WWD.com/beauty-industry-news/financial/cost-slices-systems-upgrades-fueled-nordstrom-turnaround-1162448/
government-trade
government-trade

Cost Slices, Systems Upgrades Fueled Nordstrom Turnaround

NEW YORK -- Nordstrom Inc. has entered the Nineties.<BR><BR>A Johnny-come-lately in reining in costs, restructuring and upgrading merchandise tracking systems, Nordstrom astonished the industry last week by reporting the payoffs from catch-up efforts...

NEW YORK — Nordstrom Inc. has entered the Nineties.

A Johnny-come-lately in reining in costs, restructuring and upgrading merchandise tracking systems, Nordstrom astonished the industry last week by reporting the payoffs from catch-up efforts — first-quarter earnings of $32 million, triple the year-ago figure. The news flagged a turnaround for the Seattle-based $3.8 billion specialty chain, which has 77 stores. It now has three consecutive robust quarters under its belt, after a dry spell through much of the Nineties. The low point was the year-ago first quarter, when earnings plummeted nearly 50 percent.

“We did bounce off a poor quarter a year ago,” said co-chairman James F. Nordstrom, in an interview Friday. “But even without that, this year’s quarter was still good.”

Sales in the latest period increased 9.6 percent to $762 million from $695.6 million. Same-store sales rose 6.9 percent, gross margins improved to 33 percent of sales from 30.6 percent, and selling, general and administrative expenses dropped to 28.2 percent from 29.9 percent. The stage is set for what should be a very upbeat Nordstrom annual meeting Tuesday in Oak Brook, Ill., a suburb of Chicago. Nordstrom is expected to announce some new ventures, including details on a Nordstrom Visa Card, entitling customers to a variety of shopping incentives. “Doing better has had a real effect on our confidence to make money and for new ventures,” Nordstrom said.

Two years ago, the company timidly starting upgrading systems. The going was slow for fear the changeover would interfere with the decentralized buying. Management has never been keen on letting systems run the business and prefers buyers to be in the stores, keeping close to shoppers. But attitudes about costs and computers changed as the California economy sank, and the streamlining began. In May 1993, the northern California buying region was consolidated from three to two divisions, triggering 71 layoffs. Around the same time, 20 jobs at the corporate headquarters data processing were dropped. Earlier, the office of the president was downsized.

“Going to two presidents from four was a real signal this company was going to get expenses under control and become lean and mean,” said Jennifer Black Groves, executive vice president and retail analyst, Black & Co. Inc., a Portland, Ore., brokerage firm. More costs have been eliminated by shifting to a different medical plan and reducing bad debts from $35 million to about $20 million, she added.

New systems that track merchandise from arrival to point-of-sale have helped reduce markdowns, facilitated more timely reordering and lowered labor costs. The store’s old systems did little more than count up sales. Scanning devices and personal computers for buyers in women’s apparel departments and other areas have also been implemented.

Analysts said Nordstrom is getting quicker inventory turns, fewer markdowns and higher gross margins due to the new systems.

Nordstrom officials believe their more modern approach to retailing — running a tighter ship with a greater reliance on technology — hasn’t taken a toll on the store’s good old-fashioned customer service.

“I would guess our sales help per dollar volume is exactly the same as it was five or 10 years ago,” Nordstrom said. “My sense is that this has not impacted our reputation for service.” Others agreed. “We started recommending the stock last summer when Nordstrom’s was down and out,” said retail analyst Groves. “They’re not letting the technology replace the personal touch. This is what is so key and so exciting.”

“I still think that what makes Nordstrom work is the salespeople,” said Robert Gray, chairman of St. John Knits, a major account for Nordstrom. “You see adequate sales help on the floor all the time.”

“Even in the midst of a downturn and a reduction of sales people, service levels were maintained to customer expectations,” said Kenneth Londoner, vice president of J&W Seligman & Co., investment advisers.

“There’s no mystery here,” said Londoner. “The secret is as simple as employees writing customers thank you notes or calling them up to see new fashions.” Nordstrom workers keep books on clients, recording their buying patterns and needs, he noted. And while such stores as Bloomingdale’s have adopted those methods, Nordstrom continues unrivaled in this area.

The chain’s edge: its long history of providing comprehensive service and a knack for weeding out applicants who don’t seem people-oriented or entrepreneurial enough. But it’s far from a perfect world for Nordstrom. The company generates half of its volume in California, where the economy is still uncertain and the threat of earthquakes is ever present. However, as it opens stores in other parts of the country, its dependence on California will diminish, although Nordstrom said the state’s economy has bottomed out.

Over the next three years, Nordstrom stores will open in Santa Anita, Calif.; Skokie and Schaumberg, Ill.; White Plains, N.Y., the company’s first in New York; Short Hills, N.J.; Indianapolis; Dallas; Norfolk, Va.; Troy, Mich., and Denver. A Rack closeout store will open in Auburn, Wash.

In addition, the Washington unit will be enlarged 89,000 square feet to 273,000, making it the second largest store in the chain, next to the 350,000-square-foot San Francisco unit. The Portland and Bellevue, Wash., units are also slated for expansions.

“We’re a growth company again, and we still don’t have stores in a lot of places,” Nordstrom said. He’s got his eye on Long Island and Atlanta, among other areas, but no plans have been finalized for either location. As for Manhattan, Nordstrom said, “I have no interest in it.”

The company continues to do well selling higher-priced goods in a soft apparel market.

“They’re buying more and selling more and giving us more real estate,” said Gray of St. John Knits, a designer line. “Things [for Nordstrom] weren’t so great a while back, but they’ve gradually increased our space, and that’s a store where it’s very tough to get space. These stores are very heavily merchandised.”

The big question is whether Nordstrom can prolong its turnaround. “I think the numbers are sustainable,” said analyst Groves. “The first quarter was obviously a much easier comparison, but the numbers are sustainable. We are now looking at a company with an MIS system and a company which hasn’t expanded much recently. There was almost nothing last year.”

“But this year,” she added, “there will be 7.34 percent increase in square footage, through two enlargements, two full stores and one Rack.”