Nordstrom and Macy’s Bold Move Towards Financial Clarity

The retail industry is witnessing a pivotal change as Nordstrom and Macy's shift from traditional inventory accounting to cost-based methods, providing a clearer picture of profitability. This evolution emphasizes the need for accuracy and adaptability in modern retail to enhance financial health and transparency.

• Nordstrom and Macy's lead a transition in inventory accounting 
• Traditional retail accounting creates distorted financial metrics 
• Cost accounting offers a clearer view of profitability 
• Advanced technology enables accurate financial tracking 
• A broader trend in the retail industry emphasizes accuracy 
• This shift is essential for competitiveness and investor appeal

Transcript

Speaker 1: 0:05

Hello everyone, I'm Scott Benedict. I was intrigued recently by an article in Retail Dive about how two venerable department store retailers, nordstrom and Macy's, were making a long overdue change to their inventory accounting system system. Now, to those outside the retail industry, this might not sound like an interesting new item or an intriguing development in retail, but I can tell you as a long-time retail merchant like myself, this development really caught my eye. You see, old store department store retailers have, for more than a century, valued their inventory at its retail selling price rather than at the cost they paid for the product. Such an approach was a staple in our industry for decades.

Speaker 1: 0:50

However, retail accounting could distort key financial metrics, leading to misleading profit margins and inaccurate financial statements. Additionally, it struggles to keep up with the rapidly changing inventory costs, markdowns and fluctuating consumer demand. By contrast, cost accounting methods, which I utilize for most of my merchandising career, provide a much clearer picture of a retailer's financial health by evaluating inventory based on its actual purchase costs rather than estimates. With the rise of advanced data analytics and real-time inventory tracking, retailers can now adopt a more precise accounting practice that reflects their true business performance. Now, nordstrom and Macy's aren't alone in this transition, as technology continues to evolve, more holdout retailers are expected to embrace cost-based accounting, and doing so improves their financial transparency and operational efficiency. Investors and analysts alike favor this shift, as it enhances comparability between companies and provides a more accurate view of profitability.

Speaker 1: 2:01

Moving away from retail accounting signals a broader trend in the retail industry, one that prioritizes accuracy, adaptability and modern financial management. For retailers looking to stay competitive, adopting cost-based accounting methods isn't just a recommended approach. It's really becoming a necessity. That's what I've been thinking about. I'm Scott Benedict.