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Nordstrom Investors Are Hoping Better Things Will Be in Store

Retail: Growth and stock price have declined. Analysts are mixed on how quickly chain's switch to more fashionable goods may help.


The shopping wars are taking a toll on one of the nation's premier retailers, Nordstrom Inc., and the damage is likely to continue through the rest of 1996.

By several measures, the Seattle-based chain of upscale department stores is a company slowing down. Its sales and profit gains are trailing their historical rates, and it's a change that's not being greeted warmly by Nordstrom's investors.

The company's stock was sliding even before Nordstrom posted another set of disappointing quarterly results Aug. 8. Though the stock gained 87.5 cents a share to close at $39 on Tuesday, it's still down a hefty 25% just since June on Nasdaq.

The performance is "mediocre," conceded co-President Peter E. Nordstrom. "We're working as hard as we can to make things better."

The chain's struggle reflects the intensely competitive retail market as well as Nordstrom's effort to stand out from rivals such as Macy's and smaller specialty stores.

Bloomingdale's also will soon be elbowing for Nordstrom's customers. Federated Department Stores is converting five Broadway stores to upscale Bloomingdale's this fall, including four in Southern California.

Nordstrom, with 78 stores in 14 states, has long been known for selling hip, fashionable apparel--particularly women's clothing--and other goods in novel store settings in which pianists soothe shoppers and salesclerks provide superior service.

Last year, however, much of Nordstrom's apparel had become too basic and stodgy, not distinguishable from merchandise sold elsewhere, analysts said. So in recent months, Nordstrom has undergone a major shift "away from basics toward a wider assortment of unique, fashion-oriented apparel," according to analyst Tom Tashjian of Montgomery Securities in San Francisco.

That meant having to clear out the older basic goods, and Nordstrom has done so by slashing prices. It's that giant clearance sale that's eroding earnings growth.

"We had to be more current," Peter Nordstrom said in a telephone interview. "Whether that meant our things were basic or fashionable is not the point. They needed to be current and relevant."

Presumably, Nordstrom's problems should abate after it's finished clearing out those goods, particularly with the economy on the upswing in California, where 42% of Nordstrom's total floor space is located.

Yet analysts' opinions are mixed about how quickly Nordstrom can bounce back, and Peter Nordstrom declined to speculate.

"We're in a transition, and we're still in it," he said.

Perhaps that's why Wall Street seems to be withholding judgment about a quick recovery in light of recent Nordstrom results. Consider:

* Net income in Nordstrom's fiscal second quarter ended July 31 dropped 17% from a year earlier, to $44.8 million, despite an 8% sales gain to $1.24 billion.

* Same-store sales--those at stores open at least a year and the industry's main gauge of sales trends--rose 2.3% through July. That's better than the 0.7% dip for Nordstrom's fiscal year ended Jan. 31, but well below the 4.4% gain for fiscal 1995.

* Results for the latest quarter also include higher-than-expected costs related to shoppers' bad debts, which totaled $16 million, analyst Patrick McCormack of Dean Witter Reynolds Inc. noted in a new report.

Still, Nordstrom's shift back to "experimental and forward-fashion goods [is] the right thing for the company to be doing," because it will enable Nordstrom to again "distinguish itself" from the crowd, Tashjian said.

But are its heavy sales over? "One never knows if the [previous] markdowns were adequate to clear out the old goods," Tashjian said.

And there's one other problem: No one knows either if shoppers will embrace the new, "relevant" apparel Nordstrom is now stocking.

After all, as Peter Nordstrom said, "there's a lot of choices out there for consumers."


Falling Stock

Nordstrom's stock has taken a beating in recent months on the heels of the chain's lower profit. Weekly closes, except latest:

Tuesday: $39, up 87.5 cents

Source: Bloomberg Business News

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