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NORDSTROM ENJOYS GROWTH SPURT AS MALL ANCHORS SHUFFLE

By Rodger Brown

Longtime Nordstrom shareholders must have experienced déjà vu at the annual meeting in May, when 72-year-old Bruce A. Nordstrom announced his retirement from the 105-year-old department store chain.

He’d done this before. In 2000 Bruce Nordstrom, who had led the company since it went public in the 1970s, returned from a five-year retirement to get the high-end retailer back on track. A disastrous marketing campaign eventually led to a shakeup that led to the ouster of its then [nonfamily] chairman. Little wonder, then, that when Bruce turned the microphone over to his son Blake, Nordstrom’s president, this head of the next generation of Nordstroms self-consciously pledged, “We’re going to try not to screw it up.”

Indeed, Blake W. Nordstrom takes the reins at one of the more bombastic moments in the 155-store chain’s history. Faced with an unprecedented opportunity to grab top-notch real estate, careful, cautious Nordstrom is making some aggressive moves.

After Federated Department Stores acquired May Department Stores, Federated found itself with duplicate mall stores in markets that Nordstrom had been eyeing, with little success, for years. “With changes in the industry, both with consolidations, mergers, bankruptcies and what have you, we find ourselves in a wonderful position to take advantage of some locations that weren’t available to us previously,” Blake Nordstrom said.

In February Nordstrom announced plans to open a store at Westfield Palm Desert (Calif.) in 2009 in response to demand by the increasing numbers of affluent, permanent residents in the area. The retailer is taking over a former Macy’s and doubling its size with a second story. The mall itself is using the Nordstrom addition to push a redevelopment of the entire property.

Also in February, after trying for 25 years to establish a footprint in Massachusetts, the chain said it has plans to build three new multilevel stores at Simon Property Group malls where Federated is closing Filene’s stores. These are a 144,000-square-foot store at Burlington (Mass.) Mall; a 144,000-square-foot store at Northshore Mall, Peabody; and a 150,000-square-foot store at South Shore Plaza, in Braintree. Yet another store at General Growth Properties’ Natick Mall (soon to be called simply ‘Natick’), in suburban Boston, is already under construction and slated to open sometime next year.

At the time of the announcements, Blake Nordstrom told The Boston Globe that the company has been blocked for decades by rival anchor department stores in the area, making Boston the only major market besides Manhattan that Nordstrom was unable to penetrate. The new stores are in affluent Boston suburbs. “This is a very attractive market and we haven’t been able to get our foot in the door,” Nordstrom told the Globe. “We have been trying so hard to get into Boston and so that makes today’s announcement especially gratifying.”

Pittsburgh is another place where Nordstrom is filling the vacuum left by Federated. The chain signed with Simon to open a store at Ross Park Mall there. The Pittsburgh Post-Gazette reported in March that “it took a seismic shift to open up the crack that will let Nordstrom into the Pittsburgh market.”

Not only does this allow the company to expand into long-desired markets, but the malls themselves stand to benefit through rejuvenated cachet, says Simon CEO Richard Sokolov. He told the Globe after the announcements that the malls are excited about scoring a Nordstrom because the name attracts other upscale retailers. He noted that at SouthPark mall in Charlotte, N.C., Louis Vuitton, Neiman Marcus and Tiffany & Co. leased space following Nordstrom’s arrival, while at Phipps Plaza in Atlanta, it was Barney’s and Theory that did so.

The chain’s sales last year grew 8.3 percent year on year, to $7.7 billion, yielding $551.3 million in profit. Comparable-store sales grew 6 percent, meanwhile, marking 36 consecutive months of same-store gains. Gross margins have reached historic highs, improving the “turn” of the stores’ products; the company sold and restocked inventory 4.84 times last year, up from 4.51 times the year before. Wall Street has noticed. The stock has soared 380 percent since 2003. Analysts agree that almost every important aspect of the retailer’s game has improved, including customer service, visual merchandising, site selection, size of stores, trend identification and item merchandising.

Store openings aside, the chain will be focusing on multichannel retailing in coming years, Blake Nordstrom said at the shareholders meeting. “We want to have a seamless shopping experience,” he said. “We’ve talked about the multichannel integration, both with direct sales, Internet and catalog. We know the customer expects us and trusts us to be available in all three channels seven-by-24.” In a previous conference call, Blake Nordstrom estimated that it would take about three more years to hone the company’s technology for maximum integration of catalogs, brick-and-mortar stores and Web sites.

With such a record of recent success and the promise of future growth, one surprise that came out of the shareholder meeting was the announcement that Enrique (Rick) Hernandez had been elected chairman, only the third nonfamily member to fill the post. The first two were co-chairmen, named in 1995. But that brought about the chain of events that brought Bruce Nordstrom out of that first “retirement.”