LOSING ITS LUSTER

By John Greenwald

It is a truth universally acknowledged that Nordstrom stores have wrapped up the title for top-of-the-line customer service. They will take back returns with a smile, hail you a cab and send out a salesclerk and tailor with armloads of clothes if you're too busy to go shopping. If it's footwear you're after, Nordstrom's vast shoe sections boast up to 150,000 pairs from sizes 4 to 21. "I really like Nordstrom," says Kelly Chandler, 28, a marketing specialist at a Seattle radio station who has shopped at the fashion retailer's flagship store since she was a teenager. "They are always willing to accommodate you. When I go shopping, I always park my car near Nordstrom at the mall because I always start and end up there."

Yet this beloved chain of upscale, family-run emporiums, which has 83 stores in 17 states from Washington to Virginia, has been struggling to reverse recent slides in its profits and stock price. Shoppers still rush to new Nordstrom stores, which have been opening at the rate of four a year, but sales at some older ones have been slumping. Despite its reputation for catering to customers' desires, Nordstrom (1996 sales: $4.5 billion) has been slow to jump on hot retailing trends and appreciate fully the passion of Americans for brand names and logos. "You might still have [Nordstrom] as your first choice," says Dean Ramos, who follows the company for the firm Dain Bosworth in Minneapolis, Minnesota. "But if they are not giving you what you want, you are going to go elsewhere."

Such defections have hacked away at Nordstrom's bottom line. The company's profits, which rose in double digits through most of the 1980s, have fallen for two straight years--tumbling 18.6% in 1995 and an additional 10.7% last year. The recent fourth quarter, which included the all-important holiday season, was particularly gloomy for Nordstrom, as sales dipped 1.3% at company stores that had been open 14 months or longer.

The slide in profits has pulled Nordstrom stock down too, from nearly $53 a share last May to the mid-$30 range (it closed last Friday at $37.875 a share). That has knocked almost half a billion dollars off the value of the Nordstrom family's 36% stake in the company. "Take your eye off the ball, and it's perilous," says Pete Nordstrom, 35, one of six thirtysomething brothers and cousins who became co-presidents in June 1995, when the fourth generation of family members moved to the head of the 96-year-old company. (The co-presidents report to chairman John Whitacre, 44, currently the only top executive from outside the family.)

The downturn has been a brutal introduction to management for the young Nordstroms, who have learned the business from the ground floor up--first by sweeping out stockrooms and then by advancing through the ranks of buyers and managers. "We're very competitive," says Pete, who stands 6 ft. 7 in. tall and played junior varsity basketball while a student at the University of Washington. (His younger brother Erik joined him on the squad.) "There's a high sense of urgency to turn things around." Nordstrom points to some recent encouraging signs. Results in February were up "in all important categories," he notes.

Pete and his cohorts have had little else to cheer about since they began minding the store 21 months ago. Surveying the elegant sales floors, which (in contrast to most upscale department stores) group fashions by life-styles rather than brands, the new management decided it was time to freshen up women's merchandise and move some established lines around. "We were starting to get a little bit behind," Nordstrom says. "We needed to be more contemporary and relevant."

But that proved a prescription for turmoil, as the changes confused customers and department buyers alike. For example, Donna Karan's DKNY line of sportswear had been in Nordstrom's cutting-edge Savvy shops since 1989 and was now a candidate for golden oldie. So Nordstrom moved DKNY to the Individualist section, a much larger space for career women, and switched other labels from there to still another section. The changes rippled through the stores like rows of tumbling dominoes, and the resulting disruption surprised the new management team. "We underestimated the problems of shifting things around," Nordstrom says. "We just didn't execute as well as we could have."

Placing the merchandise was only one of Nordstrom's problems. The company was agonizingly slow to bring in national superbrands such as Tommy Hilfiger for Women and Lauren by Ralph Lauren, allowing rivals like Macy's and Bloomingdale's to take the lead in rolling out the hugely popular items. "We were late in the game in getting in on it," Nordstrom admits. "We just can't allow these things to happen."

Such mistakes have taken their toll through the departure of some once-loyal customers, particularly those with an eye for the latest trends. Tara Feinstein, 35, a free-lance journalist, recently browsed the aisles of a Nordstrom store in Woodland Hills, California, shopping for clothes for her three-year-old son. She walked out with two $20 T shirts and a sense of disappointment. "I remember being very excited when Nordstrom came to Southern California in the 1980s, and I shopped there exclusively," she recalls. "Now, when I think of Nordstrom, I picture brown and drab."

Disenchantment like that mocks the company's goal of serving shoppers through a lifetime of wardrobe changes. The ideal Nordstrom customer may begin by buying turtlenecks and T shirts as a teenager and graduate to a $1,800 Donna Karan suit or a $3,000 Valentino gown as the years go on. And, oh, the convenience! Salesclerks are free to go from department to department to help you pick out a head-to-toe ensemble. Nordstrom salespeople average an industry-leading $29,000 a year in base pay and commissions and are regarded as entrepreneurs with their own clientele. At the Westside Pavilion in Los Angeles, Nordstrom shopper Elaine Lerman says it's such service that keeps her coming back: "You can't beat it." Lerman acknowledges, however, that the clothing "just isn't as exciting" as it used to be.

Furthermore, service is costly; so Nordstrom must find a way to generate more sales from all its stores if it hopes to turn profits around. Besides massaging long-time customers, Nordstrom is trying to attract choosy new ones by paying more attention to refreshing its fashions. Pete Nordstrom argues that last year's shifts in placement have made it possible for the company to respond more swiftly to the latest trends. And he takes comfort from what happened in the early 1980s, when Nordstrom shook up customers by bringing in Liz Claiborne lines and moving other brands around. Although disruptive at the time, those moves helped set the stage for years of robust profit growth.

"Nordstrom will look like a different company six to 12 months from now," predicts Jennifer Black Groves, who tracks the retailer for Black & Co. in Portland, Oregon. "Management has suffered through a very difficult time, but will come out of it much wiser. They are again listening to their customers." This time, the entire store could be riding on it.

--Reported by Jeanne McDowell/Los Angeles and Stacy Perman and Jane Van Tassel/New York

With reporting by JEANNE MCDOWELL/LOS ANGELES AND STACY PERMAN AND JANE VAN TASSEL/NEW YORK