Nordstrom 2014 Annual Report Download - page 42

Table of Contents
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and per unit amounts
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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 in the U.S. and Canada,
Nordstrom Rack stores and at Nordstrom.com. Nordstrom Rewards customers receive reimbursements for alterations, get Personal Triple
Points days and have 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 shopping 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 2014 and 2013, the deferred credit
balance was $570 and $561.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of compensation and benefit 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 $195, $167 and $161 in 2014,
2013 and 2012 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 and
promotion 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 marked down or 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 2014 2013 2012
Cosmetic selling expenses $140 $137 $137
Purchase price adjustments 164 143 125
Cooperative advertising and promotion 102 103 92
Other 76 3
Total vendor allowances $413 $389 $357
Shipping and Handling Costs
Our shipping and handling costs include payments to third-party shippers and costs to hold, move and prepare merchandise for shipment.
These costs do not include in-bound freight to our distribution centers, which we include in the cost of our inventory. Shipping and handling
costs of $348, $267 and $240 in 2014, 2013 and 2012 were included in selling, general and administrative expenses.