Nordstrom Business

1.0 Executive Summary

Nordstrom is a nationwide retail industry specialized in a chain of department stores selling clothes, footwear, beauty and so on. During 1999 and 2002, Nordstrom experienced a continuously decline of its sales per footage. Its financial situation did not turn better until 2003. This paper is going to analyze the current situation for Nordstrom, including internal and external environment analysis. During the comprehensive analysis, the SWOT (strength, weakness, opportunities and threats) will be developed. And then a corresponding recommendation on the future strategy will come up based on the SWOT analysis to solve the main issues Nordstrom faced with.

2.0 Assessment of Current Situation

2.1 Internal Environment

The purpose is to assess strengths and weaknesses of Nordstrom.

2.11 Financial Performance Analysis

2.111. Trend Analysis

Although Nordstrom's total sales grew steadily from 1999 to 2002, as shown in figure1-1, its sales per square footage showed a steady decline until 2003. See figure 1-2. During 2002, Nordstrom invested lots of money on new markets and new stores. It attached too much importance on expanding and ignored its profits. In 2003, the sales per square footage increased from $319 to $327 (figure1-2), its earnings per share in 2003 increased 48% from $0.66 to $1.76 in 2002 (figure1-3). This increase was primarily driven by a significant improvement in gross profit increasing to 35.1% of sales from 33.6% last year and a moderate decrease in selling, general and administrative expenses from 30.4% of sales to 30.0% of sales. (Table 2-1)

2.112. Ratio Analysis

a. Liquidity Ratio

Liquidity ratio measures the ability of the company to pay its short term obligation. From 1999, Nordstrom's current ratio and quick ratio kept on declining until 2003 as figure1-4 shows. Its ability to pay short-term liability decreased from 1999 to 2002 and recovered a little bit in 2003.

b. Leverage Ratio

Leverage ratio focuses on capital structure, including level of debt. From figure1-5, Debt to equity increased from 1999 to 2002 which means Nordstrom was financed more with debt, however, the ratio came back in 2003 to a high level. Meanwhile, Times Interest Earned ratio incrementally decreased in 2000, it was not recovered until 2003. The ability of Nordstrom to meet its debt obligation was better in 2003 than the years before.

c. Profitability Ratio

Profitability ratio shows the ability of a company to turn sales into various measures of profits. Table2-2 shows that Nordstrom's ROS (return on sales), ROA (return on assets) and EPS (earnings per share) were declined from 1999 to 2002 and slightly recovered in 2003.

2.12 Value Chain Analysis

2.121 Management

Nordstrom's is decentralized. Individual stores have the right to make most decisions.

Nordstrom's was trying its best to diversify its business. In 2000, it purchased Faconnable Boutiques which offers high-end fashionable merchandise for affluent women and expanded it to 35 stores until 2003. Nordstrom's also diversified by adding an e-commerce site called Nordstrom.com.

2.122 Customer services

Nordstrom is well known for its superior customer service. It continues to develop and maintain strong customer relationship through practices such as: empowering employees to make customer-oriented decisions, unconditional customer refunds, and all-star employee discounts of thirty-three percent for a year. Nordstrom maintained a sales force that was trained to be knowledgeable about products and trends, which allow each customer to receive more individual attention and assistance.

2.123 Marketing

Nordstrom mainly focused on the fashion goods market. It provided products to upper or middle class customers who earn income in excess of $50,000. Nordstrom has less advertisement than its competitors. The average advertisement is four percent of annual sales, Nordstrom only has two percent.

2.13 Core competence

The excellent customer service makes Nordstrom outperform all the competitors. Its well-trained employees, unique store atmosphere and unconditional customer refund did not only help Nordstrom maintain lots of customers but also attract many new customers. It is also hard for other competitors to imitate.

2.14 Strength and Weakness

Strengths Weaknesses

Improved financial assessment recently. Reputation for superior customer service. Family-run business.

Business is not diversified enough.

2.2 External Environment

The goal is to identify opportunities and threats for Nordstrom.

2.21 PEST Analysis

A, Political: 1) Interest rate decreased to a thirty-year-low. 2) The "dot com bust" began sending thousands of internet firms, especially e-commerce and high-tech firms into a tailspin; B, Economic: 1) Consumer confidence decline to low of 60.5(below 90 indicates uncertainty). 2) GDP increased rate dropped from 4.1% in 2000 to 2.4% in 2002 3) Personal Income decreased by 39%. 4) Apparel price fell 1.8% in 2001 and 3.2% in 2002; C, Social Demographic: 1) Discount store become more popular. 2) The population was aging, increasing the buying power of senior citizens.3) Minorities, especially Hispanic Americans were increasing their presence of employees, employers and consumers; D, Technology: 1) New sales channel -- E-commerce 2) POS: Sophisticated Point of Sales system (track units sold and buying history) 3) EDI: Electronic Data Interchange system (communication and purchasing)

2.22 Porter's Five Forces Analysis

A, Threat of Entry: (High)

The demand from the whole market is high and the capital for investment is not large. This will attract lots of businesses in the same area. Since the switching cost for customers