1501 Fifth Avenue
Since 1901, Nordstrom has been guided by its founder's philosophy: offer the customer the best possible service, selection, quality, and value.
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-owned enterprise expanded into a 90-outlet, 18-state chain, which tallied $4.11 billion in sales in 1995. Carefully supervised expansion, tight family management, wide selection, and attentive customer service have long been the hallmarks of Seattle-based Nordstrom, the largest independent fashion specialty retailer in the United States.
Small Shoe Store Opened in 1901
John 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 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 soon after and likewise sold his share to the next generation of Nordstroms. 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.
Expansion and Diversification in the 1950s and 1960s
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. 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 8 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. 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.
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.
Third Generation Took Control in 1970
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&mdashøok control of the company in 1970.
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, and as of the mid-1990s they continued to hold a significant interest. 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.
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.
Rapid Growth in Early 1980s Fueled by Legendary Customer Service
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 launched a third division, Nordstrom Rack--a string of outlet stores that the firm used to move old inventories at discount prices. 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&mdashout 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.
Began Eastward Expansion in the Mid-1980s
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 convinced 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 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.
Slower Growth in the 1990s
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 miniscule 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 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. From 1996 to 1999, the company planned to open 15 Nordstrom stores, adding 3.6 million square feet to the chain total, an increase of one-third. Connecticut, Ohio, Georgia, and Kansas were among the states slated to receive their first Nordstrom store.
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 1994, Nordstrom began testing an interactive home shopping channel, in partnership with US West Inc. and J.C. Penney Co. In keeping with its reputation for customer service, Nordstrom envisioned a system in which a customer could not only view merchandise but also interact with a sales clerk who would be visible on the screen. Such high-tech marketing fit well with the profile of a typical Nordstrom customer, generally considered to be early adopters when it came to new technology.
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 co-chairmen--Bruce, James, and John Nordstrom and John McMillan--retired. This third generation of Nordstroms to lead the company were replaced by former co-presidents Ray Johnson and John Whitacre, who became the new co-chairmen (although Johnson subsequently retired in September 1996), and were in turn replaced in the co-presidency by six fourth-generation family members--Bill, Blake, Dan, Erik, Jim A., and Pete Nordstrom--all in their early thirties. 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.
Principal Subsidiaries: Nordstrom Credit, Inc.; Nordstrom Distribution, Inc.; Nordstrom National Credit Bank.
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