NEW YORK — In an unusual disclosure, Nordstrom Inc. listed vendor allowances for the first time in its annual report and said they came to $206,404,000 in 2004.
The tactic is interesting in the light of government investigations of Saks Inc. involving improper collections of vendor allowances and related accounting practices. Several Saks staffers have been fired as a result of an internal investigation, and there are ongoing probes by the Securities and Exchange Commission and the U.S. Attorney in the Southern District of Manhattan. Saks is also facing two lawsuits from vendors contending that Saks illegally took allowances.
In a response to a WWD query, Nordstrom said in a statement, “We consider our relationship with our vendors a partnership, and some chargeback activity is standard industry practice. We have internal controls in place and are comfortable with our practices regarding chargebacks. We disclosed the information about vendor allowances in response to comments from the SEC to enhance our disclosures.”
Nordstrom broke out vendor allowances into four categories, indicating the following:
- Purchase price adjustments came to $47,707,000 in 2004, or 0.7 percent of sales. Purchase price adjustments came to $49,312,000 in 2003.
- Cosmetic selling expenses came to $96,936,0000 last year, versus $88,518,000 in 2003.
- Co-op advertising came to $57,786,000, against $44,939,000.
- Vendor-sponsored contests came to $3,975,000, against $4,180,000.
The total of $206,404,000 in vendor allowances is small in comparison to Nordstrom’s overall volume last year of $7.1 billion. Pretax earnings came to $647,281,000 last year.
Nordstrom has been on a roll for several seasons, and this week reported income jumped 52 percent for the first quarter, with earnings per diluted share of 75 cents surpassing Wall Street’s estimate of 69 cents.
Nordstrom also cited a research note on May 13 by Credit Suisse First Boston titled “JWN 10-K Sheds light on vendor allowances….” The note states: “As far as we know, Nordstrom was the first broadline retailer to ever provide this level of detail on the subject.” It also states, “In Nordstrom’s case, we are not surprised to see a decline in markdown money from vendors, given improved inventory efficiency.”
“It’s closer to full disclosure than I have ever seen before, and it may set a standard for the industry. I admire the company for being so forthcoming,” said retail analyst Walter Loeb.
Federated Department Stores and Saks Inc. said they do not list vendor allowances in their annual reports.
“It’s possible that Nordstrom is doing this to get out in front of the vendor allowance issue and fully disclose exactly what is happening,” observed Scott Friend, president of ProfitLogic, a technology provider that helps retailers manage markdowns and assortment planning.
One financial source indicated the SEC from time to time reviews a company’s 10-K, sends them a comment letter, and then the company responds back with additional information.
“For many of the larger retailers, the vendor allowances represent a large percentage of their pretax income,” said Irwin Cohen, senior adviser, Peter J. Solomon.