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The four letters behind Nordstrom's deal with Fresno

GeorgeByline

I’ve waited 20 years to yell this: Nordstrom’s is coming to Fresno!

But it doesn’t feel as good as I expected. Turns out everyone in this modern era has a Nordstrom’s.

Let me back up for a minute.

Folks at City Hall on Wednesday were justifiably giddy about a potential job-producing deal with Nordstrom, Inc., the Seattle-based fashion retailer.

Make that “luxury” fashion retailer. Nordstrom’s is famous among high-end shoppers and those of us who long to be in that group.

As is every business with a strong survival instinct, Nordstrom these days is focusing big time on Internet sales. Internet sales on a grand scale depend on things like organization, distribution, inventory and (not least) location.

You don’t want the shack storing all the stuff you’re pitching on Mrs. Smith’s laptop to be in an out-of-the-way place like, say, Lindsay. Not when next-day delivery is Mrs. Smith’s demand.

So, Nordstrom officials for the past year or so have been looking in California for the best site for their next “E-Commerce Fulfillment Center.” I’m assuming “Fulfillment” in this context means both the rapid completion of a customer’s digital order and the effect the merchandise will have on the customer’s quest for happiness.

Turns out Fresno is at (or near) the top of Nordstrom’s list of possible sites.

But how does City Hall convince Nordstrom to pick Fresno? Money, of course.

“Companies, like people, want to be wanted,” Larry Westerlund, the city’s economic development director, said early Wednesday evening. “They want to be invited.”

Mayor Ashley Swearengin on Thursday will ask the City Council to give a thumb’s up to a possible incentive deal between the city and Nordstrom. The Mayor also wants the council’s blessing when City Manager Bruce Rudd tries to get Nordstrom executives to sign on the dotted line.

Westerlund’s report to the council describes a deal whose enticements could unfold into the second half of the 21st century.

Here are some specifics:

  • Nordstrom would build a $110 million, one-million-square-foot fulfillment center on 55 acres at the North Pointe Business Park, next to Highway 99 in the south end of town. This wouldn’t include some sort of outlet store. This would be strictly a place to fill and distribute Internet orders (I’m assuming primarily for California).
  • Nordstrom would hire workers. This could be up to 1,000 fulltime equivalent employees (FTE) and hundreds of part-timers when things heat up (such as during Christmas).
  • Nordstrom expects $100 million in sales in the first full year of operation. Some of that money is sales tax. Although it’s not clear from Westerlund’s report, these e-sales apparently are considered to have occurred in Fresno. That means Fresno would get a slice of the taxes from that $100 million and what comes in following years.
  • Any city with a central location in the state and easy access to Highway 99/Interstate 5 would love to get those jobs and taxes. So, Fresno is telling Nordstrom: Pick us, and we’ll “rebate” some of the sales taxes back to your own coffers.
  • The trigger for delivering this rebate is when the fulfillment center hits 700 FTE. What constitutes a single Fulltime Equivalent Employee? According to Westerlund’s report, it’s a worker making $10,000 a year.
  • The rebate, once triggered, is 75% of sales taxes for each of the first three years, then 50% per year after that. The total rebate caps at $10 million over the course of 30 years.

Nordstrom officials told City Hall they might build a second fulfillment center in Fresno. This would come after the first center is up and running.

The deal in front of the council has similar incentives for fulfillment center No. 2.

It’s sufficient here to note that, should everything tumble into place, Nordstrom’s e-commerce centers over the life of the deal could get $18.75 million in sales tax rebates from City Hall.

What does Fresno get? According to Westerlund’s report, the payoff over a 20-year period would be nearly 2,000 jobs in a region with tragically high unemployment and a net gain of $34.2 million to city coffers.

Fresno isn’t fronting any money to Nordstrom. The city isn’t co-signing on a big loan. For those reasons, city officials say, there’s little risk for City Hall in the proposed deal.

Back to my opening statement.

Some 20 years ago, when I was a business reporter with The Bee, there was a lot of hope in various elite circles that Fresno would eventually land a Nordstrom department store.

Optimism for such things was high in the late 1990s. The dot.com bubble wasn’t perceived as a bubble. We thought we’d get armies of “equity bandits” fleeing Southern California and the Bay Area. Most of the newcomers would be young people with big (and always growing) salaries. They would “telecommute” to their big city jobs.

Quite naturally, Nordstrom would see the need to build one of its fancy bricks-and-mortar department stores right here in Fresno.

It never happened. Yes, we did get a Nordstrom Rack. We got the company’s discount outlet chain. Nothing wrong with that. But it’s not the Nordstrom’s that inspired such big dreams.

Then something happened that few could have dreamed of in 1995. E-commerce truly hit its stride.

I remember chatting with Gottschalks Chairman Joe Levy at Fashion Fair in the 1990s about how thrilled he was with the company’s early effort at digital selling – an order had just come in from Japan. Now, thanks to sites like ebay, grandfathers in their pajamas are sitting in bed and selling stuff to the every corner of the globe.

A story earlier this year in Fortune magazine said Nordstrom, just like Amazon, “has been spending big on technology, warehouses and expanding into new businesses…. (The company) has been pumping hundreds of millions of dollars into building up digital sales, expanding into Canada and planning a beachhead in Manhattan.”

Nordstrom’s annual sales are in the $13 billion range. The Fortune story said Nordstrom now gets 20% of its sales from e-commerce, compared to 13% just two years ago.

To boost total sales (bricks-and-mortar/online) to $20 billion by 2020, Fortune said, “the department store plans to spend $4.3 billion between now and 2019 …. The biggest chink of that, $1.5 billion, will be dedicated to technology and warehouses to speed up the delivery of online orders to better compete with Amazon, among others.”

In other words, in 2016 no retailer with any brains would bet its future on scarcity of opportunity. Isn’t that what I saw in 1995? Nordstrom couldn’t build full-scale department stores in every hamlet that wanted one. The chain had to be content with building in the biggest cities, and hope peasants like me made the occasional pilgrimage.

Moore’s Law – computing speed doubles every two years – changed all that.

So, I wish Larry Westerlund, Bruce Rudd and City Hall well in their effort to land the Nordstrom’s West Coast E-Commerce Fulfillment Center. That’s far better than what we were shouting about back in 1995.

Granted, we can’t head to River Park and buy that $1,100 wool and cashmere scarf in a Nordstrom bricks-and-mortar store. But we can buy it online and find it on our doorstep within 24 hours or so.

For all intents and purposes, Nordstrom’s is here!

Now all I need is the $1,100.

George Hostetter is The Sun’s Fresno Civic contributor – covering the City of Fresno, County of Fresno, and Fresno Council of Governments.

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