Nordstrom Business Case Study

1.0 Executive Summary

Nordstrom is a nationwide retail industry specialized in a chain of department stores selling clothes, footwear, beauty and so on. During 1999 and 2002, Nordstrom experienced a continuously decline of its sales per footage. Its financial situation did not turn better until 2003. This paper is going to analyze the current situation for Nordstrom, including internal and external environment analysis. During the comprehensive analysis, the SWOT (strength, weakness, opportunities and threats) will be developed. And then a corresponding recommendation on the future strategy will come up based on the SWOT analysis to solve the main issues Nordstrom faced with.

2.0 Assessment of Current Situation

2.1 Internal Environment

The purpose is to assess strengths and weaknesses of Nordstrom.

2.11 Financial Performance Analysis

2.111. Trend Analysis

Although Nordstrom's total sales grew steadily from 1999 to 2002, as shown in figure1-1, its sales per square footage showed a steady decline until 2003. See figure 1-2. During 2002, Nordstrom invested lots of money on new markets and new stores. It attached too much importance on expanding and ignored its profits. In 2003, the sales per square footage increased from $319 to $327 (figure1-2), its earnings per share in 2003 increased 48% from $0.66 to $1.76 in 2002 (figure1-3). This increase was primarily driven by a significant improvement in gross profit increasing to 35.1% of sales from 33.6% last year and a moderate decrease in selling, general and administrative expenses from 30.4% of sales to 30.0% of sales. (Table 2-1)

2.112. Ratio Analysis

a. Liquidity Ratio

Liquidity ratio measures the ability of the company to pay its short term obligation. From 1999, Nordstrom's current ratio and quick ratio kept on declining until 2003 as figure1-4 shows. Its ability to pay short-term liability decreased from 1999 to 2002 and recovered a little bit in 2003.

b. Leverage Ratio

Leverage ratio focuses on capital structure, including level of debt. From figure1-5, Debt to equity increased from 1999 to 2002 which means Nordstrom was financed more with debt, however, the ratio came back in 2003 to a high level. Meanwhile, Times Interest Earned ratio incrementally decreased in 2000, it was not recovered until 2003. The ability of Nordstrom to meet its debt obligation was better in 2003 than the years before.

c. Profitability Ratio

Profitability ratio shows the ability of a company to turn sales into various measures of profits. Table2-2 shows that Nordstrom's ROS (return on sales), ROA (return on assets) and EPS