Nordstrom 2011 Annual Report Download - page 19

Nordstrom, Inc. and subsidiaries 19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Dollar, share and square footage amounts in millions except percentages, per share and per square foot amounts
OVERVIEW
Nordstrom is a fashion specialty retailer offering high-quality apparel, shoes, cosmetics and accessories for women, men and children. We offer a
wide selection of brand name and private label merchandise through various channels: our ‘Nordstrom’ branded full-line stores and website, our
off-price ‘Nordstrom Rack’ stores, our online private sale subsidiary ‘HauteLook,’ our ‘Jeffrey’ boutiques and our philanthropic ‘treasure&bond’ store.
Our stores are located in 30 states throughout the United States. In addition, we offer our customers a variety of payment products and services,
including credit and debit cards with an associated loyalty program.
In 2011, we achieved record total net sales of $10,497, an increase of 12.7%, while growing earnings before interest and taxes (“EBIT”) by 11.7%. This
reflects our ongoing efforts to improve the customer experience across all channels, combined with consistent execution and various growth
initiatives. As customers’ expectations of service evolve, the consistency of the customer experience across all channels becomes more important,
including factors such as expanded selection, multi-channel capabilities, personalization, speed, convenience and price.
To enhance the customer experience online, we have accelerated our investments in e-commerce. We acquired HauteLook, a leader in the online
private sale marketplace. We believe this acquisition will help us further develop our mobile and e-commerce capabilities and enable us to
participate in the fast-growing private sales channel. In the third quarter, we began offering free standard shipping and free returns for online
purchases and did limited testing of same-day delivery. We also made enhancements to our website and mobile website. We believe these changes
make it easier and more convenient to shop with us. Our combined efforts to enhance the online experience led to a meaningful sales increase in the
online channel, which is where we expect to have the strongest percentage growth in the future.
Our strong financial position enables us to continue to make investments in the customer experience to improve our store and online business while
also growing through new stores, remodels and other initiatives. During 2011, we opened three Nordstrom full-line stores, eighteen Nordstrom Rack
stores and remodeled six Nordstrom full-line stores. We also opened a philanthropic store in New York called treasure&bond. In 2012, we plan to open
one Nordstrom full-line store and have announced twelve new Nordstrom Rack stores. In addition, we have announced plans to relocate two existing
Nordstrom Rack stores and remodel eight Nordstrom full-line stores.
Our overall goals are to achieve high single-digit total sales growth and mid-teens Return on Invested Capital (“ROIC”). We believe that top-line
growth and ROIC correlate strongly with shareholders’ return. As we continue to invest in new stores and remodels, we also want to enhance the
customer experience through increased spending on e-commerce and technology. These investments flow through our expenses at a faster pace
than other investments in previous years. We believe they will increase our ROIC through high growth in sales dollars and EBIT, as opposed to EBIT
margin, with an incrementally productive capital base.
Fashion Rewards plays an important part in building customer loyalty, and our Fashion Rewards members shop more frequently and spend more
with us on average than non-members. Approximately one-third of our sales are from Fashion Rewards customers and the program continues to
grow as more members use our tender as a convenient way to shop and earn rewards. During the year, customer payment rates continued to
improve, resulting in decreasing delinquency and write-off trends, while our credit and debit card volumes increased. In January 2012, we enhanced
our Fashion Rewards program, giving customers more control over how and when they can earn rewards and extending more benefits to
our cardholders.
As we look forward to 2012, we remain focused on improving customer service and providing a superior shopping experience. We have a
customer-driven strategy, allowing us to execute our current operating plans across all channels while targeting investments in e-commerce and
technology to enhance our platform for sustainable, profitable growth.
RESULTS OF OPERATIONS
Our reportable segments are Retail and Credit. Our Retail segment includes our Nordstrom branded full-line stores and website, our Nordstrom Rack
stores, and our other retail channels including HauteLook, our Jeffrey stores and our treasure&bond store. For purposes of discussion and analysis
of our results of operations, we combine our Retail segment results with revenues and expenses in the “Corporate/Other” column of our segment
reporting footnote (collectively, the “Retail Business”). We analyze our results of operations through earnings before interest and income taxes for
our Retail Business and earnings before income taxes for Credit, while interest expense and income taxes are discussed on a total company basis.