Nordstrom 2015 Annual Report Download - page 42

Following the close of the transaction and pursuant to the program agreement with TD, credit card revenues, net includes our portion of the
ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables. Asset amortization and
deferred revenue recognition associated with assets and liabilities recorded as part of the transaction are also recorded in credit card
revenues, net.
Cost of Sales
Cost of sales includes the purchase cost of inventory sold (net of vendor allowances), in-bound freight and certain costs of our loyalty
program benefits.
Loyalty Program
Customers who use Nordstrom private label credit or debit cards or 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 and can translate into benefits such as reimbursements for
alterations. Other benefits include Personal Triple Points days and early access to sales 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, fulfillment facilities 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 2015 and 2014, the deferred credit
balance was $526 and $570.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of compensation and benefit costs, advertising, shipping and handling costs,
other miscellaneous expenses and, prior to our credit card receivable transaction in October 2015, bad debt expense related to our credit
card operations.
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 $227, $195 and $167 in 2015,
2014 and 2013 were included in selling, general and administrative expenses.
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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