Nordstrom Getting Back on Its Feet
As Nordstrom Inc. opened its first new department store in Los Angeles County in eight years Friday, the Seattle-based retailer appears to be on the mend.
After three disappointing years, Nordstrom is enjoying an improving stock price, rising earnings and positive Wall Street response to the company’s turnaround plans.
So far, however, much of the better showing comes from improved financial management. Back under the control of the family that gave the company its name, Nordstrom promises to focus on increasing revenue this year.
But as President Blake Nordstrom acknowledges, that goal will be no easy feat in today’s rough retail environment, which has been even harder on department stores.
“We’re not where we want to be. But what encourages us in these challenging times is that every day we’re taking a step forward,” Nordstrom said Thursday during ceremonies leading up to opening of the new store in the Grove shopping complex next to Farmers Market in Los Angeles. “Customers vote with their dollars and they have choices. We need to create a reason for them to shop with us.”
Since about 1999, Nordstrom customers have not had enough reasons. The company--famous for shoes to fit any foot and service reminiscent of an upscale haberdashery--seemed out of touch with much of the American public.
Nordstrom’s once-successful women’s apparel business withered as the offerings became too modern for its more traditional customer base.
And as more Americans turned to value-priced stores, rewarding discounters Target Corp. and Wal-Mart Stores Inc. with huge sales gains even in the highflying days of the late 1990s’ boom economy, Nordstrom seemed to stand alone as the store least likely to offer shoppers a deal.
In fact, until an unprecedented sale after Sept. 11, Nordstrom steadfastly refused to deviate from its policy of holding just three promotions a year even as competitors rushed to advertise a new special every weekend.
Nordstrom’s biggest reason for holding off on markdowns pointed to another problem, analysts say.
The company’s systems were so antiquated that--unlike other large chain stores that employ sophisticated technology capable of quickly tracking the most specific details about sales--Nordstrom had scant information about what was selling and what wasn’t. That made it nearly impossible to decide quickly on markdowns.
For about three years, sales have grown as the company has added stores, which now total 133. But sales in stores open at least a year have hovered between flat and falling.
Same-store sales are considered an important measure of a company’s health because they measure sales from consistent locations, excluding new and closed stores.
Earnings suffered as well. Operating income in 1999 was $277.6 million on revenue of $5.03 billion. In 2001, with revenue of $5.5 billion, operating income slipped to $131.9 million.
Wall Street punished the company’s stock. From a high of nearly $45 in early 1999, the stock had plunged as low as $13.80 in September.
For the last 18 months, since the Nordstrom family took back the job of running the company from ousted Chairman and Chief Executive John Whitacre, Nordstrom has been trying to catch up.
Blake Nordstrom, under his father, board Chairman Bruce Nordstrom, spent much of last year tightening the corporate belt, reforming financial operations and updating stores’ systems. That meant slashing expenses, cutting inventory and slowing growth.
Their opportunity, the Nordstroms say, is to capitalize on the financial fixes to make merchandise and service fixes.
Recapturing lost customers and gaining new customers, analysts say, is a tougher proposition.
Balancing the company’s merchandise mix is just one of the challenges, analysts say.
Nordstrom, they say, must continue to keep inventories lean while broadening its price range, appealing to value-seeking shoppers and its more traditional, well-heeled base--which these days can be the same consumer shopping on different days or for different occasions.
There are some signs of improvement. Despite a tough year in 2001, Nordstrom’s fourth-quarter earnings beat estimates and rose 80% over the same period a year earlier, despite a 3.4% decrease in same-store sales.
The improvement came from fewer markdowns than the company anticipated and better cost controls, the company said.
Wall Street has rewarded the company stock, which closed Friday up 9 cents at $25.98 on the New York Stock Exchange, near its 52-week high and nearly double its September low.
“They’re making improvements under Blake Nordstrom,” said Bob Buchanan, a department store analyst with A.G. Edwards. “But their overall value message to the customers is insufficiently strong at a time when the customer increasingly demands strong value. There’s a reason why Wal-Mart and Kohl’s are showing huge gains. It’s because people are getting a deal there.”
And then there’s the service issue. Once the industry envy, Nordstrom’s service has declined along with that of just about every other American retailer.
The difference is that Nordstrom used its customer relations as a point of differentiation--an increasingly important goal as department stores are struggling to avoid the sameness that forces even tougher price competition.
“Nordstrom must be careful not to let the value formula overtake its image as a service-driven company,” said Morgan Stanley analyst Bruce Missett.
