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Harvard Business School XXXXXXXXXX
Rev. October 15, 1999
Hilary Weston prepared this case from public sources under the supervision of Professor Robert Simons as the basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Copyright © 1990 by the President and Fellows of Harvard College. To order copies or request permission to
eproduce materials, call XXXXXXXXXXor write Harvard Business School Publishing, Boston, MA XXXXXXXXXXNo
part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in
any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the
permission of Harvard Business School.
1
Nordstrom: Dissension in the Ranks? (A)
The first time Nordstrom sales clerk Lori Lucas came to one of the many
“mandatory” Saturday morning department meetings and saw the sign—”Do Not
Punch the Clock”—she assumed the managers were telling the truth when they said
the clock was temporarily out of order. But as weeks went by, she discovered that on
subsequent Saturdays the clock was always “
oken” or the time cards were not
accessible. When she and several colleagues hand-wrote the hours on their time
cards, they discovered that their manager whited-out the hours and accused them of
not being “team players.” Commenting on the variety of tasks that implicitly had to
e performed after hours, Ms. Lucas said, “You couldn’t complain, because then you
manager would schedule you for the bad hours, your sales per hour would fall, and
next thing you know, you’re out the door.”1
Patty Bemis, who joined Nordstrom as a sales clerk in 1981 and quit eight years later, told a
similar story:
Nordstrom recruiters came to me. I was working at The Broadway as Estee
Lauder’s counter manager and they said they had heard I had wonderful sales
figures. We’d all heard Nordstrom was the place to work. They told me how I would
double my wages. They painted a great picture and I fell right into it. . .
The managers were these little tin gods, always grilling you about your sales.
. . . You felt like your job was constantly in jeopardy. They’d write you up fo
anything, being sick, the way you dressed XXXXXXXXXXThe girls around me were dropping
like flies. Everyone was always in tears. . . .
Working off the clock was just standard. In the end, really serving the
customer, being an All-Star, meant nothing; if you had low sales per hour, you were
forced out. . . .
I just couldn’t take it anymore—the constant demands, the grueling hours. I
just said one day, life’s too short.2
1Susan Faludi, "At Nordstrom Stores, Service Comes First—But at a Big Price," Wall Street Journal, Fe
uary 20,
1990, p. A1.
2Ibid.
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ena, 2021.
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ena in Accounting for Internal Decision Making taught by SUSAN KULP, George Washington University from Dec 2020 to Jun 2021.
XXXXXXXXXXNordstrom: Dissension in the Ranks? (A)
2
Despite employee grievances such as those of Lori Lucas and Patty Bemis, top management
at the fashion specialty retailer acknowledged no serious problems with its management systems. Jim
Nordstrom, co-chairman of the company with his
other John and cousin Bruce, explained
management’s position in a statement to the press:
We haven’t seen any complaints from the union XXXXXXXXXXIf employees are
working without pay,
eaks, or days off, then it’s isolated or by choice.
A lot of them say, “I want to work every day.” I have as many people thank
us for letting them work all these hours as complain. I think people don’t put in
enough hours during the busy time. We need to work harder.
A lot of what comes out makes it sound like we’re slave drivers. If we were
that kind of company, they wouldn’t smile, they wouldn’t work that hard. Ou
people smile because they want to.3
Background of the Cu
ent Situation
John W. Nordstrom founded Nordstrom in 1901 as a shoe store. Nearly a century later, by
the end of 1989, the company had grown to become the nation’s leading specialty retailer of apparel,
shoes, and accessories. The company operated 59 department stores in six states and was
implementing a national expansion plan that called for store openings in several additional states in
the early 1990s. By the end of 1989, sales were approaching $3 billion and Nordstrom enjoyed one of
the highest profit margins in its industry.
Nordstrom, which issued shares to the public in 1971, had always been run by members of
the Nordstrom family, who still owned roughly half of the company. The third generation of
Nordstrom family managers, who had been at the helm since 1970, upheld the management
philosophy of the company’s founder: offer the customer the best in service, selection, quality, and
value.
Superior customer service was Nordstrom’s strongest competitive advantage and
consequently a major source of its financial success. The retailer had enjoyed nearly 20 years of
uninte
upted (primarily double-digit) earnings growth before reporting a decline for the 1989 fiscal
year. (Exhibit 1 provides a history of Nordstrom’s financial performance.) With sales per square foot
of $380 in 1988,4 Nordstrom was among the most productive in the industry, generating roughly
double the 1988 industry average for specialty retailers of $194 per square foot.5
Throughout the 1980s, Nordstrom’s salespeople were the envy of the industry in terms of
their quality and productivity. The caliber of the company’s sales clerks seemed to withstand the
pressures of rapid growth as the company’s work force expanded geographically and grew from
5,000 employees in 1980 to 30,000 in XXXXXXXXXXThe clerks’ “heroics” (as they called their exceptional
customer service efforts) helped to build the store’s alluring image, its extremely strong custome
loyalty, and its lofty sales per square foot.
3Ibid.
4Richard W. Stevenson, "Watch Out Macy's, Here Comes Nordstrom," New York Times, August 27, 1989, p. 34.
5National Retail Merchants Association, Financial & Operating Results of Department & Specialty Stores, 1989 ed.
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ena, 2021.
This document is authorized for use only by Graciano Ca
ena in Accounting for Internal Decision Making taught by SUSAN KULP, George Washington University from Dec 2020 to Jun 2021.
Nordstrom: Dissension in the Ranks? (A XXXXXXXXXX
3
At Nordstrom’s, it was common practice for sales clerks, or “Nordies” as they called
themselves, to:
• drive to another Nordstrom store to retrieve a desired item in an out-of-stock size
or color;
• drive to a customer’s home to deliver purchases;
• call up a valued customer to alert her of newly a
iving merchandise;
• help a customer assemble a complete outfit by retrieving items from several
different departments; and
• write thank you notes to customers for their purchases.
Sales clerks were also known for performing such heroics as changing a customer’s flat tire in
the store parking lot; paying a customer’s parking ticket if his or her shopping time outlasted the
parking meter; lending a few dollars to a customer short on cash in order to consummate a purchase;
and taking a customer to lunch.
By performing these extraordinary services—which were often performed outside of a sales
clerk’s scheduled time on the selling floor—sales clerks earned their customers’ praise, gratitude, and
loyalty. (Exhibit 2 reproduces a typical customer letter.) In addition to customer loyalty, industrious
clerks could earn over $80,000 a year. The average Nordstrom sales clerk earned $20,000 to $24,000
compared to the national average for all retail sales clerks of $12,000 a year.6
During the 1980s, more and more rivals such as R. H. Macy, Bloomingdales, and Neiman
Marcus began to emulate Nordstrom’s service-oriented strategy. According to one industry expert:
All retailers in America have awakened to the Nordstrom threat and are
struggling to catch up. Nordstrom is the future of retailing. . . . [It] is the most
Darwinian of retail companies today.7
At the end of the decade, Nordstrom’s much heralded reputation was formally
acknowledged with the 1989 National Retail Merchants Association’s Gold Medal—considered by
many to be the most prestigious award in the industry.8
Policies, Practices, and Measurement Systems
In the mid-1960s, to support its high-service strategy and motivate its salespeople, Nordstrom
had introduced an innovative commission system—revolutionary among specialty retail and
department stores. Top management combined this incentive compensation system—which was
driven by sales per hour (SPH)—with other distinctive policies to guide, motivate, and measure the
performance of its sales staff. Although its established set of management systems and policies had
proven very effective for over 20 years, problems began to emerge at the end of the 1980s.
6Faludi, op. cit.
7Stevenson, op. cit.
8Jean Bergmann, "Nordstrom Gets the Gold," STORES, January 1990, p. 44.
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ena, 2021.
This document is authorized for use only by Graciano Ca
ena in Accounting for Internal Decision Making taught by SUSAN KULP, George Washington University from Dec 2020 to Jun 2021.
XXXXXXXXXXNordstrom: Dissension in the Ranks? (A)
4
Sales-per-Hour Incentives
The following account9 describes the mechanics of Nordstrom’s commission-selling system as
well as the explicit and implicit ways in which it affected employees:
Interviews with a dozen cu
ent and former Nordstrom employees in
California illustrate the contradictory pressures that workers can experience in a
system that tries to give equal emphasis to service, profitability, and middle-
managerial autonomy