There is probably no one who does not know that Nordstrom Inc. is the ultimate in customer service among mainstream retailers.
Far fewer people, it seems, can explain why the company has just started to crawl out from under almost two years of dismal results.Indeed, a flashcard peek at Nordstrom's numbers inspires awe. The specialty retailer, with 83 stores in 17 states including three in Utah, boasts sales of roughly $400 a square foot, a number that others who work in retail, where the average is closer to $220, reach only in their dreams. Its sales grew to $4.5 billion last year, more than 8 percent - a strong gain for an established retailer - and its stores in new regions unfailingly open to crowds, to the chagrin of competitors who have slugged it out on the same turf for years. Nordstrom's debt is puny by industry standards, and the company has enough capital muscle to buy back its stock.
Yet Nordstrom's earnings were slammed quarter after quarter the past two years. The stores last year became so bloated with women's clothing that managers were forced to take major markdowns. The holiday season was a dud. And customers started to moan that the stores looked dull.
Even retail analysts, traditionally optimistic in their view of embattled retail stocks, threw up their hands. Maybe, they seethed, the company pampered customers too much.
This week, the results began to show some improvement largely because of a slower pace of store openings. On Monday, the company announced that its first-quarter income was $32.3 million, a 25 percent increase from the comparable period a year ago. The last two days, its stock has risen, closing up $1.375 Tuesday, at $44, in Nasdaq trading.
But the troubles facing Nordstrom run deeper than one quarter's results. Executives like to say that Nordstrom is the hometown store in every market it enters - a claim supported by a regional buying structure that puts basic decisions about fashion mix and merchandising in the hands of local managers. But as the Seattle company has grown into a national chain, analysts say that its decentralized management - unique in an industry where corporate headquarters increasingly make every purchase and fashion choice - has caused intense growing pains.
While the system allows each store to fine-tune its purchases and largely avoid deep discounting, vendors complain that lately it has often resulted in myopic buying that misses swift fashion changes.
Further, because they are making smaller purchases, Nordstrom buyers cannot squeeze the deals from their suppliers that other stores get, and the company's systems have had some catch-up work to do.
Peter Nordstrom, a great-grandson of the founder and one of six family members who serve as the company's co-presidents, said this week that executives believed the retailer's troubles, brought on by efforts to tweak this unusual way of doing business, are now behind it. "We are seeing things improve," Nordstrom said, "which is why we made the changes to begin with."
Even designers who greatly admire the company's regional buying smarts are often puzzled. "You have to wonder why, for example, Dallas is not buying linen at a certain time of year but Oregon is," said David Dart, the president of his own fashion company in Los Angeles. "It doesn't make sense."
Nordstrom said that one of the tasks needed to freshen the stores contributed to last year's earnings troubles. The company suddenly decided to shuffle women's clothing around. It was an attempt to sharpen the look of departments arranged by the presumed lifestyle of shoppers - not by price, as in most department stores. But it sprang on sales clerks the unwelcome task of peddling merchandise they knew nothing about.
Regional buyers, meanwhile, have missed out on fads that swept the country with such force that regional tastes were irrelevant.
"When you are buying for Utah, you live and breathe it, and you see what is selling, but that may also limit your focus," said Paula Schneider, sales manager for BCBG, a popular women's clothing company. "They don't take a lot of risks."
For example, most of Nordstrom's buyers missed a rollout by Polo Ralph Lauren of a new line of casual sportswear. "Buyers were waiting around for someone to tell them to go for it," Nordstrom acknowledged. "So it fell through the cracks."
Patching up its buying program is not the only challenge facing Nordstrom.
While retailers from Wal-Mart to the Gap have invested heavily in inventory control systems that link suppliers, warehouses and stores, Nordstrom is just starting to catch up.
"Most retail companies can see on a screen what has sold in every single store," said Edward Weller, a retail analyst for Robertson, Stephens in San Francisco. "Nordstrom had been counting tags in the back of the store. At some point, they outran their ability to run things like a local business on a national basis."
Nordstrom said that the company had been investing in technology, but declined to specify how much capital it had devoted to this costly undertaking.
Another aspect of Nordstrom's culture that outsiders question is the company's insistence on promoting from within. Critics say that Nordstrom could benefit from new merchandising blood, but others say the chain's reliance on managers who started out on the selling floor - including Nordstrom family members - maintains its focus on customer service.