Nordstrom Scrambles To Regain Past Luster Retailing’s Cinderella Is Out To Prove It Hasn’t Lost Its Magic

In a season of disappointing financial news, Nordstrom executives turned to a Time magazine article on the company that carried the bluntest of visuals: a headline that blared “Losing Its Luster,” and a photograph of a crushed gift-wrapped Nordstrom box.

Co-president Pete Nordstrom reacted to the March 24 story much as he did to a recent piece in The Wall Street Journal that questioned his brothers’ and cousins’ ability, as a team of six presidents, to run the company: He listened to the criticism, and ultimately found inspiration.

“Personally, I think we want to prove those people wrong,” said Nordstrom, 35, who keeps the Journal story framed in his downtown Seattle office.

Only a few years ago, it seemed Nordstrom could do no wrong. Today, shoppers tick off reasons why they are NOT shopping at the specialty fashion retailer. Some say service has slipped. Profits are flat. The stock price is down, and the national media have weighed in with stinging appraisals.

Pete Nordstrom, his brothers Blake and Erik and cousins Dan, Bill and Jim, all in their 30s, took the helm of the $4.5 billion-a-year company two years ago in June. The six Nordstroms and Chairman John Whitacre, 44, preside over a chain of 83 stores in 17 states with nearly 40,000 employees.

In a lengthy interview, Pete Nordstrom fielded questions with aplomb. Asked if he was competent to be co-president, he answered, “Yes. I’ve never been asked that. That’s an interesting question.”

He and the other fourth-generation Nordstroms have been helping out in the stores since they were 12.

“I practically grew up in this store, as did the other guys here. … I think our past experiences have served us well.”

But, he said, “If we don’t have results that are good, that all can be put into question. We accept that challenge. … We have a high sense of urgency to deliver.”

Despite an overall sales increase of 8.3 percent last year to a record $4.5 billion, sales gains in Nordstrom stores open 14 months or longer were down 1.3 percent in the fourth quarter and profit was down almost 21 percent from the year-earlier final period.

Nordstrom stock has fallen from a 12-month high of $52.875 on last May 3 to a low of $35.438 on Dec. 31, just after the company announced slow holiday sales would pull down its fourth-quarter earnings. The stock traded last week around $41.

Except for a gain in the third quarter last year, the company’s profits have been flat or down since January 1995. Pete Nordstrom would not say if the company expected to report an increased profit for the first quarter ending April 30, but he said the trend looks positive.

The company’s stellar sales performance in the past means “their comparisons are from a high base,” said Lesa Sroufe, director of research for the Ragen MacKenzie brokerage in Seattle. “They definitely have high hurdles to meet.”

Company officials acknowledge they missed the boat on several levels last year. A major merchandise reconfiguration that involved shifting familiar lines of women’s apparel to different departments confused customers. The company was slow in bringing in hot-selling brands such as Lauren by Ralph Lauren. And it changed some of its private label designs, appealing to some customers but turning off others.

One Southern California shopper commented to Time magazine that Nordstrom had become “brown and drab.”

“It didn’t make me feel very good,” Pete Nordstrom said. “I’m obviously respectful of her experience. … If that is the kind of stuff we are hearing, then we need to do something to address it.”

A recent walk through the Nordstrom at Bellevue Square suggested that some of the turmoil created by moving merchandise to different departments has ebbed.

The popular DKNY line by Donna Karan now has a large display space in the Individualist department, where it was moved from the smaller, more cutting-edge Savvy department. In its place is a new label from Donna Karan - “D” - along with other trendier fashions. Lauren by Ralph Lauren has its own display kiosk in the Individualist department. Clothes by Dana Buchman and Ellen Tracy have been moved from Individualist to the slightly higher-priced Gallery department.

Perhaps Nordstrom’s biggest challenge lies in boosting sales of women’s apparel, a mainstay that accounted for 35 percent of total company sales last year, down from 37 percent the year before.

Laura Richardson, an analyst with Pacific Crest Securities in Portland, said Nordstrom’s reputation for customer service is still important, but may not be enough. “People like service, but most people shop No. 1 for merchandise,” she said.

“Nordstrom does a great job in shoes, accessories and cosmetics. The issue is to sell more apparel … without having to mark it down or send it out to the Rack (Nordstrom’s chain of discount stores),” she said.

Women’s apparel is Nordstrom’s largest single merchandise segment, followed by women’s accessories (20 percent), shoes (20 percent) and men’s apparel and furnishings (18 percent).

With so much riding on women’s clothing sales, Owens, the president of The Retail Group in Seattle, sees a void in Nordstrom’s top management structure.

“Frankly, I think it is time to bring a woman in to mix things up. I think it looks like a bunch of white guys in suits running a store. It’s so obvious they need to get a little estrogen into the problem-solving,” said Owens.

Pete Nordstrom said, “Given there are six male Nordstrom family members and John Whitacre, yeah, I can appreciate where that can be perceived as not being in touch with the issues that are important to women.”

But he said most of the company’s employees are women, and top executives include Executive Vice Presidents Jammie Baugh, general manager of Nordstrom’s Orange County region, and Gail Cottle, who oversees product development; and Vice President Marty Wikstrom, general manager for the Washington, D.C., region, among others.

“We have mentors and people we work with who are women that we lean on heavily to address those issues,” Nordstrom said.

Although the Nordstrom family traditionally has shared responsibility for running the company, the six-member co-presidency is viewed in some quarters as unwieldy, and some analysts think it has resulted in a lack of focus. But no changes are in the offing as the company heads into its annual shareholders meeting in Seattle on May 20.

As for future expansion, planned moves into new cities in the coming years may lessen the impact that one particular region can have on Nordstrom’s overall performance.

The slumping California economy has hurt the company in recent years, said Sroufe, the Ragen MacKenzie analyst. It is now picking up.

Nearly 23 percent of Nordstrom’s retail space is in Southern California, its largest market in the country, and more than 15 percent is in Northern California, its second-largest market.

Analysts and company officials said store openings last year in Dallas, Philadelphia, Detroit and Denver went well. The company is scheduled this year to open three Nordstroms - in Hartford, Conn.; Garden City, N.Y.; and Cleveland - and four Racks, including one at Factoria Square in Bellevue last Friday.

Despite its travails, Nordstrom has kept a loyal following.

Esther Whiteley, a Tacoma resident, has shopped at Nordstrom for more than 50 years.

“I don’t know why their profits are down,” she said. “It’s certainly not my fault.”