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Nordstrom, Inc. was started in 1901 as a single shoe store in Seattle, Washington, that was opened by

two Swedish immigrants. From those origins, the family-run enterprise expanded into a 180-outlet, 27-

state chain, which tallied $6.49 billion in sales. Members of the founding Nordstrom family continue to

own about 20 percent of the company's stock. Carefully supervised expansion, tight family

management, wide selection, and attentive customer service have long been the hallmarks of Seattle-

based Nordstrom, one of the largest independent fashion specialty retailers in the United States.

John W. Nordstrom, a 26-year-old Swede headed north to Alaska in search of gold

in 1897. In 1899, $13,000 richer, Nordstrom moved back to Seattle, where he opened a shoe store with

Carl Wallin, a shoemaker he had met in Alaska. Business quickly picked up. By 1905 annual sales

increased to $80,000. In 1923 the partners opened a second store in Seattle. By 1928, however, 57-year-

old John Nordstrom had decided to retire from the shoe business, and passed on his share to his sons

Everett and Elmer. Carl Wallin retired the following year and likewise sold his share to the next

generation of Nordstroms. In 1929 the Nordstrom brothers doubled the size of their downtown Seattle

store. In 1930, despite the onset of the Great Depression, the two stores made $250,000 in sales.

By 1961 Nordstrom operated eight shoe stores and 13 leased shoe departments in

Washington, Oregon, and California. That year, the firm grossed $12 million in sales and had 600employees on its payroll. In 1967, when annual sales had reached $40 million, the chain's name was

changed to Nordstrom Best. The firm diversified further in these years, as Nordstrom Best began to sell

men's and children's clothing as well. In 1968 Everett Nordstrom turned 65, and he and his two brothers

decided to turn over the reins of the company to the next generation of Nordstroms. Five men--Everett's

son Bruce, Elmer's sons James and John, Lloyd's son-in-law John A. McMillan, and family friend Robert E.

Bender--took control of the company. In August 1971 the company went public, offering Nordstrom

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Best stock on the over-the-counter market. Family members retained a majority of the stock, however.

In 1971 Nordstrom earned $3.5 million on sales of $80 million. In 1973, when sales first topped $100

million, the company changed its name to Nordstrom, Inc. In 1976 the firm launched a new division,

Place Two, which featured, in smaller stores, a selected offering of men's and women's apparel and

shoes. By 1977 Nordstrom operated 24 stores, which generated sales of $246 million.

In 1980 sales hit $407 million, and in the next few years, sales and earnings continued

to rise substantially. Between 1980 and 1983, when sales jumped to $787 million, earnings more than

doubled, going from $19.7 million to $40.2 million. In 1982 Nordstrom established Nordstrom Rack as its

third division, now consisting of a string of outlet stores. The chain's biggest growth area, however, was

in the huge California market. By 1984 there were seven Nordstrom stores in that state. Five years later,

Nordstrom had 22 full-size stores in California.

Nordstrom increasingly came to be recognized as an efficient,

upscale, full-service department store. Its aggressive customer service plainly brought results. The firm

consistently maintained the highest sales per square foot of retail space ratios in the industry, nearly

twice those of other department stores. Most significantly, though, Nordstrom's management

encouraged the development of an aggressive sales force. The vast majority of Nordstrom clerks worked

on commission, and the average salesperson earned $24,000 annually. Managers generally promoted

from within the ranks of salespeople, which intensified the desire to sell.

In the 1980s the firm's customer service became

legendary, as tales of heroic efforts by salespeople became legion: clerks were known to pay shoppers'

parking tickets, rush deliveries to offices, unquestioningly accept returns, lend cash to strapped

customers, and to send tailors to customers' homes. Salespeople received constant pep talks from

management, and motivational exercises were a routine part of life at Nordstrom. Nordstrom also

created an extremely customer-friendly environment. Many stores had free coat check service,

concierges, and piano players who serenaded shoppers. Nordstrom continued to rely on its aggressive

sales staff, but the corporate policy of encouraging clerks to go out of their way to make sales caused

the company some grief. The employees' union (which was later decertified) complained about the

pressure on employees to sell. In late 1989 a group of unionized employees charged that they were not

being paid for performing extra services to customers.

In February 1990, after a three-month investigation, the

Washington State Department of Labor & Industries alleged that the company hadsystematically violated state laws by failing to pay employees for a variety of duties, such as

delivering merchandise and doing inventory work. The agency ordered Nordstrom to change itscompensation and record-keeping procedures, and to pay back wages to some of Nordstrom's30,000 employees. Soon after, the firm created a $15 million reserve to pay back-wage claims.The company, however, remained a target of class-action lawsuits on these matters, whichwere finally settled out of court in early 1993 when Nordstrom agreed to pay a set percentageof compensation to employees who worked at Nordstrom from 1987 to 1990. The settlementcost the company between $20 million and $30 million.

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Other unforeseen events in 1989 and 1990 hit the company as well. The San Franciscoearthquake of 1989 took a significant bite out of retail sales in the San Francisco Bay area. Thegeneral nationwide downturn in retailing hurt the company more, however. In September1990, Nordstrom, then a 61-store company, announced it would cut costs by 3 to 12 percentand laid off some personnel. In the fourth quarter of 1989, Nordstrom's earnings dropped 34

percent from the previous year. Earnings fell about 7 percent for the entire year, from $123.3million in 1988 to $115 million in 1989; sales, however, increased nearly 15 percent in thatyear, from $2.33 billion to $2.67 billion.

Sales and earnings rebounded a fraction in 1990. Sales rose 8 percent to $2.89 billion, and profits rose a

minuscule 0.7 percent to $115.8 million. In 1990 women's apparel and accessories accounted for 59

percent of Nordstrom's total sales; men's apparel accounted for 16 percent; and shoes--still a company

mainstay--constituted 19 percent of all sales. Meanwhile, with net earnings slipping somewhat (from 5.3

percent in 1988 to 3.91 percent in 1993), Nordstrom sought to cut costs, in particular its selling, general,

and administrative costs, which accounted for 26.4 percent of sales in 1992. This relatively high figure

resulted from Nordstrom's generous employee incentive program that fueled the company's reputationfor customer service. Perhaps the most significant transition took place in the management arena late in

1995, when Nordstrom's four cochairmen--Bruce, James, and John Nordstrom and John McMillan--

retired. This third generation of Nordstroms to lead the company were replaced by former copresidents

Ray Johnson and John Whitacre, who became the new cochairmen (although Johnson subsequently

retired in September 1996), and were in turn replaced in the copresidency by six fourth-generation

family members--Bill, Blake, Dan, Erik, Jim A., and Pete Nordstrom--all in their early 30s. The new

management team faced the difficult task of taking over in the hypercompetitive and sluggish sales

environment of the mid-1990s as well as attempting to maintain Nordstrom's position as one of the top

upscale retailers in the country. By 2000, there were 77 full-line Nordstrom stores, 38 Nordstrom Racks,

and 23 Faonnable boutiques. Late in 1998 the company launched its online store at nordstrom.com.Nordstrom stock began trading on the New York Stock Exchange in June 1999. Sales remained lackluster

and earnings were down, leading to Whitacre's ouster in an August 2000 management shakeup. Bruce

Nordstrom came out of retirement to take over the chairman's position, while his son Blake assumed

the day-to-day reins as president. Blake Nordstrom, one of the former copresidents, had most recently

been in charge of Nordstrom Rack. These developments occurred during one of Nordstrom's least

profitable years in some time, as net income for fiscal 2000 totaled just $101.9 million on sales of $5.53

billion.

The new management team, attempting to turn the retailer's fortunes around, had the further

problem of an economic downturn to deal with. After a brief upturn, same-store sales began falling inAugust 2001, leading the company to lay off as many as 2,500 employees late in the year as part of a

cost-cutting initiative. Nordstrom also held its first-ever fall clearance sale to try to reduce excess

inventories (unlike most competitors, who conducted regular sales, Nordstrom had traditionally held

few promotions: two half-yearly sales for men and women, and an anniversary sale in July).

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EVOLUTION