Nordstrom's strengths, weaknesses, opportunities and threats

Nordstrom SWOT Analysis

The intent of this paper to complete a thorough SWOT analysis of high-end retailer Nordstrom's and provides a series of recommendations to the company based on a complete analysis of the company. Today the company operates a chain of stores both across the U.S. And internationally, selling men's, women's and children's clothing, accessories, shoes, luggage, sundries and home decorating products. Nordstrom has also pioneered the development of online retailing and customization of apparel and shoes for men, women and children. They are widely recognized for their excellent coordination of selling efforts between Nordstrom Direct, their online initiative, and their catalog sales strategies. Nordstrom is traded on the New York Stock Exchange under the symbol of JWN.

Strengths

Fundamental structure of the company is based profiting from execution across the entire retail value chain. The company operates in four segments as of 2008, which include the retail, credit, direct sales and ancillary, other businesses. Best known for its retail operations Nordstrom now operates 155 stores in the United States throughout 27 states, 99 of which include full-line Nordstrom stores, 50 discount Nordstrom Racks, two clearance stores that operate under the name Last Chance, and one free-standing shoe stores.

Nordstrom has concentrated on being the financial intermediary for transactions originating in their stores and this is a major competitive strength from a financial standpoint. The credit segment of the company offers a private label Nordstrom Visa credit card, in addition to offering debit cards offered on accounts at Nordstrom fsb, a wholly-owned federal savings bank the company launched (Upside Today, 2000). Nordstrom's strategy with regard to its credit card and investing in their own bank is to become more vertically integrated in the shopping process, regularly offering discounts on apparel and merchandise ordered online via Nordstrom.com and shipped from the company's fulfillment center in Cedar Rapids, Iowa.

Weaknesses

Heavily dependent on the U.S. For the majority of its revenues. As of 2008 the majority of revenues, 98.7% in the latest fiscal year, were generated in the United States as the company made the decision to re-trench domestically.

Smaller scale of operations don't sale well into nationally-based discount stores. This is evident in the performance of the company in regional roll-outs of their Nordstrom Rack stores. Critics have contended that this is due to the company not having systems in place to deal with discounted merchandise. It is however a weakness of execution the company needs to address.

Opportunities

Increasing reliance on online shopping channels by retailers. This is increasingly becoming a preferred buying channel on the part of consumers who are increasingly starved for time. The challenge for Nordstrom's is to replicate their in-store experience online as well (Cate, 2007). More projects which include the key success factors the Nordstrom online shoe store had need to be introduced.

Growth of discount retailing makes Nordstrom Rack a high growth potential opportunity. This is also a critical factor in their growth as mass merchandisers including Wal-Mart and Costco increasingly compete in the clothing retail industry. Nordstrom faces a daunting challenge of coming down-market with its messaging, as it is today at the high-end of the market in terms of branding.

Recommendations

Nordstrom's future is full of potential. The following are the series of recommendations for the company to focus on greater efficiencies operationally in addition to building out its premium brand. Here are the recommendations for Nordstrom:

Concentrate information systems spending on pricing analysis and execution. Clearly from the financial statements Nordstrom needs more control over pricing. The inclusion of ProfitLogic for pricing optimization is one alternative for example, to better harvest demand at the optical price point.

Go after the $300+ denim market globally more aggressively and with more concerted strategies today. In their latest financials and in their latest earnings calls, Nordstrom reports that even they are even surprised by the number of $300+ jeans being sold. As Nordstrom has a stable $100+ range of denim, the company needs to consider building out a strategy of bringing in a new designer to add more flair to the jeans.

Focus on multi-channel management to ensure all customers have an identical high-quality experience with each Nordstrom touch point. The many channels that Nordstrom sells through including the Web, their stores, discount stores and boutiques makes for a challenging strategy of unifying responses across all channels. Nordstrom needs to focus on preserving their culture in these channels and actually promoting it.

Continued expansion plans yet focus on sales per square foot of $400 or more. The trending on this specific metric is critical if the company is to continue growing profitably and with a maximizing of their retail floor space. In 2007, sales per square foot were $365, high for the last twenty years, much far above the low of $319 per square foot in 2001.

Summary

Nordstrom is an excellent example of a company that has turned their culture into a strong competitive advantage and differentiator (Antonacopoulou, Kandampully, 2000).

Nordstrom's culture reinforces a much stricter set of norms and values than any manager could impart or enforce; that's because the employees tell each other they are different than any other retailer in that they focus on doing what in their good judgment will assist the customer best (Spector, McCarthy, 2001). While the company has challenges with growth in the future, their key metrics of performance, customer loyalty, customer lifetime value, and sales per square foot continue increasing due to the prudent and insightful use of pricing, supply chain, and product information quickly.

Appendix a Fiscal Year-based Financial Analysis

Nordstrom Inc. Ratio Analysis

Profitability Ratios

Return on Equity (%)

Return on Assets (%)

Return on Investment

Gross Margin

EBITDA of Revenue (%)

Operating Margin (%)

Pre-Tax Margin

Net Profit Margin (%)

Effective Tax Rate (%)

Liquidity Indicators

Quick Ratio

Current Ratio

Working Capital/Total Assets

Debt Management

Current Liabilities/Equity

Total Debt to Equity

Long-Term Debt to Assets

Asset Management

Revenues/Total Assets

Revenues/Working Capital

Interest Coverage

Source: Mergent Online

Nordstrom Annual Income Statement Analysis

Net sales

Cost of sales

Gross profit

Selling, general & administrative expenses

Finance charges & other (income) expenses, ne

Gain on sale of Faconnable

Operating income (loss)

Earnings before interest & income taxes

Interest expense - short-term debt

Interest expense - long-term debt

Total interest expense

Less: interest income

Less: capitalized interest

Interest income (expense), net

Other income including finance charges, net

Earnings (loss) before income taxes

Current federal income tax expense (benefit)

Current state & local income tax expense

Total current income tax expense

Deferred income tax expense

Deferred federal income tax expense

Deferred state & local income tax expense

Total deferred income tax expense

Income tax expense

Earnings (loss) before accounting change

Net earnings (loss)

Source: Mergent Online

Appendix B:

Complete SWOT Analysis

Strengths

First, the company's robust growth is quantified in their revenues' compounded annual growth rate of 30% between 2004 and 2008, with revenues growing from $334M to $1.2B. These revenue gains are attributable to the concentrated focus on women's and children's clothing and the build-out of low-cost stores in middle income areas of the country. In addition to these product and distribution strategies, Nordstrom has increased their investments in analytical software and sales techniques to increase same-store sales. Due to this strategy of combining analytics software and sales training focusing on cross-sell and up-sell strategies, there has been a steady increase in sales in the Nordstrom Rack chain over the last four years.

At the center of Nordstrom's success is their ability to create a culture that focuses on enhancing the lifetime value of the customer by delivering exceptional service and an attitude to do whatever it takes