Holding out for a retail renaissance

Versace and Valentino handbags priced at $4,500 and $2,895 dangled from display racks at Nordstrom's gleaming new Cherry Hill store recently as a trainer explained to a circle of sales clerks how to properly court a shopper who "spends $75,000 to $100,000 a year."

It was a display of opulence and affluence in the midst of recession as workers prepared for the opening this Friday of the upscale department store's latest luxury gem, at the newly renovated Cherry Hill Mall.

And it raises the question: How on earth is there room for a new luxury store in the middle of this economic mess?

The answer, according to analysts, is that Nordstrom Inc. has its work cut out for it - and so does the mall that has pegged its hopes for a renaissance on the arrival of this coveted company.

The Seattle retailer is opening this store, one of four nationwide this year and only its second in the area, during a downturn that has deflated the spending power of the very shoppers who helped fuel the growth of luxury retail in recent years.

It has suddenly lost the middle-class consumers who were spending the spoils of overflowing home equity on what retailers call "affordable luxury" - indulgences once reserved only for the rich.

"They had a tremendous amount of what I call false wealth," said Marshal Cohen, chief industry analyst for NPD Group Inc. "We had over a million people a year buying or selling a house, and they were injected with, on average, $60,000 in discretionary income.

"You had people who had never had money in their lives, and now all of a sudden it was, 'Keep up with the Joneses and reward yourself,' " he said.

That largely ended with the stock market crash this fall.

Faced with layoffs and decimated savings accounts, such shoppers have largely defected to discount merchants. Wal-Mart Stores Inc. has posted strong results. The Neiman Marcus Group Inc. and Saks Inc. have been among the harder hit.

Shoppers of more modest means who flock to luxury stores are called "aspirational shoppers." They are the swing voters of retail. Discount stores lure them with more-for-your-money deals; upscale outfits beckon with the promise of status shopping.

But with the recent defections, upscale retailers have been big losers. Nordstrom's profits were down $144 million during the quarter that ended Jan. 31, compared with the same period a year earlier.

Nordstrom's fate is not the only one on the line in Cherry Hill. The mall owner is on pins and needles, too.

Friday's opening of the 138,000-square-foot store and adjoining parking facility will mark the end of a $200 million makeover there by Pennsylvania Real Estate Investment Trust, or PREIT.

The Philadelphia company is itself grappling with rising vacancies due to tenants' going bankrupt in this shaky economy.

"Traffic in shopping malls is down considerably and has been eroding nationally for quite some time, and at a more extreme rate recently," said Bernard Sosnick, a retail analyst who follows Nordstrom for Gilford Securities Inc. "But Nordstrom is invited into the best local malls because it has the ability to draw shoppers."

PREIT spent years courting Nordstrom. At first, it tried to persuade the company to locate in Center City. But the absence of a sufficiently large parcel, coupled with prohibitive redevelopment costs, were a barrier.

When PREIT bought Cherry Hill, it was with the vision of reinventing the South Jersey mall with Nordstrom as its main draw. After landing Nordstrom, it gutted sections of the mall, built an addition, erected the new Nordstrom, and constructed a number of freestanding restaurants.

PREIT's renovation was funded largely by loans, and its debt load has grown as retail bankruptcies killed off tenants at its malls. The publicly traded company recently cut its dividend and hopes Cherry Hill begins translating into cash.

"The property has been transformed," said Joseph F. Coradino, president of PREIT Services L.L.C.

Coradino said the timing "probably isn't" perfect, given the economy and the mood among shoppers. "But it's the perfect thing to be doing for this mall," he said.

A strategic goal is to steal shoppers away from the competing King of Prussia mall, which has the region's only other Nordstrom. PREIT said there were many households making more than $100,000 a year within five miles of the Cherry Hill Mall.

"It's better than the five-mile circle around King of Prussia," he said.

The power of Nordstrom's popularity rests largely with its customer-service philosophy. It began as a shoe store more than a century ago and continues to be run by its founding family.

Sales associates work on commissions and are eager to help customers in every department - including the more affordable lines that make the store competitive with Macy's Inc.

Their approach evokes a friendly West Coast vibe, said professor Stephen J. Hoch, who is marketing director at the Wharton School's Jay H. Baker Retailing Initiative.

Other upscale retailers, he said, "have an armed guard at the door and they're hoity-toity. You get in there and you feel as if they're going to take an X-ray to make sure you're not stealing anything or they want to see a statement of your net worth before they want to interact with you."

But a Wharton study showed this was not the case at Nordstrom, Hoch said.

Plus, customers can get their shoes shined for $2.50 or ask a sales associate to match a competitor's price on merchandise, said spokesman John Bailey.

Customer service is more important now as retailers try to win the few shoppers out there willing to part with cash, Hoch said. This may give Nordstrom an edge.

Winning customer loyalty was the theme in a small training session during a preopening tour of the new Nordstrom.

A cluster of trainees listened intently as a woman in low-cut denims and bright pink pumps discussed a model customer-clerk relationship.

"This customer literally comes and spends $75,000 to $100,000 a year," the woman told the associates-in-training. She then read a letter that one customer sent to headquarters. "Dear Mr. Nordstrom," the customer wrote, explaining that her family was loyal to the store "because of our relationship with Jennifer."

"All the CEOs I talk to, it's all about one thing: How can I cut my expenses without nicking a main artery," Hoch said. "Being friendly, and solicitous, and helpful does not cost them any money."