Individual Company Analysis

Nordstrom
BPS 4305-009
Cindy Cabrera

Nordstrom will be closely analyzed to evaluate the current and future

potential of the strategies being pursued. This evaluation will have 5 main

components. First section will look into Nordstroms financial documents to

determine their health in comparison to its historical figures as well as among its
competitors. Next there will be an external analysis which will look into the general
environment, the industry dynamics and competitive market using Porters 5-force
model. After both sections are explained, there will be an identification of the firms
strategy as well as the strategies of its competitors. To finish off, this evaluation will
perform an internal analysis. Based off of the information found, a set of
recommendations for Nordstrom will be created.
Lets begin by looking at Nordstroms history to give a little insight on how
the company came about. In 1901 John W. Nordstrom and Carl F. Wallin decided to
open a small shoe store in Seattle that would focus on great customer service. Carl
F. Wallin owned the shoe repair shop right next to the new store and became coowner. Over time the store grew and changes came about including the ownership
of the store. John W. Nordstroms three sons took over as the original founders sold
their share of the company. The Nordstrom sons began expanding the product
offering by acquiring Best Apparel in 1963 and renamed the company Nordstrom
Best. The store then went public in 1971 and two years later the store name was
changed to the store we know today as Nordstrom with sales over $100 million. It is
around this time that Nordstrom Rack also came about which helped distribute
clothing from Nordstrom that didnt sell for cheaper price. Nordstrom Rack started
as the clearance section in a basement and has now expanded to more than 100
locations. Nordstrom continued its expansion by dipping into the West Coast market
when they opened their first store in South Coast Plaza, California in 1978 which laid
groundwork for rapid expansion. This expansion continued on to the East Coast and
Canada.

Today Nordstrom is leader in its industry providing unmatched customer

service, top of the line, fashionable clothing, accessories, and shoes. They are
currently represented in 39 states with 326 stores and growing. Their service to
customers is expanded through 121 full-line stores as well their recent acquisition of
Trunk Club which now have five clubhouses, 197 Nordstrom Rack stores, and two
Jeffrey boutiques. Nordstrom has also put their mark in the ecommerce field with
their Nordstrom.com which serves customers in 96 countries and with partnered
operations with HauteLook, a private sale site, Nordstromrack.com also serves
customers across U.S., Canada, and Australia.

Financial Analysis
The following is a financial analysis on Nordstrom Inc. to determine its health. For
this analysis certain documents such as the balance sheet, income statements, and
key ratios from Nordstroms 2015 financial statements will be used. These numbers
will be compared to Nordstrom historical data as well its closest competitors.
The financial analysis will begin by looking at Nordstroms income statement.
During Nordstroms 2014 fiscal year, a sales growth of 7.8 percent was reported.
This could be attributed to the acquisition of Trunk Club (a personalized styling
service), as well as three full-line stores, one of these being the first store to open in
Canada. Additionally, the Nordstrom Rack line (a branch of Nordstrom that caters to
the price-conscious target market) expanded with 27 new location as well an online
presence with Nordsrtomrack.com. This is an outstanding performance when
comparing to the reported 4% growth of the previous fiscal year. Looking at
Nordstroms quarterly numbers, it is noted that EBIT (Earnings before Interest and
Taxes) being 11.8 percent of sales for 2014 declined by $11 million comparable to

EBITS 13.5 percent of net sales presence which was reported to be $487million.
This can also be attributed to the addition of The Trunk Club.
The 2014 sales growth was most notable, however, within the online stores of
Nordstrom.com which net sales increased by 23 percent over the previous years 30
percent and Nordstromrack.com which net sales grew by 22 percent additional to
the previous years 27 percent. This growth can be due to Nordstroms expansion of
merchandise selection as well as the efforts to enhance customer service through
ongoing technology investments. For the full-line stores however, net sales actually
decreased by .5 percent, this was an improvement to the 2.1 decrease of the
previous year. This decline in full-line stores could be caused by the shift in trend or
culture which becomes increasingly virtually oriented.
This growth however in sales changed for the 2015 fiscal year by decreasing
to 6.89%. The assumed responsible party for this in non-other than Mother Nature
who contributed with the warmer than anticipated weather for the months of
October, November and December causing a decline in sales for winter items. Some
of these items included womens boots, whose numbers dropped in New York by 24
percent. Other items that suffered were fleece and winter accessories such as
scarves, hats and gloves which declined by 3 and 2 percent respectively. However,
this major speed bump did not stop Nordstrom from taking new measure for sales to
increase.
With sales in mind, Nordstroms operating expenses increased to $1,150
million as apposed to $999 million for the previous year. This was due to the
massive amount of funding that is being invested in its technology and ecommerce
with $300 million in total investment. This investment aims to develop a more

optimized software platform which will increase service and customer experience.
Even though the online store sales have increased it is the profit drop of 17 percent
because of the 10 percent increase in expenses.
After looking at Nordstrom performance in comparison with its historical
numbers, it is important to look at how well Nordstrom stands in comparison with its
competitors. Within the high end department store industry, Nordstroms closest
competitors are Macys and Dillards. To help with the comparison key ratios,
including current and quick ratios will help determine the liquidity of the company
and its ability to convert assets into cash while covering liability and obligations in
the short term. In these categories Dillards takes it away with a current and quick
ratio of 2.22 and 0.33 respectively. Following Dillards is Macys with 1.34 and 0.29.
Nordstrom finishes last with a 1.04 current ratio and a 0.27 quick ratio. The variation
in these numbers is mainly due to Dillards low current liabilities and Nordstroms
higher current liabilities. A further comparison of the companys financials and its
closest competitors are displayed on the chart. Balance sheets can be found at the
end of the report. Based on this comparison it can be deduced that Nordstrom is
financial healthy and leveraged. This healthy financial state shows promise for
continual health in the future.
Table 1. Financial health of the firm and comparison with closest competitors
for 2015
Ratio

Case firm

Macys

Dillards

Debt-to-equity

3.21

1.65

0.46

0.38

0.79

0.54

Ratio
Debt-to-total

Assets ratio
Inventory Turnover

4.99

2.99

3.17

Total Asset

1.7

1.29

1.68

Gross Profit Margin

36.5%

39.1%

35.6%

Net Profit Margin

4.16%

3.96%

3.99%

Return on Assets

7.08%

5.10%

6.70%

Return on Equity

36.24%

22.27%

14.12

Turnover

External Analyses
This external analyses will be composed of two sections. First, Nordstroms
general environment will be addressed including demographics, sociocultural, and
technological. Secondly, the industry dynamics and competitive market will be
analyzed based on the information found for the general environment using Porters
5 force model. This will help determine where Nordstrom stands in comparison to its
environment and competitors.
Demographics in the U.S., where Nordstroms major market is located, has
seen a recent change in the ethnic composition of the population. The U.S Census
Bureau has stated that the Hispanic population is growing in prominence by
increasing their presence from 55 million (17 percent of the U.S. overall population)
in 2014 to their expected to growth of 119 million (29 percent of the U.S. overall
population) by 2060. This can affect the product demand for Nordstrom as the
Hispanic/Latino population brings their customs and culture to the U.S. The selection

of product and style may need to be affected by this change. Additional to the
growing Hispanic population, it has been noted that the millennials have exceeded
the baby boomer generation, in doing so becoming the largest living generation and
are expected to grow to 81 million by 2036. It is this generation that has brought
about many trends, such as awareness of community involvement, being more
technologically oriented, and price consciousness. Some of these trends tie into the
sociocultural and technological changes in the general environment. In efforts to
maintain momentum with these trends, Nordstrom has taken or created incentives
and initiatives address these issues, for example, Nordstrom has a one percent
donation implemented to local nonprofits from all gift card sales. This is a good
initiative and incentive for people to buy gift cards while demonstrating community
involvement and loyalty. With the technology orientation within the millennial
generation, Nordstrom noticed the need to focus on their e-commerce and mcommerce platforms. Most millennials prefer to shop online, which has also caused
a slight decrease in profits for their full-line stores. While most wealthy baby
boomers remain loyal to in person shopping, it is this growing generation that will
affect Nordstroms success in the long-term. It is not only technological orientation
trend that the millennials have brought about but also their price consciousness!
This generation has seen a couple falls in the economy and therefore has a mindset
of price saving imbedded in them. Nordstrom Rack has seen itself most benefited by
this trend.
After looking at the general environment, it is important to address the
competitive environment by looking at Nordstroms competitors, customers, and
suppliers by using Porters Five Forces Model.

Threats of New Entrants

There is a high entry barrier for high fashion department stores through its cost.
Major companies or corporations have achieved their market share over a large
period of time and have invested a tremendous amount of funding and financing.
Another barrier for new entrants is the brand recognition and loyalty. Customer will
be more susceptive to paying higher price for fashionable products when they
recognize the name or because of the image portrayed. This of course, takes many
years to build up. Along with brand recognition, new entrant will have to face the
challenging adaption of ever-changing fashion and its trends. When buying clothing
it is important to keep in mind that those styles and fashion can changed within
weeks, a small business or company who is not prepared can take a big hit in their
financials when products are not able to be sold due to clothing and accessories
being out of fashion. In order to sell the items, discounts and price reduction need
to be applied in order to dispose of inventory. This again, can be very costly.
Bargaining Power of Buyers
The products offered are mostly standard even with Nordstroms claims to offer
most up to date fashion while maintaining high quality. Switches in cost are offered
especially through Nordstrom Rack. Buyers, however, have a high range of product
and store options to choose from among the industry. Their buying power can affect
and control the market. This became evident with the major decline in sales in the
past winter due to the buyers decision to hold back on purchases.
Bargaining Power of Suppliers

Suppliers have little power over Nordstrom. Due to Nordstroms high reputation and
quality, there is a demand to have products be sold at their locations. In comparison
with Nordstrom, most suppliers fall short in size and power in comparison to
Nordstrom, therefore, as mentioned before, theyre power is as suppliers is very low.
Threats of Substitute products and services
With Nordstroms high end fashion comes high end pricing. As consumers grow to
be more price conscious they look for alternative, this is where the substitutes gain
some power. For Nordstrom, H&M demonstrated to be a popular substitute with
their quick fashion, which provides rapid or sudden fashion for cheaper (Tabuchi,
Hiroko). This cheaper also represents the lower level of product quality as well but it
has appeared that customers as willing to sacrifice quality for price.
Rivalry among competitors
Within the department/ retail industry, there is a great amount of competition.
When looking at Nordstrom, because of its dynamic company composition, it can be
compared in different sectors on thi industry. Focusing on the high end, high priced
fashion, Nordstrom finds competition with Macys, Dillards, and Bloomingdale
among others. When focusing in pricing, H&M and TJ Maxx have proved to be
competitive. In both comparison, Nordstrom has strategically taken an initiative to
remain on top of the charts. Nordstrom has managed to create a best fashion first
reputation to where they are trend and fashion setters, therefore becoming first
choice for people seeking high end fashion. With their Nordstrom Rack stores,
Nordstrom has maintained its competitiveness, offering the same high end fashion

at a discounted price. This sector of Nordstrom has proven to be most effective

within the attributing to most of the sales growth in the company overall.
Current Strategy
Nordstroms current strategy used to compete within the market has been the
relatively recent focus on its e-commerce platform. As stated before, the recent
growth in online purchases and traffic has been a trend that Nordstrom has wisely
noted. Through their heavy investment of $300 million in technology and
ecommerce, Nordstrom aims on providing a seamless customer experience through
their virtual store. They also try to reduce the quantity of their projects while
ensuring that the projects that do unfold are of quality and value to the company.
This will not take away form Nordstroms emphasis on customer service as a
differentiation, along with their free shipping and unlimited days of return policy,
which allows customers to return items no matter the time laps between purchase
and return. This is something very unique to Nordstrom. Also, it is important to note
that Nordstrom is the only high end department store that will price match products
for its customers. These strategies have proven to be effective in product/service
recognition as well as loyalty among its customers.

Internal Analysis
Nordstrom primary and secondary activities will be analyzed as its rarity and value.
This will be a medium to determine its Nordstroms valuation. Finally a SWOT
analysis will be performed.
Primary Activities

Inbound logistics: with their multichannel retailers, establishing a strong relationship

with all individuals. To ensure efficiency and effectiveness, vendors and Nordstrom
abide by strict guidelines and requirement
Operations: With a huge emphasis on the customer service and ease of product
retrieval. With this in mind they have expanded and located a wheelhouse
conveniently to fulfill online orders faster and with more variety and quantity. This is
a source of competitive advantage.
Outbound logistics: with their current inventory system, Nordstrom has managed to
make replenishment of products or items more efficiently. If a store needs an item
they do not but have then the near it store will send the product. This is a source of
competitive advantage.
Marketing and Sales: Promotion and advertisement through social media channels
has been increasing become the best medium. Other forms used are magazines and
TV commercials but over all their most effective marketing is their social media
based marketing. This is not a source of competitive advantage.
Service: This is the division where Nordstrom by far exceeds in. Employees are
strongly encouraged to listen carefully to the needs of the customers, increase their
product knowledge and work with honesty and sincerity as a means of working
towards a goal. This is what Nordstrom considers their pride and joy. This is a source
of competitive advantage.
Support Activities

Firm infrastructure: Nordstrom works in a decentralized structure which allows

managers to have a little more freedom and a voice to help them make decisions
based on their region and customer base. This is a competitive advantage.
Human Resources Management: Nordstrom seeks to hire men and women who are
already driven and determined to work hard for the company. An extensive training
program is not in place because of their filters in hiring. Employees are taken care of
through their sales commission and discounts. This is a source of competitive
advantage.
Technological development: Nordstrom has gained some advantage in this section
of the analysis through their ecomoerce sight such as Nordstrom.com and
Nordstromrack.com. They have also recently hired Amazons former manager,
Kumar Srinivasan, to help restructure when and improve their online stores and ask.
This is also a great strategy for competing or keeping up with Amazon who has been
a world trend setter and influencer by developing their product and service offering
in the virtual market. This is a source of competitive advantage.
Procurement: As previously stated, Nordstrom has created a name and reputation
for itself. Due to this high image that Nordstrom has, many businesses already have
a desire to work for Nordstrom whose main concern would only be to pick and
choose among the many options. This is a source of competitive advantage.

Resource Based analysis

Tangibles: Nordstroms tangible resources such as their physical assets (numerous
stores and factories), financial assets, and organizational assets (planning,
distribution, and sales) are for the most part valuable resource. These resources

have been crucial elements for Nordstrom to keep its ability to remain high on the
market. Their physical and financial assets are however, not rare; but their
organizational assets is. This is mainly due to their outstanding sales performance.
When looking at the imitation difficulty, all three categories prove themselves not
easy to imitate. It is not that difficult to build one building but to imitate Nordstroms
many locations locally and around the world is pretty difficult. Financials is also hard
to imitate due to the fact that under certain conditions, especially related to stock
market, corporation and small business can see themselves tremendously affected.
Despite recent drops in the market, Nordstrom has managed to stay notable above
the department store industry. Nordstroms decentralized system has taken many
years to elaborate therefore it is difficult to imitate especially since this sector has
been developed to cater to Nordstroms specific needs. None of the assets, the
other hand, are difficult to substitute, because of the highly competitive industry,
consumer have a wide range of options of substitutes.
Intangibles: These resources include human capital/talent, brand equity, and team
culture. All three components are valuable resource and difficult to imitate. Their
selectivity during hiring, their brand name and reputation, as well as their
outstanding customer service has proven to be most effect for this company and its
performance in the market. Both, human capital and brand are not rare resources
but their team culture is. When looking at the difficulty in substation only human
capital and talent shows some difficulty because as previously stated, the market is
do saturated that the options for substitution presents itself.

SWOT Analysis
Strengths

Nordstrom has a platform that is multi-channeled and integrated which can help
create a seamless shopping experience to their customers. Nordstrom provides
services for their customers through their full-line stores, discounted stores, ecommerce and mobile commerce as well as their use of social media. This is an
advantage because the shopping culture is shifting to the virtual stores making their
online presence and technological investment wisely used. Online retail sales in the
U.S. incremented from $169.3 billion in 2010 to $297.2 billion in 2014. Mobile
commerce accounts for about 30 percent of all US e-commerce sales; all of this
according to the US Department of Commerce.
There has also been an increase in the price conscious consumer population.
Nordstrom has taken advantage of this area by creating and expanding their
Nordstrom Rack branches and well as their Nordstromrack.com store, which cater to
this specific demographic of people keeping them under the Nordstrom umbrella.
Weakness
There is only one main weakness within Nordstrom and that is their high
dependency of California. This dependency can affect the company depending on
the conditions of the state. For example, unemployment, according to the Bureau of
Labor Statistics, in October 2015 the national and state unemployment rate varied
slightly with California coming on to with 5.8 percent of unemployment versus the 5
percent nationwide. As the unemployment decreases, and so does the consumers
confidence in buying decrease as well.
Opportunity
The growing Hispanic/Latino population is a perfect opportunity for Nordstrom to
expand their consumer market. The high migration that is coming into the U.S. from
Hispanic/Latin communities will open doors for many business to cater to the

growing culture. Providing items, fashion, and other products that are appealing to
this population can greatly help maintain or boost sales for Nordstrom.
There is also a growing millennial population. This generation is a trend setter, for
example, the desire to be more involved in the community or the demand for ecommerce and m-commerce. Catering to their wants and needs can also help boost
sales.
Threats
Intense competition and rising cost of labor in the US can pose a threat to
Nordstrom. The highly saturated market can cause there to be an increase of
substitutes as well as competitors. The rising cost in labor poses higher expenses
for the company or the risk of cutting off on employees to reduce cost.

Recommendations
Overall Nordstrom has performed well in the competitive field. Based on the
information found the following recommendations have been created.
First would be to consolidate the amount of full-line stores and their investment to
be only located in areas that have high traffic and large market share. This will help
cut back on any unnecessary cost that will not as much of a profit in return.
Secondly a refocus on Nordstrom Rack would be highly recommended. This branch
of the company has seen the most growth over recent years and have been the
leading cause of the increase in sales growth for Nordstrom as a whole. Focusing on
this area will help expand their market even more and make them more competitive
not only in the high end expensive market but in the medium, price sensitive
market as well.

Lastly, e-commerce and m-commerce should be made a priority over all. As

Nordstrom has already noted, this virtual commerce has gained a lot of power and
market share over recent years. The profit to be made in this market. Initial cost
may be high but long-term rewards are even greater.
To ensure an effective and profitable result, it is recommended to commit to one of
these recommended strategies. This will help better develop each category to its
full potential.

Charts and financial statements

Table 2. Financial Analysis over time (In USD63 Millions)

Nordstrom
Income
Statement
Net Sales/Revenue

2015

$14,437

2014

$13,506

% Change

6.89%

COGS
Operating

$9,168
$4,168

$8,406
$3,777

9.06%
10.35%

Expenses
EBIT
Net Income

$1,101
$600

$1,323
$720

-16.78%
-16.67%

Balance Sheet
Total Current

$3,014

$5,224

-42%

Assets
Total Assets
Total Current

$7,698
$2,711

$9,245
$2,800

-16.78%
-3.18%

Liabilities
Total Liabilities
Total Liabilities and

$6,827
$7,698

$6,805
$9,245

.32%
-16.73%

equity

Table 3. Change in Financials and comparison with the closest competitor

Income
Statement
Net Sales/Revenue
COGS
Operating
Expenses
EBIT
Net Income

Balance Sheet
Total Current Assets

Nordstrom
%

Macys
%

Dillards
%

100
63.5
28.87

100
60.92
31.55

100
64.41
28.82

7.63
4.16

7.53
3.96

6.55
3.97

%
39.15

%
37.19

%
43.17

Total Assets
Total Current

100
37.82

100
27.84

100
19.43

Liabilities
Total Liabilities
Total Liabilities and

88.69
100

79.34
100

53.56
100

equity

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