What Makes Nordstrom One of America's Best Companies
Feb 27th 2013 11:45AM
Updated Feb 27th 2013 1:00PM
Nordstrom is an unusual retail company in that it combines two completely different target segments within a single business. On one hand, its namesake Nordstrom stores focus on high-end luxury shoppers, offering a high-quality lineup of apparel, shoes, accessories, and cosmetics. On the other, Nordstrom serves customers of more modest means with its Nordstrom Rack discount stores. With a roughly even split between the two sets of stores, Nordstrom has cultivated a reputation for quality and customer service that has developed strong loyalty among its shoppers.
By itself, that might be enough to make Nordstrom a standout among retail companies. But Nordstrom goes a step further by connecting not just with customers but with entire communities, drawing together employees, investors, shoppers, and local residents in a web of connectedness that ends up benefiting everyone.
The case for Nordstrom
Nordstrom has done an excellent job of serving all of its stakeholders, not just investors. For its employees, the retailer offers pay and benefits that are unparalleled in the industry. In 2011, Nordstrom's average worker earned more than $19 per hour, nearly 60% higher than the industry average. Moreover, with health insurance, 401(k), disability and life insurance, and opportunities for an unpaid annual sabbatical, Nordstrom builds employee loyalty, with 75% of employees rating it favorably on Glassdoor.
For customers, Nordstrom's biggest appeal comes from the high-quality design of its products and the perception of that quality that the company creates in its brands. As a result, Nordstrom does an excellent job of convincing customers that it would be a waste of time to shop anywhere else, because they'd only end up coming back to Nordstrom for its quality products. The company has also done a good job of building a sense of community among shoppers, creating a network effect that drives repeat sales.
Shareholders definitely can't complain about the results. The company has put up terrific returns of more than 21% annually over the past decade, with profit margins of nearly 6% dwarfing those of competing retailers Macy's and Saks Fifth Avenue. Revenue growth of about 4.5% since late 2007 may not seem all that strong, but given the huge financial crisis we had during the interim, the results are still respectable.
Best of all, members of the Nordstrom family still own between 20% and 25% of the company's shares, even at a market cap of more than $11 billion. That means that investors can feel comfortable that CEO Blake Nordstrom and much of the board of directors and management team have their incentives squarely aligned with rank-and-file shareholders.
Beyond those groups, Nordstrom pays attention to the communities that drive the success of its individual stores. Although the company has a special relationship with its corporate headquarters in Seattle, Nordstrom's dedication to go beyond a simple business presence exists just about everywhere it has store locations. Between donations of time and money to charities as well as a commitment to sustainable environmental practices, human rights, and community support, Nordstrom is committed to keeping a sterling reputation in all phases of its business.
Foolish bottom line
Among retail companies, it's hard to find a better combination of positive traits than you see in Nordstrom. Between keeping shareholders, customers, and employees happy, Nordstrom is a model for others in the industry to follow and truly belongs among the best companies in America.
The article What Makes Nordstrom One of America's Best Companies originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.