What is the cause of the problems described in the case? How serious are these problems?
How effective is the memo reproduced as Exhibit 3 in clarifying the distinction between "sell" and "non-sell" time?
With whom do you side: disgruntled employees or Nordstrom management?
How would you change management systems at Nordstrom?
unknown-15 Harvard Business School 9-191-002 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 reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No 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 “broken” 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 be performed after hours, Ms. Lucas said, “You couldn’t complain, because then your 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 for anything, being sick, the way you dressed. . . . The 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, February 20, 1990, p. A1. 2Ibid. For the exclusive use of G. Carrena, 2021. This document is authorized for use only by Graciano Carrena in Accounting for Internal Decision Making taught by SUSAN KULP, George Washington University from Dec 2020 to Jun 2021. 191-002 Nordstrom: 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 brother John and cousin Bruce, explained management’s position in a statement to the press: We haven’t seen any complaints from the union. . . . If employees are working without pay, breaks, 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. Our people smile because they want to.3 Background of the Current 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 uninterrupted (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 1989. The clerks’ “heroics” (as they called their exceptional customer service efforts) helped to build the store’s alluring image, its extremely strong customer 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. For the exclusive use of G. Carrena, 2021. This document is authorized for use only by Graciano Carrena 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) 191-002 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 arriving 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. For the exclusive use of G. Carrena, 2021. This document is authorized for use only by Graciano Carrena in Accounting for Internal Decision Making taught by SUSAN KULP, George Washington University from Dec 2020 to Jun 2021. 191-002 Nordstrom: 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 current 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