Nordstrom 2013 Annual Report Download - page 41

Nordstrom, Inc. and subsidiaries 41
Loyalty Program
Customers who use our Nordstrom private label credit or debit card or our Nordstrom VISA credit cards can participate in the Nordstrom
Rewards program through which customers accumulate points based on their level of spending. Upon reaching a certain points threshold,
customers receive Nordstrom Notes, which can be redeemed for goods or services at Nordstrom full-line stores, Nordstrom Rack stores and
online at Nordstrom.com. Nordstrom Rewards customers receive reimbursements for alterations and personal triple points days, in addition
to early access to sales events. With increased spending, they can receive additional amounts of these benefits as well as access to
exclusive fashion and shopping events.
We estimate the net cost of Nordstrom Notes that will be issued and redeemed, and record this cost as rewards points are accumulated.
These costs, as well as reimbursed alterations, are recorded in cost of sales given that we provide customers with products and services for
these rewards. Other costs of the loyalty program, including shipping and fashion events, are recorded in selling, general and administrative
expenses.
Buying and Occupancy Costs
Buying costs consist primarily of compensation and other costs incurred by our merchandising and product development groups. Occupancy
costs include rent, depreciation, property taxes and facility operating costs of our retail, corporate center and distribution operations.
Rent
We recognize minimum rent expense, net of landlord reimbursements, on a straight-line basis over the minimum lease term from the time
that we control the leased property. For leases that contain predetermined, fixed escalations of the minimum rent, we recognize the rent
expense on a straight-line basis and record the difference between the rent expense and the rent payable as a deferred credit. Contingent
rental payments, typically based on a percentage of sales, are recognized in rent expense when payment of the contingent rent is probable.
We receive incentives from landlords to construct stores in certain developments. These property incentives are recorded as a deferred credit
and recognized as a reduction of rent expense on a straight-line basis over the lease term. At the end of 2013 and 2012, the deferred credit
balance was $561 and $544.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of compensation and benefit costs (other than those included in buying and
occupancy costs), advertising, shipping and handling costs, bad debt expense related to our credit card operations and other miscellaneous
expenses.
Advertising
Advertising production costs for Internet, magazines, store events and other media are expensed the first time the advertisement is run.
Online marketing costs are expensed when incurred. Total advertising expenses, net of vendor allowances, of $167, $161 and $128 in 2013,
2012 and 2011 were included in selling, general and administrative expenses.
Vendor Allowances
We receive allowances from merchandise vendors for cosmetic selling expenses, purchase price adjustments, cooperative advertising
programs and various other expenses. Allowances for cosmetic selling expenses are recorded in selling, general and administrative
expenses as a reduction of the related costs when incurred. Purchase price adjustments are recorded as a reduction of cost of sales at the
point they have been earned and the related merchandise has been sold. Allowances for cooperative advertising and promotion programs
and other expenses are recorded in selling, general and administrative expenses as a reduction of the related costs when incurred. Any
allowances in excess of actual costs incurred that are included in selling, general and administrative expenses are recorded as a reduction of
cost of sales. Vendor allowances earned are as follows:
Fiscal year 2013 2012 2011
Cosmetic selling expenses $137 $137 $128
Purchase price adjustments 143 125 108
Cooperative advertising and promotion 103 92 78
Other 63 2
Total vendor allowances $389 $357 $316
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Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts