reducing the number and
frequency of our Direct catalog mailings; and transitioning our Direct inventory system onto our Full-Line store platform, all while dealing with changes
in the Internet market in general. If we made decisions that prove to not be embraced by our customers, our sales could decline. In addition, the cost
of integrating these businesses may be greater than expected, which would impact our future operating performance.
BRAND AND REPUTATION
We have a well-recognized brand that is synonymous with the highest level of customer service. Any significant damage to our brand or reputation may
negatively impact same-store sales, lower employee morale and productivity, and diminish customer trust, resulting in a reduction in shareholder value.
CAPITAL EFFICIENCY AND PROPER ALLOCATION
Our goal is to invest capital to maximize our overall returns. This includes spending on inventory, capital projects and expenses, managing debt
levels, managing accounts receivable through our credit business, and using our assets efficiently to return value to our shareholders. To a large
degree, capital efficiency reflects how well we manage the other key risks to our Company. The actions taken to address other specific risks may
affect how well we manage the more general risk of capital efficiency. Our recent operating results have raised expectations about our performance.
If we do not properly allocate our capital to maximize returns, we may fail to continue to produce similar financial results and we may experience
a reduction in shareholder value.