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Nordstrom vs. Macy’s

Nordstrom’s vs. Macy’s Future Challenges Historically speaking, Canada has never been a great market for American retailers. The Canadian dollar was weak, costs were higher, and with limited real estate development, it was difficult to find space. Not anymore, now the door to Canada is opening wider than ever thanks to a stronger Canadian dollar, a relatively robust economy, and a loosening of the commercial real estate market, in part because of the downsizing of some longtime retailers like Sears Canada.

For American retailers, Canada’s allure is simple; sales per square foot at Canadian malls were almost 50 percent higher in 2011 than sales per square foot at American malls. This is a budding market that Nordstrom will need to act towards if they hope to keep up with the competition in the future. Important Decisions Nordstrom’s has made many very important decisions in the past that have shaped them into the company they are today.

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The first and most important came in 1901 when founder John W.

Nordstrom decided to use the money he had left from the gold rush to open a shoe store in Seattle with Carl Wallin, called Wallin & Nordstrom. The next big decision came in 1966 when it was decided that the Nordstrom’s shoe store in Portland would begin selling clothing as well. This marked a pivotal change in direction for Nordstrom’s. After the success of the Portland store, it was decided to implement the idea in the other stores. In the 1980’s Nordstrom’s experienced a boom. This was due to many factors but one of the most prevalent was their amazing use of customer support.

Over almost anyone else Nordstrom’s prides itself on having some of, if not the best, customer support. This is helped by them recruiting managers from the ranks of salespeople thereby encouraging their employees to work harder while maintaining high moral. Nordstrom, along with the retail industry, sources products from around the world, and this means they encounter a wide range of global challenges. Many of these challenges—such as forced labor and health and safety issues—are cause for very real concern for all retailers. To address these concerns, Nordstrom created the Nordstrom Social Responsibility team in 1994.

This team works closely with their Nordstrom Product Group (NPG) manufacturers and vendors to ensure that Nordstrom-label products are made in accordance with all applicable laws and ethical labor practices. Past Challenges Single-digit growth became the norm for Nordstrom throughout the early and mid-1990s. Sales grew sluggish thanks in large part to fluctuations in demand for women’s apparel and the severe recession in southern California, where more than half of the company’s total store square footage was located in the early years of the decade. The double-digit growth of the 1980s was gone.

The sales increases of the 1990s were largely attributable to new store openings. By 2003 after several changes in management Nordstrom appeared to have regained its lost luster through cost containment, technology initiatives, and a refocusing on its niche: luxury goods at affordable prices. Some analysts considered technology to be the key component, particularly a new state-of-the-art merchandising system, which began to be rolled out in 2002. The system could track sales minute by minute throughout its stores, enabling Nordstrom to reduce markdowns and better target its offerings to customers.

On the merchandise side, the retailer began introducing edgier fashion offerings in a department called “via C,” in an attempt to leverage its core customer base, which was younger and had a wider age range than its main competitors, Neiman-Marcus Co. and Saks Incorporated. Nordstrom enjoyed its most profitable year ever in 2003. Nordstrom’s continued reliance on aggressive sales tactics came around to bite them in late 1980s. 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 had systematically 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 its compensation and record-keeping procedures, and to pay back wages to some of Nordstrom’s 30,000 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, which were finally settled out of court in early 1993 when Nordstrom agreed to pay a set percentage of compensation to employees who worked at Nordstrom from 1987 to 1990. The settlement cost the company between $20 million and $30 million. Specific Competitive Advantages One specific competitive advantage Macy’s holds over Nordstrom’s is its target demographic.

While Nordstrom’s focuses mainly on career moms between the ages of 35 and 50, Macy’s recently launched “Millennial strategy” states that its merchandise areas primarily serve ages 19-30. The millennial generation (ages 13-30) is now America’s largest and most diverse generation, spending an estimated $65 billion each year for the type of merchandise sold at Macy’s. A much larger demographic gives Macy’s a competitive advantage. On the other hand, Nordstrom’s has a distinct advantage over Macy’s when it comes to customer loyalty and social-oriented traffic.

Macy’s and Nordstrom’s have been largely based in malls for decades, but recently, malls have become less popular in the United States. As a result, both companies have been forced to open free-standing stores in scattered locations in a community. Since Nordstrom’s has a slightly older demographic with more buying power and need for social status through brands, loyal customers of Nordstrom’s will be more willing to travel to shop there. Macy’s, who targets a younger demographic, has less loyal customers with buying power and relies more on impulse buyers and young mall-goers looking to spend a little extra money.

Comparative Statistics In 2011, Macy’s boasted $26. 4 billion in net sales. That figure has grown steadily since the economic crash of 2008. Nordstrom’s showed $10. 8 billion in net sales in the same year. Again, this figure has grown steadily since the economic downturn. Macy’s has a whopping 171,000 employees. Nordstrom’s has only 52,430 employees as of 2011. With Macy’s being a much larger chain, this difference is to be expected. Macy’s operates 400 stores in 33 states as of the year ended 2012. Currently, Nordstrom’s operates 109 stores in 28 states.

In May of 2007, Macy’s reached its pinnacle of prosperity in terms of market shares value and profitability. Its common stock price was valued at 45. 05 and business was looking up. Surprisingly, by October of the next year, the stock price had plummeted as low as 7. 42 as the company struggled to stay afloat and fight through the crippling recession. Today, the stock has recovered to 41. 71, and is predicted to continue its growth. Nordstrom’s, however, has shown more resilience through the recession. While it still fell from 55. 1 to 11. 37 in 2008, it has shot up to rates above its previous record. With the stock price as high as 57. 2 in the past year, Nordstrom shows a stronger trend of increase than Macy’s. Summary We recommend investing in Nordstrom over Macy’s. With Nordstrom’s forecasted growth and success in Canadian markets, we expect Nordstrom to grow consistently for years to come. While Macy’s size and net income are attractive, we feel that Nordstrom has a better management structure and potential for growth in coming years.

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