Dive Brief:

• Nordstrom is increasing its use of pack-and-hold inventory "by a factor of two times to three times" at its Rack subsidiary as it expects macro supply chain disruptions to persist into 2022, CEO Erik Nordstrom said on the company's Q3 earnings call.
• Through this approach, Nordstrom Rack will buy larger quantities of relevant items when available and hold a portion of it for deployment "in periods with high demand, tight supply or system constraints," Nordstrom said.
• The retailer expects its inventory levels to remain elevated through the end of the fiscal year as it invests in pack and hold at Rack and ships products earlier to meet holiday demand. CFO Anne Bramman said the company will also pull volume forward for spring products in the next two quarters.

Dive Insight:

Pack and hold had helped Nordstrom build inventory during a period of aggressive store expansion. Now, the company is using the strategy again to bolster its ability to maintain sales despite supply chain disruptions.

Nordstrom Rack has "been significantly under inventory plans all year," according to Nordstrom. The off-price subsidiary's top 50 brands have made up 42% of its sales year-to-date, down from 50% in 2019. This shows "the outsized gap in the merchandise availability," he said.

The retailer has tried to increase its supply as quickly as possible, but it has had challenges securing inventory in certain core categories that saw jumps in demand like women's apparel and shoes, executives said on the call.

"So, I think we've had to learn from that, and we've got to be better at planning that out and making sure we have a more balanced approach flowing the inventory in," said President and Chief Brand Officer Pete Nordstrom. "You heard that with pack and hold, that's a mitigating strategy. That will be good for us."

After the COVID-19 pandemic stymied product flows for many retailers, various companies adjusted their inventory strategies. In the pandemic's early days, Calvin Klein and Tommy Hilfiger owner PVH mulled pack and hold for some of its spring and summer inventory to preserve its ability to sell around full price.

Recently, more companies have turned to holding inventory for future seasons due to supply chain delays.

Gap, for example, is evaluating what products delayed out of Vietnam "can get reflowed into a future season" or be part of a pack and hold for next year, CFO Katrina O'Connell said on an earnings call. And Urban Outfitters is pulling orders forward to adapt to longer lead times.

"Over the last six, seven years, we have consistently talked about keeping our inventory as lean as possible," Urban Outfitters COO Frank Conforti told investors. "Right now, we don't have the choice of doing that because the supply chain is anywhere from four to six weeks longer than it was two years ago."