Nordstrom, Inc.

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Nordstrom, Inc.

Contact Information:

headquarters: 1501 5th ave.
seattle, wa 98101 phone: (206)628-2111 fax: (206)628-1795 url: http://www.nordstrom-pta.com

OVERVIEW

Nordstrom, Inc. is an upscale retail fashion chain whose merchandise includes apparel, shoes, and accessories for men, women, and children. Nordstrom operates 92 stores including 65 full-line stores, 21 Nordstrom Racks outlet stores, 3 Faconnable boutiques, 2 free-standing shoe stores in Hawaii, and 1 clearance store. Unlike traditional department stores, Nordstrom does not carry home furnishings. Along with its stores, outlets, and boutiques, Nordstrom leases 12 shoe departments in Hawaii and Guam.

Nordstrom is renowned for providing excellent customer service. The company's employees, known as "Nordies," are noted for being enthusiastic about their jobs and their customers. Members of the Nordstrom family continue to be extremely influential in the decisions regarding the store and its merchandise. The company has been passed down through several generations, and in 1995 it had six Nordstrom co-presidents. In 1998, the Nordstrom family owned approximately 36 percent of the company's outstanding shares.

COMPANY FINANCES

In 1997 women's apparel and accessories accounted for 55 percent of Nordstrom's total sales. Twenty-three percent of sales came from shoes, 18 percent from men's apparel and furnishings, and 4 percent from children's apparel and accessories. Over the three years from 1995 to 1997, Nordstrom's net revenues grew from $4.11 to $4.45 to $4.85 billion, but from 1995 to 1996, net earnings slipped from $165.0 to $147.5 million. Some say this was due to Nordstrom's failure to recognize Americans' enthusiasm for brand names and logos. This enthusiasm apparently caused some consumers to shop elsewhere while Nordstrom scrambled to obtain the latest most popular labels.

The slide in earnings caused a fall in stock price, from almost $53.00 in May 1996 to less than $38.00 a share in March 1997. Nonetheless, in 1997 Nordstrom rallied, with net earnings reaching $186 million. From 1996 to 1997, Nordstrom stock had an earnings per share (EPS) increase of 32 percent from $1.82 to $2.40 on a 9-percent increase in sales. From April 1997 to April 1998, stock prices steadily increased from $39.25 to $65.44 with an annual dividend increase from $.50 to $.53 per share.

HISTORY

In 1887, 16-year-old John Nordstrom arrived in Minnesota from Sweden with $5 and almost no ability to speak English. Nordstrom worked his way across the United States as a lumberjack, a miner, and a general laborer, until he reached Seattle where he resided until 1897. After reading a newspaper headline proclaiming a gold strike in Alaska, Nordstrom decided to head north and try his luck mining for gold. Two years later, he returned to Seattle with $13,000 from gold mining, and in 1901 he opened a shoe store with Carl Wallin, a shoemaker he had met in Alaska. Appropriately, the store was called Wallin & Nordstrom.

The first day, the store had $12.50 in sales. But business quickly grew and, by 1923, Wallin and Nordstrom opened a second store in Seattle. Five years later, at the age of 57, Nordstrom retired and passed along his half of the business to his sons Everett and Elmer. At this time there was also a second store in operation. The following year, Wallin sold his portion to the Nordstrom sons. In 1930, the two Seattle stores made $250,000 in shoe sales, in spite of the onset of the Depression, and in 1933, a third son, Lloyd, joined the company. Due to leather rationing in World War II, however, the Nordstroms were forced to expand nationwide in search of supplies of shoes. In 1946, Wallin & Nordstrom was incorporated as Nordstrom, Inc., and in the decades following World War II, the Nordstroms built their company and it thrived. In 1961 Nordstrom employed 600 workers and grossed $12 million in sales in its 8 shoe stores and 13 leased shoe departments in California, Oregon, and Washington. By 1963 the company was the largest independent shoe store chain in the country.

At this time, the Nordstrom brothers decided it was time to expand their business and decided to diversify. In 1963, they acquired Seattle-based women's clothing store, Best Apparel, which had locations in Seattle and Portland. In 1965, the Nordstroms opened another Best Apparel adjacent to one of their shoe stores in the suburbs of Seattle. The following year, Nordstrom purchased Nicholas Ungar, a Portland fashion outlet, and merged it with its Portland shoe store. This was the beginning of the modern Nordstrom department store of the late twentieth century. Between 1965 and 1968, Nordstrom opened five apparel-and-shoe stores. In 1967, the company changed its name to Nordstrom Best and, at about this time, also began selling men's and children's clothing.

In 1968, the three Nordstrom brothers then running the company—Everett, Elmer, and Lloyd—decided to pass the company along to the next generation of Nordstrom men. In 1970 one of Everett's sons, two of Elmer's sons, Lloyd's son-in-law, and a family friend, took control of the business. The following year the company went public, offering Nordstrom Best stock on the over-the-counter market. In 1973, when Nordstrom Best's sales first exceeded $100 million, the company changed its name again to Nordstrom, Inc.

Through the 1970s Nordstrom continued to grow by opening new stores, increasing sales, and continuing to diversify their merchandise. Annual sales reached $130 million in 1974 and the following year, the company acquired three stores in Alaska. In 1976, Nordstrom launched Place Two, a series of smaller stores offering select men's and women's apparel and shoes. In 1978 Nordstrom opened an outlet in Orange County, California, and that year, sales reached almost $300 million and the company netted $13.5 million in earnings. At that time executives began planning an aggressive expansion that would call for adding 25 stores during the 1980s. By 1980 Nordstrom was the third-largest specialty retailer in the United States, operating 31 stores in 6 states, with sales of $407.0 million and earnings of $19.7 million. Between 1980 and 1983, sales rose to $787.0 million and earnings more than doubled, reaching $40.2 million. Nordstrom began a third division in 1982—a series of outlet stores the company could use to move old merchandise at discounted prices; the company called the stores Nordstrom Rack. At this time, the company grew most rapidly in California, where by 1984, Nordstrom had 7 stores. Before 1990 that number would reach 22.

It was in the 1980s that Nordstrom's customer service became famous, almost mythical. Tales were spread about Nordstrom's clerks—some loaned money to strapped customers, accepted receipt-less returns without question, paid parking tickets customers unwittingly incurred while shopping, and sent tailors to customers' homes. Nordstrom's sales force worked on commission and received constant pep talks and motivational reinforcement from management. In 1985, Nordstrom's sales first exceeded $1 billion. Two years later, the company's sales reached almost $2 billion ($1.92 billion) with profits of $92.7 million. In the late 1980s, Nordstrom began developing the reputation of being a top-of-the-line, full-service department store.

In 1986 Nordstrom had 53 stores in 6 western states and the company began to look eastward; two years later, in March 1988, Nordstrom opened its first East Coast store just outside Washington, D.C. in McLean, Virginia. Opening day sales at the store reached more than $1 million, a record for opening-day sales in the company's history. That year, the Virginia store accumulated $100 million in sales. The same year, Nordstrom opened its largest store yet, a luxurious 350,000 square-foot facility in San Francisco. By 1988, Nordstrom had 58 stores and 21,000 employees. At the end of decade, the company's expansion continued: Nordstrom opened another store in the Washington, D.C. area and two outlets in California.

Settlements from employee lawsuits regarding under compensation for their services in the late 1980s and the early 1990s cost the company tens of millions of dollars. The company was also hurt by the San Francisco earthquake in 1989, which significantly deflated retail sales in that area, and by a general decline in sales nationwide. Earnings in 1989 fell 7 percent from the previous year, from $123.3 million in 1988 to $115.0 million in 1989, despite a 15 percent sales increase. In September 1990, the company announced it would trim costs by 3 to 12 percent and it promptly laid off personnel.

FAST FACTS: About Nordstrom, Inc.

Ownership: Nordstrom is a publicly owned company traded on NASDAQ.

Ticker symbol: NOBE

Officers: John J. Whitacre, Chmn., 45, 1997 pay $350,000; Blake W. Nordstrom, 37, Co-Pres.; Erik B. Nordstrom, 34, Co-Pres.; J. Daniel Nordstrom, 35, Co-Pres.; James A. Nordstrom, 36, Co-Pres.; Peter E. Nordstrom, 35, Co-Pres.; William E. Nordstrom, 34, Co-Pres.

Employees: 39,600

Principal Subsidiary Companies: Nordstrom's subsidiary companies include: Faconnable New York, Nordstrom Credit Inc., Nordstrom Inc., Nordstrom Factory Direct, and Nordstrom Rack.

Chief Competitors: As an upscale independent fashion specialty department store, Nordstrom's competitors include: Saks; Neiman Marcus; May Department Stores; Lord & Taylor; Foley's; Robinsons-May; Federated Department Stores; Bloomingdale's; Bon Marche; and Macy's.

In spite of the recession of the early 1990s, Nordstrom opened new stores in the East and the Midwest: in Paramus, New Jersey, in September 1990 and in Oak-brook, Illinois; Riverside, California; Edison, New Jersey; and Bethesda, Maryland, in 1991. In 1990 sales rebounded slightly—8 percent—and profits rose less than 1 percent. Slow growth continued for Nordstrom in the early to mid-1990s, due in part to a serious recession in southern California where much of the store's square-footage was located. Sales increases in the 1990s were mainly due to new store openings; existing store sales were flat.

Nordstrom continued to expand through the late 1990s, adding more full-line stores, more Rack stores, and more boutiques—in California, Colorado, Connecticut, Michigan, New York, Ohio, Pennsylvania, Rhode Island, Washington, and Texas. In the early 1990s, Nordstrom introduced its first mail-order catalog, opened the first Nordstrom Factory Direct store in 1993 outside Philadelphia, and offered a proprietary Visa card in 1994. That same year, Nordstrom joined U.S. West and J.C. Penney Co. to begin testing an interactive home shopping channel. Nordstrom also turned to technology to help improve customer service, increase sales, and monitor inventory, personnel, payroll, and benefits processing.

In the second half of the 1990s, the company again changed hands when, in 1995, the third generation of Nordstroms handed the business over to former Nordstrom co-presidents Ray Johnson and John Whitacre who, in turn, were replaced by six fourth-generation Nordstroms in June of that year. This new generation of Nordstroms was now faced with the task of running their enormous family business at a time when sales were sluggish and competition fierce.

In the 1990s, Nordstrom expanded rapidly. In 1996, the company opened stores in the Philadelphia, Dallas, Denver, and Detroit areas. The following year, it added stores in Garden City, New York; Farmington, Connecticut; and Beachwood, Ohio. That same year, Nordstrom also opened two Rack stores (one in Bellevue, Washington and one in Hempstead, New York), two Faconnable boutiques in California (one in Beverly Hills and one in Costa Mesa) and a shoe store in Honolulu, and it expanded two already-existing California Rack stores. In 1998, Nordstrom planned to open three more full-line stores (in Georgia, Kansas, and Arizona) and four Rack stores (in Oregon, Minnesota, California, and Colorado) and, the following year, it planned another four full-line stores (in Virginia, Rhode Island, California, and Maryland) and another Rack store in Los Angeles.

STRATEGY

Nordstrom has consistently maintained enormous inventories, usually twice that of other department stores, with great variety. This contributes significantly to Nordstrom's ability to provide excellent customer service. Personal service has been a hallmark of Nordstrom since early in the company's history. The company tells of how on opening day of the Wallin & Nordstrom shoe store in Seattle in 1901, Nordstrom was unable to locate the shoe a woman desired in his stock. Not to be deterred, Nordstrom grabbed the pair from the display window and made the company's first sale.

In the 1980s, Nordstrom's customer service included free coat check service, concierges, and piano players entertaining customers while they shopped. This policy also caused the company some problems with the employees' union. In 1989 a group of unionized employees complained that they were not being compensated for performing company-required, extra services for customers. Early in 1990, the Washington State Department of Labor and Industries found that the company had consistently broken state laws by failing to compensate employees for a variety of duties and ordered Nordstrom to change its procedures for compensation and record-keeping and to compensate about 30,000 of its employees for back wages. In spite of the settlement, over the next three years, the company was the target of several class-action lawsuits involving these issues. The company finally settled the suits out of court for between $20 to $30 million.

CHRONOLOGY: Key Dates for Nordstrom, Inc.

1901:: The Wallin and Nordstrom shoe store opens in Seattle, Washington
1928:: John Nordstrom retires and passes his shares to his sons
1963:: Nordstrom acquires Best Apparel
1965:: The company begins to build its stores as combined shoe and apparel stores
1967:: The company becomes Nordstrom Best
1971:: Goes public
1973:: Nordstrom Best becomes Nordstrom, Inc.
1982:: Nordstrom Rack opens
1988:: Opens its first East Coast store outside of Washington, DC
1994:: The company joins U.S. West and J.C. Penney to create an interactive home shopping channel; Nordstrom, "The Catalogue" debuts
1998:: Nordstrom launches a second catalogue called "Nordstrom 2nd Nature"

A key to Nordstrom's excellent, legendary customer service has been the company's aggressive, enthusiastic sales force from which managers have generally been chosen. Managers routinely give pep talks to salespeople, and motivational exercises have been routine at Nordstrom. But Nordstrom's generous employee incentive program, which helped fuel the company's reputation for extraordinary customer service, and the company's nationwide expansion have contributed to a fall in earnings from 5.3 percent in 1988, to 3.91 percent in 1993, to 3.8 percent in 1998.

INFLUENCES

Extending its personal customer service to reach customers in their homes has been a goal of Nordstrom's. In 1994, as cable giants began experimenting with the possibilities of interactive televison, Nordstrom partnered with U.S. West Inc. and J.C. Penney Co. to begin testing an interactive home shopping channel. Nordstrom hoped to be able to provide a service allowing customers to view merchandise on their home television sets and, at the same time, to view a sales associate on the screen with whom they could interact.

The Internet and the World Wide Web has influenced many retailers, including Nordstrom, who see the advantage of reaching customers by computer. In the late 1990s, Nordstrom developed an Internet shopping program called "Nordstrom Personal Touch America." This program enables customers to shop from their computers and offers the service of a personal shopper. The personal shopper provides the customer with information on apparel, shoes, accessories, and name brands and alerts the customer to pending sales and the arrival of new merchandise that might suit the customer's tastes.

CURRENT TRENDS

In 1994 Nordstrom launched its first catalog, "Nordstrom, The Catalogue," entering the $9 billion direct-mail portion of the women's apparel industry. In 1997 Nordstrom catalog sales increased 50 percent, and the company found that customers receiving Nordstrom's catalog spent 15 percent more in-store than customers not receiving the catalog. At the end of March 1998, Nordstrom launched its second catalogue, "Nordstrom 2nd Nature," featuring casual, moderately priced apparel, shoes, and accessories geared toward young women.

Nordstrom has maintained and extended its policy of excellent customer service, most recently by keeping pace with technological innovations including the development of detailed sales floor information available in all full-line stores; by using automatic merchandise replenishment systems directly linked to vendors, operative in about 16 percent of the company by the end of 1998; and by merging various database systems to improve customer service. Through the use of software from Infosys Technologies based in Bangalore, India, Nordstrom has been able to decentralize its buying so stores' inventories match the tastes of local consumers. According to Forbes Magazine, custom inventory and financial software has saved Nordstrom millions of dollars.

PRODUCTS

Nordstrom's manufacturing division, Nordstrom Product Group (NPG), designs, makes, and markets clothing, shoes, and accessories under the brand names Classiques Entiers, Evergreen, Callaway Golf by Nordstrom, and the Greta Garbo Collection. NPG also manufactures lower priced lines including its Preview Collection, Career Essentials, N Kids, and Baby N. Nordstrom's own brand of men's dress shirts accounts for over 75 percent of the volume of dress shirts in its men's furnishings department. All told, NPG accounts for over 20 percent of Nordstrom's total sales. Moreover, NPG is about the twentieth largest U.S. apparel importer and the forty-ninth largest footwear importer.

CORPORATE CITIZENSHIP

Nordstrom opened on-site mammography centers in their stores in California, Illinois, and Washington in 1995 and 1996 to encourage women to get examinations for early detection of breast cancer. Women were able to walk in to the centers for the test and then had the option to either have the results sent to their doctor or directly to their homes. In California the fee for the test was $90, which was common in that state. Some locations offered a lower price of $50 as an incentive for women to come in. Company officials made it known that they would not receive any profit from the screenings.

Unfortunately, reactions were not all positive. Some, like Dr. McClure Hall of Seattle, suspected Nordstrom was promoting the mammograms to stimulate public relations. Hall said, "They are doing the best job they can, but I think they are misleading American women to think it can be done as well at Nordstrom as at their traditional (health care) place." Others, like Dr. Kevin Kelly, director of mammography for the Hill Medical Group, supported Nordstrom's initiative, expressing hope that such efforts would reach women who have busy schedules and fail to make the appointment for an annual exam, as well as those who are afraid to be around doctors. Nordstrom planned to expand this service to continue the fight against breast cancer.

EMPLOYMENT

In spite of the lawsuits brought against Nordstrom by its employees for under-compensation in the 1980s, a

SHOPPING BY LIFESTYLE

Nordstrom's stores are distinctly organized into a variety of different departments, each geared toward a particular lifestyle. This creates a look of separate boutiques within the store and appeals to a wide range of customers. Since the department store offers only clothing, shoes, and accessories, its main departments are women's, men's, and children's apparel. Not surprisingly, women's apparel offers the largest choice.

Women's apparel is divided into five main departments, each of which is presented to the customer in several sub-departments. The five departments are Women's Designer Apparel, Women's Bridge Apparel, Special Sizes, Moderate Apparel Department, and Women's Activewear. In Women's Designer Apparel, the customer can choose, for example, between the Collectors line, featuring contemporary collections of the most famous American and European designers; the Couture Boutique, where most customers shop by appointment; or the Special Occasion, which offers sophisticated evening-wear. All of these departments have restrooms and phones in the dressing rooms. Outside, weary husbands and children will find waiting rooms with couches, televisions, and videocassette players. Lunch is available in these departments to those customers who've worked up an appetite while shopping or browsing.

Women's Bridge Apparel, another of Nordstrom's main sections, is presented in four lifestyle departments: Savvy, Individualist, Gallery, and Studio 121. The Savvy Department offers progressive fashion collections of innovative, up-to-date styles by the world's leading designers, featuring advanced contemporary sportswear. Individualist is the largest department, made up of career and casual dress; whereas Gallery offers elegant designer dresses, suits, coats, and sportswear collections by designers exclusive to Nordstrom's. Studio 121 offers a collection of more traditional clothing and accessories of higher quality. The store's Moderate Apparel Department, finally, is geared towards women under age 30, featuring up-to-date and comfortable fashion at affordable prices.

Fortune Magazine survey has called Nordstrom one of the top 100 places to work in America and, from 1993 to 1997, Hispanic Magazine ranked Nordstrom among the top 100 companies in the United States offering the most opportunities to Hispanics. Nordstrom sales associates earn an average of $29,000 in base pay annually, much higher than most in the industry. Sales associates are treated as entrepreneurs with their own clientele and are free to move throughout the store's departments with their clients.

SOURCES OF INFORMATION

Bibliography

1997 nordstrom annual report. seattle, wa: nordstrom inc., 1997.

"how we got our start." nordstrom home page, april 1998. available at http://www.nordstrom-pta.com.

mcdowell, jeanne, stacy perman, and jane van tassel. "business: losing its luster despite exquisite service nordstrom has suffered a profit slump. can the tony retailing chain get the magic back?" time, 24 march 1997.

moriwaki, lee. "nordstrom initiates mammography push in 3 states." the seattle times, 12 september 1996.

"nordstrom, inc." hoover's online, 21 april 1998. available at http://www.hoovers.com.

"nordstrom to launch new direct mail catalog." company press release, 26 march 1998.

pederson, jay p., ed. "nordstrom, inc." international directory of company histories, vol. 18. detroit, mi: st. james press, 1997.

rao, srikumar s. "silicon valley goes east—way east." forbes magazine, 17 november 1997.

"s&p description: nordstrom, inc." standard & poor's, 10 march 1998.

For an annual report:

on the internet at: http://www.nordstrom-pta.com/haveaquestion/_haveaquestion.htmlor write: investor relations, nordstrom, inc., po box 2737, seattle, wa 98111