Incorporated: 1901 as Wallin & Nordstrom
NAIC: 452110 Department Stores; 448140 Family Clothing Stores; 448210 Shoe Stores; 454110 Electronic Shopping and Mail-Order Houses
Nordstrom, Inc. was started in 1901 as a single shoe store in Seattle, Washington, that was opened by two Swedish immigrants. From those origins, the family-run enterprise expanded into a 180-outlet, 27-state chain, which tallied $6.49 billion in sales in 2003. In addition to more than 90 flagship Nordstrom department stores, the company also operates about 50 Nordstrom Rack outlet stores in the United States and around 35 Façonnable boutiques, most of which are located in Europe. Catalog and Internet sales are generated through the Nordstrom Direct unit. Carefully supervised expansion, tight family management, wide selection, and attentive customer service have long been the hallmarks of Seattle-based Nordstrom, one of the largest independent fashion specialty retailers in the United States. Members of the founding Nordstrom family continue to own about 20 percent of the company's stock.
John W. Nordstrom, a 16-year-old Swede, arrived in Minnesota in 1887 with $5 to his name and, after working his way across the United States, settled briefly in Seattle. In 1897 he headed north to Alaska in search of gold. He found it. In 1899, $13,000 richer, Nordstrom moved back to Seattle, where he opened a shoe store with Carl Wallin, a shoemaker he had met in Alaska. On its first day of business in 1901, Wallin & Nordstrom sold $12.50 in shoes.
Business quickly picked up. By 1905 annual sales increased to $80,000. The business continued to grow, and in 1923 the partners opened a second store in Seattle. By 1928, however, 57-year-old John Nordstrom had decided to retire from the shoe business, and passed on his share to his sons Everett and Elmer. Carl Wallin retired the following year and likewise sold his share to the next generation of Nordstroms. In 1930 the shoe stores were renamed Nordstrom's. In 1933 John Nordstrom's youngest son, Lloyd, joined the partnership.
The business that John Nordstrom left was substantially larger than the one he started back in 1901. It was up to the next generation of Nordstroms, however, to build on their father's success. In 1929 the Nordstrom brothers doubled the size of their downtown Seattle store. In 1930, despite the onset of the Great Depression, the two stores made $250,000 in sales. The shoe stores survived the Depression, but faced another severe threat during World War II, when leather rationing prohibited U.S. consumers from buying more than three pairs of shoes per year. The Nordstrom brothers had to search nationwide for supplies of shoes.
In the postwar decades, the Nordstrom brothers built the company into the largest independent shoe chain in the United States. In 1950 the Nordstroms opened two new shoe stores: one in Portland, Oregon, and one in a Seattle suburb--the latter located at Northgate Mall, the nation's first shopping mall. Nine years later, Nordstrom remodeled its Seattle flagship store, and stocked it with 100,000 pairs of shoes--the biggest inventory in the country. By 1961 Nordstrom operated eight shoe stores and 13 leased shoe departments in Washington, Oregon, and California. That year, the firm grossed $12 million in sales and had 600 employees on its payroll.
In the early 1960s, the Nordstrom brothers came to a crossroads of sorts. Spurred by their success, they were convinced that their business could expand. The brothers were unsure whether they should simply expand their shoe business to the East and South or branch out into other areas of retailing. The brothers chose to diversify, and purchased Best Apparel, a Seattle-based women's clothing store, in 1963. With the addition of apparel outlets, the company expanded rapidly. In 1965 the Nordstroms opened a new Best Apparel store adjacent to a Nordstrom shoe store in suburban Seattle. In 1966 the company acquired a Portland retail fashion outlet, Nicholas Ungar, and merged it with the Nordstrom shoe store in Portland, which was renamed Nordstrom Best.
In the late 1960s, the modern Nordstrom department store began to take shape. Between 1965 and 1968, the company opened five stores that combined apparel and shoes. In 1967, when annual sales had reached $40 million, the chain's name was changed to Nordstrom Best. The firm diversified further in these years, as Nordstrom Best began to sell men's and children's clothing as well.
In 1968 Everett Nordstrom turned 65, and he and his two brothers decided to turn over the reins of the company to the next generation of Nordstroms. Five men--Everett's son Bruce, Elmer's sons James and John, Lloyd's son-in-law John A. McMillan, and family friend Robert E. Bender--took control of the company.
In August 1971 the company went public, offering Nordstrom Best stock on the over-the-counter market. Family members retained a majority of the stock, however. In 1971 Nordstrom earned $3.5 million on sales of $80 million. In 1973, when sales first topped $100 million, the company changed its name to Nordstrom, Inc. That same year saw the opening of the first Nordstrom Rack, an outlet store used to move old inventories at discount prices. It was located in the basement of the downtown Seattle store.
The firm continued to grow steadily throughout the 1970s by opening new stores, increasing volume in existing stores, and diversifying. In 1974 annual sales hit $130 million. The following year, Nordstrom bought three stores in Alaska. In 1976 the firm launched a new division, Place Two, which featured, in smaller stores, a selected offering of men's and women's apparel and shoes. By 1977 Nordstrom operated 24 stores, which generated sales of $246 million.
In 1978 Nordstrom expanded into the southern California market, opening an outlet in Orange County. That year, the firm reaped $13.5 million in earnings on nearly $300 million in sales. Buoyed by the success, Nordstrom's executives charted an aggressive expansion program, and began to open bigger stores in California. Their late 1970s confidence presaged a decade of phenomenal, but controlled, growth.
By 1980 Nordstrom was the third largest specialty retailer in the country, ranking behind only Saks Fifth Avenue and Lord & Taylor. That year, the firm operated 31 stores in California, Washington, Oregon, Utah, Montana, and Alaska. In 1980 a new expansion plan called for 25 new stores to be added in the 1980s, and the Nordstroms projected that both earnings and total square footage would double by 1985.
The projection was not sufficiently optimistic. In 1980 sales hit $407 million, and in the next few years, sales and earnings continued to rise substantially. Between 1980 and 1983, when sales jumped to $787 million, earnings more than doubled, going from $19.7 million to $40.2 million. In 1982 Nordstrom established Nordstrom Rack as its third division, now consisting of a string of outlet stores. The chain's biggest growth area, however, was in the huge California market. By 1984 there were seven Nordstrom stores in that state. Five years later, Nordstrom had 22 full-size stores in California.
Nordstrom increasingly came to be recognized as an efficient, upscale, full-service department store. Its aggressive customer service plainly brought results. The firm consistently maintained the highest sales per square foot of retail space ratios in the industry, nearly twice those of other department stores.
Nordstrom's success was due to a variety of factors. Throughout its existence, shoes accounted for a good deal of the firm's sales--about 18 percent in 1989. In most fashion and apparel stores, shoes constitute a smaller percentage of sales. In addition Nordstrom consistently maintained huge inventories and selection, which were usually twice the size of other department stores. In the mid-1980s, a typical outlet stocked 75,000 pairs of shoes, 5,000 men's dress shirts, and 7,000 ties. Moreover, a decentralized corporate structure allowed local buyers, who knew their customers' needs, to make inventory selections.
Most significantly, though, Nordstrom's management encouraged the development of an aggressive sales force. The vast majority of Nordstrom clerks worked on commission, and the average salesperson earned $24,000 annually. Managers generally promoted from within the ranks of salespeople, which intensified the desire to sell.
In the 1980s the firm's customer service became legendary, as tales of heroic efforts by salespeople became legion: clerks were known to pay shoppers' parking tickets, rush deliveries to offices, unquestioningly accept returns, lend cash to strapped customers, and to send tailors to customers' homes. Salespeople received constant pep talks from management, and motivational exercises were a routine part of life at Nordstrom. Nordstrom also created an extremely customer-friendly environment. Many stores had free coat check service, concierges, and piano players who serenaded shoppers.
As the economy boomed in the 1980s, Nordstrom's figures climbed apace. In 1985 sales first topped $1 billion, as they jumped to $1.3 billion. In 1987 the firm reaped profits of $92.7 million on sales of $1.92 billion.
Nordstrom's growth in the latter half of the 1980s stemmed from a combination of expansion into new territories and the creation of larger stores in existing Nordstrom territory. In 1986, when the firm operated 53 stores in six western states, Nordstrom began to turn its sights to the East. In March 1988, Nordstrom opened its first store on the East Coast, a 238,000-square-foot facility in McLean, Virginia, just outside Washington, D.C. On its first day, the store racked up more than $1 million in sales. Over the first year, the store brought in $100 million in sales.
The same year, Nordstrom expanded on the West Coast as well, opening its biggest store, a 350,000-square-foot facility in downtown San Francisco. The lavish San Francisco store featured 103 different brands of champagne, 16 varieties of chilled vodka, and a health spa, among other luxurious amenities.
By the end of 1988, Nordstrom had 21,000 employees toiling in its 58 stores. Together they persuaded customers to buy $2.3 billion worth of goods in 1988, and earned profits of $123 million for the corporation.
Expansion in other areas of the East continued in the late 1980s. In 1989 Nordstrom opened a second store in the Washington, D.C., area--in the Pentagon City Mall. That same year the firm also opened outlets in Sacramento and Brea, California. Capping the decade, the company won the National Retail Merchants Association's Gold Medal. Clearly, Nordstrom had become a paragon of retailing success. Envious of its market share and sales figures, many competitors began to imitate its strategies of large inventory and lavish customer service.
Nordstrom continued to rely on its aggressive sales staff, but the corporate policy of encouraging clerks to go out of their way to make sales caused the company some grief. The employees' union (which was later decertified) complained about the pressure on employees to sell. In late 1989 a group of unionized employees charged that they were not being paid for performing extra services to customers.
In February 1990, after a three-month investigation, the Washington State Department of Labor & Industries alleged that the company had systematically violated state laws by failing to pay employees for a variety of duties, such as delivering merchandise and doing inventory work. The agency ordered Nordstrom to change its compensation and record-keeping procedures, and to pay back wages to some of Nordstrom's 30,000 employees. Soon after, the firm created a $15 million reserve to pay back-wage claims. The company, however, remained a target of class-action lawsuits on these matters, which were finally settled out of court in early 1993 when Nordstrom agreed to pay a set percentage of compensation to employees who worked at Nordstrom from 1987 to 1990. The settlement cost the company between $20 million and $30 million.
Other unforeseen events in 1989 and 1990 hit the company as well. The San Francisco earthquake of 1989 took a significant bite out of retail sales in the San Francisco Bay area. The general nationwide downturn in retailing hurt the company more, however. In September 1990, Nordstrom, then a 61-store company, announced it would cut costs by 3 to 12 percent and laid off some personnel. In the fourth quarter of 1989, Nordstrom's earnings dropped 34 percent from the previous year. Earnings fell about 7 percent for the entire year, from $123.3 million in 1988 to $115 million in 1989; sales, however, increased nearly 15 percent in that year, from $2.33 billion to $2.67 billion.
In the early 1990s, Bruce, James, and John Nordstrom, John McMillan, and Robert Bender collectively still owned a 40 percent stock interest and continued to maintain tight control of the company. Although Nordstrom suffered from the recession of the early 1990s, it continued to expand and open new stores in the East and Midwest. In September 1990, Nordstrom launched its first store in the metropolitan New York area, in Paramus, New Jersey. In April 1991 Nordstrom debuted its first Midwest store--in Oak Brook, Illinois, a Chicago suburb. In typical Nordstrom style, the store unveiled featuring 125,000 pairs of shoes, a concierge, an espresso bar, and a wood-paneled English-style pub. In 1991 the company also opened stores in Riverside, California; Edison, New Jersey; and Bethesda, Maryland.
Sales and earnings rebounded a fraction in 1990. Sales rose 8 percent to $2.89 billion, and profits rose a minuscule 0.7 percent to $115.8 million. In 1990 women's apparel and accessories accounted for 59 percent of Nordstrom's total sales; men's apparel accounted for 16 percent; and shoes--still a company mainstay--constituted 19 percent of all sales.
Such single-digit growth became the norm for Nordstrom throughout the early and mid-1990s, as sales grew sluggish thanks in large part to fluctuations in demand for women's apparel and the severe recession in southern California, where more than half of the company's total store square footage was located in the early years of the decade. The double-digit growth of the 1980s was gone--in fact, the sales increases of the 1990s were largely attributable to new store openings, with same-store sales (that is, sales at stores open more than a year) flat.
Largely shying away from the troubled California market, Nordstrom increasingly sought out new territory for expansion, particularly in the Midwest, South, and Northeast. In 1996 alone, the Philadelphia, Dallas, Denver, and Detroit metropolitan areas were added to the Nordstrom empire through new store openings. While it continued its steady expansion, Nordstrom also made a number of moves indicative of a company in something of a transition. Nordstrom produced its first mail-order catalog in the early 1990s, opened the first Nordstrom Factory Direct store near Philadelphia in 1993, and launched a proprietary Visa card in 1994. Also in 1993, the company opened a men's boutique in New York called Façonnable (pronounced fa-so-na-bleh) in partnership with the French firm Façonnable S.A. Nordstrom had been the exclusive U.S. distributor of Façonnable's line of upscale men's and women's apparel and accessories since 1989.
Meanwhile, with net earnings slipping somewhat (from 5.3 percent in 1988 to 3.91 percent in 1993), Nordstrom sought to cut costs, in particular its selling, general, and administrative costs, which accounted for 26.4 percent of sales in 1992. This relatively high figure resulted from Nordstrom's generous employee incentive program that fueled the company's reputation for customer service. By 1995, however, these costs had actually increased to 27.2 percent of sales, while net earnings improved only slightly to 4.01 percent.
Although considered innovative in many areas, Nordstrom had stayed away from large investments in systems technology prior to the mid-1990s. In 1995 a new information system was installed, along with a new system for personnel, payroll, and benefits processing. Most importantly, Nordstrom's first inventory control system rolled out that same year in southern California, with companywide rollout the following year. Although the status of an item throughout all stores could be checked using the system, Nordstrom maintained its traditional decentralized buying, bucking an industry trend toward centralization.
Perhaps the most significant transition took place in the management arena late in 1995, when Nordstrom's four cochairmen--Bruce, James, and John Nordstrom and John McMillan--retired. This third generation of Nordstroms to lead the company were replaced by former copresidents Ray Johnson and John Whitacre, who became the new cochairmen (although Johnson subsequently retired in September 1996), and were in turn replaced in the copresidency by six fourth-generation family members--Bill, Blake, Dan, Erik, Jim A., and Pete Nordstrom--all in their early 30s. The new management team faced the difficult task of taking over in the hypercompetitive and sluggish sales environment of the mid-1990s as well as attempting to maintain Nordstrom's position as one of the top upscale retailers in the country.
Between 1997 and 1999 the company opened another ten new Nordstrom stores, adding 3.7 million square feet to the chain total. Among these was a new flagship store in downtown Seattle, which opened in August 1998 as a renovation of the historic Frederick & Nelson building, the flagship location for the Frederick & Nelson department store chain, founded in 1890. The states receiving their first Nordstrom store during the late 1990s were Arizona, Connecticut, Georgia, Kansas, Ohio, and Rhode Island. By 2000, there were 77 full-line Nordstrom stores, 38 Nordstrom Racks, and 23 Façonnable boutiques. Late in 1998 the company launched its online store at nordstrom.com. Nordstrom stock began trading on the New York Stock Exchange in June 1999.
Unfortunately, Nordstrom's struggles continued during this period. Many customers began viewing its merchandise as being too formal and neither keeping up with the latest lifestyle changes nor offering pacesetting fashions. In addition the unwieldy six-person copresidency inhibited rapid decision-making, and Nordstrom was well behind its competitors in making full use of information technology systems. In February 2000 Whitacre dismantled the copresidency, reassigning five of the Nordstrom cousins to line-management jobs. On the merchandise front, the company introduced new high-margin, private-label fashion lines for women, and centralized purchasing was instituted in order to provide a consistent chainwide merchandise look and to increase leverage with vendors. Along the same lines, regionally created advertising was replaced with the firm's first national television campaign to create a consistent Nordstrom image. Finally, the company's outdated computer systems began to be upgraded to more easily track merchandise and collect data on customer trends.
The merchandising changes, however, quickly backfired. The overhaul, backed by an advertising campaign with the tag line "Reinvent Yourself," emphasized more youthful fashions that were appealing to 20-somethings but that alienated Nordstrom's core baby-boomer shoppers. Sales remained lackluster and earnings were down, leading to Whitacre's ouster in an August 2000 management shakeup. Bruce Nordstrom came out of retirement to take over the chairman's position, while his son Blake assumed the day-to-day reins as president. Blake Nordstrom, one of the former copresidents, had most recently been in charge of Nordstrom Rack. These developments occurred during one of Nordstrom's least profitable years in some time, as net income for fiscal 2000 totaled just $101.9 million on sales of $5.53 billion. Same-store sales increased just 0.3 percent over the previous year's sales. Also in 2000, Nordstrom acquired Façonnable S.A. for about $170 million, gaining full control of the Façonnable brand and the 53 Façonnable boutiques located around the world, mainly in Europe.
The new management team, attempting to turn the retailer's fortunes around, had the further problem of an economic downturn to deal with. After a brief upturn, same-store sales began falling in August 2001, leading the company to lay off as many as 2,500 employees late in the year as part of a cost-cutting initiative. Nordstrom also held its first-ever fall clearance sale to try to reduce excess inventories (unlike most competitors, who conducted regular sales, Nordstrom had traditionally held few promotions: two half-yearly sales for men and women, and an anniversary sale in July). Same-store sales fell 2.9 percent for the year, while net sales increased just 1.2 percent, despite the opening of four Nordstrom department stores and eight Nordstrom Racks. During the early 2000s, new store openings for the Nordstrom flagship centered on the Sun Belt, including the first locations in Florida and several additional ones in Texas. The number of store openings, however, was cut back from what had been perceived as an overly aggressive plan during the Whitacre era.
By 2003 Nordstrom appeared to have regained its lost luster through cost containment, technology initiatives, and a refocusing on its niche: luxury goods at affordable prices. Some analysts considered technology to be the key component, particularly a new state-of-the-art merchandising system, which began to be rolled out in 2002. The system could track sales minute by minute throughout its stores, enabling Nordstrom to reduce markdowns and better target its offerings to customers. On the merchandise side, the retailer began introducing edgier fashion offerings in a department called "via C," in an attempt to leverage its core customer base, which was younger and had a wider age range than its main competitors, Neiman-Marcus Co. and Saks Incorporated. Nordstrom enjoyed its most profitable year ever in 2003: $242.8 million in net income on record revenues of $6.49 billion. Same-store sales rose 4.3 percent, Nordstrom's best performance in ten years. Nordstrom hoped to maintain this forward momentum by continuing to roll out its technology initiatives, keeping a tight rein on expenses, and eschewing large investments in new real estate--only 11 new stores were slated for opening from 2004 through 2008--in favor of sprucing up existing stores and maximizing sales per square foot. The latter was already on the rise, increasing from $319 a square foot in 2002 to $327 in 2003, but were a far cry from industry leader Neiman Marcus's figure of $466 a square foot.
Principal Subsidiaries
Nordstrom fsb; Nordstrom Credit Card Receivables, LLC; Nordstrom Credit, Inc.; Nordstrom Private Label Receivables, LLC; Nordstrom Distribution, Inc.; N2HC, Inc.; Nordstrom International Limited; Nordstrom European Capital Group (France).
Principal Competitors
Saks Incorporated; Neiman-Marcus Co.; Dillard's, Inc.; The May Department Stores Company; Federated Department Stores, Inc.; J.C. Penney Corporation, Inc.; Sears, Roebuck and Co.
Further Reading
Bergmann, Joan, "Nordstrom Gets the Gold," Stores, January 1990.
Blumenthal, Robin Goldwyn, "Fashion Victim: A Hipper Nordstrom Is Trying to Tailor a Comeback, and It Just Might Succeed," Barron's, April 3, 2000, pp. 20, 22.
Browder, Seanna, "Great Service Wasn't Enough," Business Week, April 19, 1999, pp. 126-27.
Byron, Ellen, "Nordstrom Regains Its Luster: Challenge Awaits As Rivals Encroach on Image of Affordable Luxury," Wall Street Journal, August 19, 2004, p. B2.
De Voss, David, "The Rise and Rise of Nordstrom," Lear's, October 1989.
"Down the Tube: Nordstrom," Economist, June 5, 1993, p. 80.
Falum, Susan C., "At Nordstrom Stores, Service Comes First--But at a Big Price," Wall Street Journal, February 20, 1990.
Greenwald, John, "Losing Its Luster: Despite Exquisite Service, Nordstrom Has Suffered a Profit Slump," Time, March 24, 1997, pp. 64+.
Hamilton, Joan O'C., and Amy Dunkin, "Why Rivals Are Quaking As Nordstrom Heads East," Business Week, June 15, 1987, p. 99.
Holmes, Stanley, "Can the Nordstroms Find the Right Style?," Business Week, July 30, 2001, pp. 59, 62.
Kossen, Bill, "A Good Fit? Northwest Retail Giant Attempts to Stay Nimble As It Tries to Bounce Back," Seattle Times, May 29, 2001, p. C1.
------, "Success Came a Step at a Time," Seattle Times, May 29, 2001, p. A1.
Lee, Louise, "Nordstrom Cleans Out Its Closets," Business Week, May 22, 2000, pp. 105-106, 108.
Lubove, Seth, "Don't Listen to the Boss, Listen to the Customer," Forbes, December 4, 1995, p. 45.
McAllister, Robert, "Nordstrom Tightens Its Belt for the Long Haul," Footwear News, September 6, 1993, p. 1.
Merrick, Amy, "Nordstrom Accelerates Plans to Straighten Out Business," Wall Street Journal, October 19, 2001, p. B4.
Moin, David, "A Big Job Ahead: Top Nordstrom Execs Map Rebuilding Plan," WWD, December 7, 2000, p. 1.
------, "Shakeup in Seattle: CEO Out, Family Back at Nordstrom Helm," WWD, September 1, 2000, p. 1.
Mulady, Kathy, "Back in the Family: Fourth Generation Takes Control After a Brief Change in Company Leadership," Seattle Post-Intelligencer, June 27, 2001, p. D1.
------, "Still in Style: From Small Shoe Store to Upscale Retailer, Company Has Kept Founder's Values," Seattle Post-Intelligencer, June 25, 2001, p. E1.
------, "A Time of Change: Company Makes Huge Leaps with Expansion, Public Stock Offering," Seattle Post-Intelligencer, June 26, 2001, p. D1.
Nordstrom, John W., The Immigrant in 1887, Seattle: Dogwood Press, 1950, 55 p.
Palmeri, Christopher, "Filling Big Shoes," Forbes, November 15, 1999, pp. 170, 172.
Schwadel, Francine, "Nordstrom's Push East Will Test Its Renown for the Best in Service," Wall Street Journal, August 1, 1989.
Solomon, Charlene Marmer, "Nightmare at Nordstrom," Personnel Journal, September 1990.
Spector, Robert, and Patrick D. McCarthy, The Nordstrom Way: The Inside Story of America's #1 Customer Service Company, 2nd edition, New York: Wiley, 2000, 244 p.
Spurgeon, Devon, "In Return to Power, the Nordstrom Family Finds a Pile of Problems," Wall Street Journal, September 8, 2000, p. B1.
Stevenson, Richard W., "Watch Out Macy's, Here Comes Nordstrom," New York Times Magazine, August 27, 1989.
Yang, Dori Jones, "Nordstrom's Gang of Four," Business Week, June 15, 1992, pp. 122-23.
Yang, Dori Jones, and Laura Zinn, "Will 'the Nordstrom Way' Travel Well?," Business Week, September 3, 1990, p. 82.
— Daniel Gross; Updated by David E. Salamie
