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Nordstrom: Tough Year Ahead

NEW YORK — Nordstrom has been in recovery mode for two years, but is not out of the woods, yet. <br><br>The Seattle-based specialty chain is bracing for another tough year, compounded by its biggest-ever round of store openings, a need to...

NEW YORK — Nordstrom has been in recovery mode for two years, but is not out of the woods, yet.

This story first appeared in the September 5, 2002 issue of WWD.  Subscribe Today.

The Seattle-based specialty chain is bracing for another tough year, compounded by its biggest-ever round of store openings, a need to continue to cut costs while keeping its service culture thriving, and an uphill battle to win back Wall Street enthusiasm.

“We have a long way to go to regain the confidence of the financial community, but I feel strongly that if we serve our customers well, our owners will be served well, too,” said Blake Nordstrom, president, at the Goldman Sachs Global Retailing Conference at The Plaza here Wednesday.

While most retailers have cut back on store openings due to the economy, Nordstrom has eight planned this year, expanding faster than any other major department store or high-end specialty chain.

“This is not ideal,” acknowledged Nordstrom. One reason is the impact on sales productivity, where the company has lost some ground. Typically, new stores take a few seasons to get up to speed. At one time, Nordstrom was the industry leader at $393 per square foot, but last year fell to $321. Neiman Marcus is currently the leader in sales productivity, at around $400.

“New stores have been a real drain on that,” Nordstrom said. “But we still have opportunities in comp-store sales.” The chain’s same-store sales have improved, gaining 1 to 3 percent a month since the spring and tracking better than the industry overall. Also, total sales growth has outpaced inventory growth, reflecting improved inventory management.

According to Michael Koppel, executive vice president and chief financial officer, for better productivity in the future, Nordstrom is building smaller stores in the 120,000-to 140,000-square-foot range, with just as much selling space as older boxes, which in many cases exceed 200,000 square feet.

Nordstrom is opening in Dulles, Va., on Friday; St. Louis, Sept. 20; Coral Gables, Fla., Sept. 27; Orlando, Oct. 11, and Las Vegas, Nov. 1. Last March, Nordstrom opened in Durham, N.C.; Los Angeles, and Provo, Ut.

Next year, Nordstrom will have “a much more manageable rate” of expansion, Nordstrom said, with openings in Houston in the spring, and in the fall in Austin, Tex.; Lynwood, Wash.; Richmond, Va.; West Palm Beach, Fla., and Chicago.

In 2004, units are planned for San Antonio and Charlotte for a total of 94 full-line stores versus the 83 currently in operation.

Later in the day, Nordstrom reported a 0.2 percent increase in August same-store sales, including a 0.8 percent comp decline at its full-line stores. Its stock rose 72 cents, or 3.8 percent, to close at $19.91 in New York Stock Exchange trading Wednesday.

While Nordstrom’s aggressive expansion has caused concerns, its stores are still regarded as among the most appealing aesthetically, and pleasant to shop, with better service and less clutter than most competitors. In addition, after slipping in the past few years, the company recently has improved its service. Nordstrom is tying bonuses to comp-store gains and empowering the sales force with systems to get a quicker read on customer shopping histories and what they might want to buy.

With technology, the goal is to complete the “perpetual inventory” initiative, which helps in assortment planning, markdown planning, replenishment and tracking merchandise, so it’s implemented across all selling channels by the end of the year. In the past, Nordstrom used technology more as a scorekeeper, but now sees it as a strategic tool, too. Human resources and point-of-sale systems are also being implemented. Nordstrom has a multiyear investment of up to $400 million to $450 million in technology. But after 2002, the bulk of the capital expenditure budget shifts to store remodeling from store openings and technology.

On the merchandise front, efforts to have a better balance of high-end and value merchandise are being made, and to tailor assortments to regional tastes. To drive the topline, Nordstrom said, “the biggest opportunity is in merchandising. The focus is on looking at the balance. We’ve been guilty of going [too] high-end.”

Nordstrom has also been working to lower selling, general and administrative expenses, to 29.3 percent in 2003, and subsequently under 29 percent, from 30.6 percent last year. Excesses in utilizing consultants and travel, among other areas, have been checked.

The company projects flat sales for fiscal 2002, moderate improvement in gross profit and earnings per share in the $1.20 to $1.24 range.

For the second quarter, Nordstrom’s net income jumped 18.4 percent to $45.8 million, or 34 cents a share, from $38.7 million, or 29 cents, a year ago. Sales for the period ended July 31 climbed 7.1 percent to $1.66 billion from $1.55 billion a year ago. Comparable-store sales increased 2.2 percent, with better gains in the Rack outlet division than in full-line stores. Last year, the chain posted $5.63 billion in sales and $124.7 million in net earnings.