Retailer hopes its $67-million gamble is in the wrong place at the right time. : Nordstrom Store Breaks the Rules in San Francisco

Here’s a dumb-sounding idea.

Spend $67 million on an elegant store at a seedy, torn-up corner three rugged blocks from San Francisco’s acknowledged retail center, tony Union Square, where Macy’s, I. Magnin, Saks Fifth Avenue and Neiman Marcus make their homes.

Make people walk through a jungle of panhandlers, street musicians and sidewalk vendors to get there. Open in a mall that is still chaotic with construction work, has few other tenants as yet and offers no parking of its own. Don’t start the store on the ground level; instead, have customers track you down by riding up several stories on elevators or escalators.

It sounds like a formula for disaster. But observers figure that Nordstrom, the magnet store in the unusual mall, just could do the trick for Market Street, a part of town that has fallen on hard times in recent years.

“I don’t think that any retailer other than maybe Bloomingdale’s could have made this center viable,” said Ward P. Lindenmayer, a San Francisco area resident and vice president of the Sutro & Co. brokerage. “If anybody can turn Market Street around, I think it would be a combination of Nordstrom and this property.”

Seattle-based Nordstrom, which early this year successfully launched its first East Coast store in McLean, Va., today rolls out its largest store yet at Fifth and Market streets here, across from the cable car turnaround at the foot of Powell Street.

‘Biggest Gamble’

The 336,000-square-foot location, the retailer’s eighth store in Northern California, opens after a week of hoopla designed to get San Franciscans pumped up about prospects for revitalizing Market Street and challenging the upscale merchants of Union Square.

Even Co-Chairman Jim Nordstrom acknowledged this week that the store “is our biggest gamble” but that downtown San Francisco “has got so much to offer” that it is worth the risk.

And securities analysts who watch the company’s stock for clients figure that it’s a calculated risk that is bound to pay off for the 49-store chain, which posted sales of $1.07 billion for the first six months of this year, an 18.7% increase from the same period the year before.

“It’s a very impressive store in every respect,” Lindenmayer said, adding that he expects the store to have an extremely respectable $125 million to $150 million in sales its first year.

The store is perched around an atrium on the top five levels of a “vertical” mall developed by the Gordon Co. of Los Angeles, which also built the successful Beverly Center in Los Angeles. (The site previously housed a dilapidated office building where Dashiell Hammett is said to have written “The Maltese Falcon.”) The mall sports the nation’s first spiral escalators, made by Mitsubishi Elevator of Cypress, as well as five high-speed elevators that will whisk patrons directly to the first Nordstrom level.

Among the store’s highlights are an elaborate spa, where shoppers can be pampered with facials, manicures and massages for $195 a day; a full-fledged pub with furnishings from England; a champagne and caviar bar selling 103 selections of bubbly, some at $35 a glass; a mirrored room where customers may request custom blends of cosmetics and fragrances; a retractable skylight over the atrium, and spacious departments jammed with clothing.

Free Lunch Boxes

The center does have several things going for it, observers noted. The center will soon be directly attached to the city’s public transportation system and is across from a cable car turnaround at Powell Street. It is at the heart of an area containing the city’s convention center and a number of large hotels and parking garages. An estimated 300,000 residents and tourists pass the intersection each day.

To introduce itself to some of the city’s more influential denizens, the center on Wednesday offered cab drivers a free box lunch, just for stopping in to say hello.

Hoping to capture as much as 25% to 30% of its business from tourists, Nordstrom plans soon to allow customers to pay in other currencies and receive change in U.S. money at each cash register. Jim Nordstrom also indicated that the company is negotiating to buy a building behind the center for conversion into a parking garage.

The area’s prospects for a comeback apparently appeal to other savvy retailers as well. “It’s a tremendous boost for downtown,” said Douglas L. Stitzel, a San Francisco developer who reportedly has been negotiating a deal with Bloomingdale’s for a site at 4th and Market streets. “That block will eventually solidify and become a strong retail block. The Union Square area will expand in another concentric circle.”

Creates Second Core

Securing a prime piece of San Francisco real estate is an expensive proposition, noted Edward A. Weller, an analyst with the Montgomery Securities investment firm in San Francisco.

“It used to be perceived that you had to be on Union Square,” he said. “Over the last couple of years, (retailing) has been sprawling out from the core. This project validated the creation of a second core, and Nordstrom leaped at the opportunity.”

Gordon Co. lured Nordstrom to the upper floors with a sweet deal. Nordstrom, which considered Union Square to be too expensive, reportedly paid $30 million to buy its floors outright. And, analyst Lindenmayer noted, being on Market Street might be a mixed blessing anyhow, “if you’ve got a panhandler in every doorway.”

At least one competitor is welcoming Nordstrom with more open arms than one might expect. Emporium Capwell, a department store that has been fighting the Market Street battle almost single-handed for years, views Nordstrom’s entry as a plus.

“Anything that develops the Market Street area (is good),” said Bill Dombrowski, a spokesman for Los Angeles-based Carter Hawley Hale Stores, which owns Emporium Capwell. To spruce up its lackluster store and better compete with its dazzling new neighbor, Emporium is “working on a major remodel.”

Union Square retailers have attempted to convey the impression that they are not unsettled by Nordstrom’s arrival. “But it’s hard to believe they’re not nervous,” Lindenmayer said. If Nordstrom achieves $125 million or more in sales, “the biggest piece will come from everybody else.”