UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                       

NORDSTROM, INC.

(Exact name of Registrant as specified in its charter)

Washington		91-0515058
(State or other jurisdiction of incorporation or organization)		(IRS employer Identification No.)
1617 Sixth Avenue, Seattle, Washington		98101
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: 206-628-2111

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common stock, without par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES þ NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES o NO þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer þ		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ

As of July 31, 2009 the aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates of the Registrant was approximately $4.8 billion using the closing sales price on that day of $26.44. On March 12, 2010, 218,020,643 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2010 Annual Meeting of Shareholders scheduled to be held on May 18, 2010 are incorporated into Part III.

 

 

Nordstrom, Inc. and subsidiaries 1

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TABLE OF CONTENTS

		Page
PART I
Item 1. Business			4
Item 1A. Risk Factors			6
Item 1B. Unresolved Staff Comments			9
Item 2. Properties			9
Item 3. Legal Proceedings			13
Item 4. Reserved			13
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities			14
Item 6. Selected Financial Data			15
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			32
Item 8. Financial Statements and Supplementary Data			33
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			60
Item 9A. Controls and Procedures			60
Item 9B. Other Information			60
PART III
Item 10. Directors, Executive Officers and Corporate Governance			60
Item 11. Executive Compensation			60
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters			61
Item 13. Certain Relationships and Related Transactions, and Director Independence			61
Item 14. Principal Accounting Fees and Services			61
PART IV
Item 15. Exhibits, Financial Statement Schedules			61
Signatures			62
Consent of Independent Registered Public Accounting Firm			63
Schedule II – Valuation and Qualifying Accounts			64
Exhibit Index			65
EX-21.1
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Nordstrom, Inc. and subsidiaries 3

PART I

Item 1. Business.

DESCRIPTION OF BUSINESS
Founded in 1901 as a retail shoe business in Seattle, Nordstrom later incorporated in the state of Washington in 1946. We are one of the nation’s leading fashion specialty retailers, with 187 U.S. stores located in 28 states as of March 19, 2010. The west and east coasts are the areas in which we have the largest presence. We have four reportable segments: Retail Stores, Direct, Credit, and Other.

The Retail Stores segment derives its revenues from sales of high-quality apparel, shoes, cosmetics and accessories. It includes our 112 ‘Nordstrom’ full-line stores, 72 off-price ‘Nordstrom Rack’ stores, two ‘Jeffrey’ boutiques, and one clearance store that operates under the name ‘Last Chance.’ The Nordstrom Rack stores purchase merchandise directly from manufacturers and also serve as outlets for clearance merchandise from our full-line stores.

Direct generates revenues from sales of high-quality apparel, shoes, cosmetics and accessories by serving our customers on the Internet at www.nordstrom.com. The Direct segment’s merchandise is primarily shipped from our fulfillment center in Cedar Rapids, Iowa. However, beginning in the third quarter of 2009, we linked our Direct segment’s inventory with that of our full-line stores and now have the ability to fulfill online orders from any of our full-line stores. This has given our customers access to more of our merchandise. Additionally we offer our customers the option to purchase items on our Web site and pick them up in our full-line stores. These enhancements have enabled us to better serve customers across various channels and improve sales.

Our Credit segment includes our wholly owned federal savings bank, Nordstrom fsb, through which we offer a private label card, two Nordstrom VISA credit cards and a debit card for Nordstrom purchases. The credit and debit cards feature a shopping-based program designed to increase customer visits and spending. Although the primary purpose of our Credit business is to foster greater customer loyalty and drive more sales, we also generate revenues through finance charges and other fees on these cards.

Our Other segment includes our product development team, called Nordstrom Product Group, which designs and contracts to manufacture private label merchandise sold in our Retail Stores and Direct segments. In addition, this segment includes our corporate center operations.

For more information about our business and our reportable segments, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 16 and Note 14 of the Notes to Consolidated Financial Statements in Item 8.

FISCAL YEAR
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2009, 2008 and 2007 relate to the 52-week fiscal years ended January 30, 2010, January 31, 2009 and February 2, 2008, respectively. References to 2010 relate to the 52-week fiscal year ending January 29, 2011.

TRADEMARKS
We have 136 trademarks, each of which is the subject of one or more trademark registrations and/or trademark applications. Our most notable trademarks include Nordstrom, Nordstrom Rack, John W. Nordstrom, Caslon, and Classiques Entier. Each of our trademarks is renewable indefinitely provided that it is still used in commerce at the time of the renewal.

RETURN POLICY
We offer our customers a fair and liberal return policy at our full-line stores and online at Nordstrom Direct. Our Nordstrom Rack stores accept returns up to 30 days from the date of purchase with the original price tag and sales receipt. In general, our return policy is considered to be more generous and liberal than industry standards.

SEASONALITY
Due to our Anniversary Sale in July, the holidays in December and the half-yearly sales that occur in the second and fourth quarters, our sales are historically higher in the second and fourth quarters of the fiscal year than in the first and third quarters.

INVENTORY
We plan our merchandise purchases and receipts to coincide with expected sales trends. For instance, our merchandise purchases and receipts increase prior to our Anniversary Sale, which extends over the last two weeks of July. Also, we purchase and receive a larger amount of merchandise in the fall as we prepare for the holiday shopping season (from late November through early January). We pay for our merchandise purchases under the terms established with our vendors.

In order to offer merchandise that our customers want, we purchase merchandise from a wide variety of high-quality suppliers. We also have arrangements with agents and contract manufacturers to produce our private label merchandise. Our suppliers include domestic and foreign businesses. We expect our suppliers to meet our “Nordstrom Partnership: Standards and Business Practice Guidelines,” which address our standards for matters such as legal and regulatory compliance, labor, health and safety, and the environment.

COMPETITIVE CONDITIONS
Our business is highly competitive. We compete with other national, regional and local retail establishments that may carry similar lines of merchandise, including department stores, specialty stores, boutiques and Internet businesses. Our specific competitors vary from market to market. We believe the keys to competing in our industry include customer service, fashion newness, quality of product, the shopping experience, depth of selection, store environment and location.

EMPLOYEES
During 2009, we employed approximately 48,000 employees on a full- or part-time basis. Due to the seasonal nature of our business, employment increased to approximately 51,000 employees in July 2009 and 53,000 in December 2009. We do not have a significant number of employees who are members of a union. We believe our relationship with our employees is good.

CAUTIONARY STATEMENT
Certain statements in this Annual Report on Form 10-K contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties, including, but not limited to, anticipated financial results, anticipated store openings, capital expenditures and dividend yield, and trends in company operations. Such statements are based upon current beliefs and expectations of the company’s management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including but not limited to the impact of deteriorating economic and market conditions and the resultant impact on consumer spending patterns, the company’s ability to respond to the business environment and fashion trends, the company’s ability to safeguard its brand and reputation, effective inventory management, efficient and proper allocation of the company’s capital resources, successful execution of the company’s store growth strategy including the timely completion of construction associated with newly planned stores, relocations and remodels, all of which may be impacted by the financial health of third parties, the company’s compliance with applicable banking and related laws and regulations impacting the company’s ability to extend credit to its customers, trends in personal bankruptcies and bad debt write-offs, availability and cost of credit, impact of the current regulatory environment and financial system reforms, changes in interest rates, disruptions in the company’s supply chain, the company’s ability to maintain its relationship with vendors and developers who may be experiencing economic difficulties, the geographic locations of the company’s stores, the company’s ability to maintain its relationships with its employees and to effectively train and develop its future leaders, the company’s compliance with information security and privacy laws and regulations, employment laws and regulations and other laws and regulations applicable to the company, successful execution of the company’s information technology strategy, successful execution of the company’s multi-channel strategy, risks related to fluctuations in world currencies, public health concerns and the resulting impact on consumer spending patterns, supply chain, and employee health, weather conditions and hazards of nature that affect consumer traffic and consumers’ purchasing patterns, the effectiveness of planned advertising, marketing and promotional campaigns, and the company’s ability to control costs. These and other factors could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.

SEC FILINGS
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”). All material we file with the SEC is publicly available at the SEC’s Public Reference Room at 100 F Street NE, Room 1580, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a Web site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

WEB SITE ACCESS
Our Web site address is www.nordstrom.com. We make available free of charge on or through our Web site our annual and quarterly reports on Form 10-K and 10-Q (including related filings in XBRL format), current reports on Form 8-K, statements of changes in beneficial ownership of securities on Form 4 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file the report with or furnish it to the SEC. Interested parties may also access a webcast of quarterly earnings conference calls and other financial events over our Web site.

CORPORATE GOVERNANCE
We have a long-standing commitment to upholding a high level of ethical standards. In addition, as required by the listing standards of the New York Stock Exchange (“NYSE”) and the rules of the SEC, we have adopted Codes of Business Conduct and Ethics for our employees, officers and directors (“Codes of Ethics”) and Corporate Governance Guidelines. We have posted on our Web site our Codes of Ethics, our Corporate Governance Guidelines, and our Committee Charters for the Audit, Compensation, Corporate Governance and Nominating, and Finance committees.

These items are also available in print to any person, without charge, upon request to:

Nordstrom, Inc. Investor Relations
P.O. Box 2737
Seattle, Washington 98111-2737
(206) 303-3200
invrelations@nordstrom.com

Nordstrom, Inc. and subsidiaries 5

(Dollars in millions)

Our business faces many risks. We believe the risks described below outline the items of most concern to us. However, these are not the only risks we face. Additional risks and uncertainties, not presently known to us or that we currently consider immaterial, may also impair our business operations.

DETERIORATION OF ECONOMIC CONDITIONS
The deterioration in economic conditions over the past two years has hurt our business in several ways. Rising unemployment, tightening of consumer credit and the decline in the housing market in the United States have all contributed to a reduction in consumer spending. This has had a significant negative impact on our revenues. We sell high-quality apparel, shoes, cosmetics and accessories, which many consumers consider to be discretionary items. During economic downturns, fewer customers may shop in our stores and on our Web site, and those who do shop may limit the amount of their purchases, all of which may lead to lower sales, higher markdowns and increased marketing and promotional spending in response to lower demand. The deterioration of economic conditions has also adversely affected our credit customers’ payment patterns and delinquency rates, increasing our bad debt expense. While some macroeconomic indicators suggest that a modest economic recovery has begun, key factors such as employment levels, consumer credit and housing market conditions remain weak. A sluggish economic recovery or a renewed downturn could have a significant adverse effect on our business.

ABILITY TO RESPOND TO THE BUSINESS ENVIRONMENT AND FASHION TRENDS
We strive to ensure the merchandise we offer remains current and compelling to our customers. We make decisions regarding inventory purchases well in advance of the season in which it will be sold. Therefore, our ability to predict or respond to changes in fashion trends, consumer preferences and spending patterns, and to match our merchandise levels and mix to sales trends and consumer tastes, significantly impacts our sales and operating results. If we do not identify and respond to emerging trends in consumer spending and preferences quickly enough, we may be forced to sell our merchandise at higher average markdown levels and lower average margins, which could harm our business. Conversely, if we fail to purchase enough merchandise, we may lose opportunities for additional sales and damage our relationships with our customers.

CONSUMER CREDIT
Our credit card operations help drive sales in our stores, allow our stores to avoid third-party transaction fees and generate additional revenues by extending credit. Our credit card revenues and profitability are subject in large part to economic and market conditions that are beyond our control, including, but not limited to, interest rates, consumer credit availability, consumer debt levels, unemployment trends and other matters. Increases in unemployment have corresponded with rising credit card delinquencies and write-offs, which may continue in the future. Further, these economic conditions could impair our ability to assess the creditworthiness of our customers if the criteria and/or models we use to underwrite and manage our customers become less predictive of future losses, which could cause our losses to rise and have a negative impact on our results of operations.

REGULATORY ENVIRONMENT AND FINANCIAL SYSTEM REFORMS
Current economic conditions, particularly in the financial markets, have resulted in increased legislative and regulatory actions. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the “Credit CARD Act”) included new rules and restrictions on credit card pricing, finance charges and fees, customer billing practices and payment application. These provisions are likely to affect our credit business practices and could have a negative impact on our revenues and profitability.

In addition, Congress and the Obama Administration are currently considering various proposals for reform of the financial system. Proposed reforms include the elimination of the thrift charter and all retailer-owned bank charters, creation of a new federal agency to supervise and enforce consumer lending laws and regulations, and expanded state authority over consumer lending. The final details of financial system reform legislation, if any, are highly uncertain at this time. Depending on the nature and extent of any reforms, our credit business could be significantly adversely affected.

LEADERSHIP DEVELOPMENT AND SUCCESSION PLANNING
The training and development of our future leaders is important to our long-term growth. If we do not effectively implement our strategic and business planning processes to attract, retain, train and develop future leaders, our long-term growth may suffer. We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that is difficult to replace. If unexpected leadership turnover occurs without adequate succession plans, the loss of the services of any of these individuals, or any negative perceptions of our business as a result of those losses, could damage our brand image and our business.

INFORMATION SECURITY AND PRIVACY
The protection of our customer, employee and company data is important to us. The regulatory environment surrounding information security and privacy is increasingly demanding, with new and constantly changing requirements across our business units. In addition, our customers have a high expectation that we will adequately protect their personal information. A significant breach of customer, employee or company data could damage our reputation and result in lost sales, fines and lawsuits. In addition, a security breach could require that we expend significant additional resources related to our information security systems and could result in disruption of our operations, particularly our online sales operations.

BRAND AND REPUTATION
We have a well-recognized brand that many consumers believe offers a high level of customer service and quality merchandise. Any significant damage to our brand or reputation could negatively impact sales, reduce employee morale and productivity, and diminish customer trust, any of which would harm our business.

STORE GROWTH PLANS
Our five-year strategic growth plan includes opening several new full-line and Rack stores, with 30 announced store openings. The majority of these openings will occur by 2012. We compete with other retailers and businesses for suitable locations for our stores. Local land use and other regulations may impact our ability to find suitable locations. We also depend on the work of our developer partners to sustain our store growth plans. Developer delays of shopping center construction, expansion or renovation projects, or developer financial difficulties, could cause the delay or cancellation of our expected store openings or remodels, or could adversely affect maintenance and leasing at some shopping centers in which we have stores.

New store openings also involve certain risks, including constructing, furnishing and supplying a store in a timely and cost effective manner and accurately assessing the demographic or retail environment for a particular location. Our future sales at new, relocated or remodeled stores may not meet our projections, which could affect our return on investment. Performance in our new stores could also be negatively impacted if we are unable to hire employees who are able to deliver the level of service our customers have come to expect when shopping in our stores. Our inability to execute our store growth strategy in a way that generates appropriate returns on investment could affect our future growth and profitability.

INFORMATION TECHNOLOGY STRATEGY
We make investments in information technology to sustain our competitive position. In 2010, we expect to spend approximately $160 on information technology operations and systems development, which is key to our growth. We must monitor and choose the right investments and implement them at the right pace. Excessive technological change could impact the effectiveness of adoption, and could make it more difficult for us to realize benefits from the technology. Targeting the wrong opportunities, failing to make the best investments, or making an investment commitment significantly above or below our needs may result in the loss of our competitive position. In addition, if we do not maintain our current systems we may see interruptions to our business and increase our costs in order to bring our systems up to date.

MULTI-CHANNEL STRATEGY EXECUTION
Over the past several years, we have made changes in our business to improve the shopping experience across all channels. These changes included aligning our online merchandise offering with our full-line stores to create a seamless experience for our customers between our stores and Web site, combining the full-line stores’ and Direct merchandise organizations; providing a more focused catalog offering; and creating a shared inventory platform between Direct and our full-line stores. We plan to make additional changes in our multi-channel merchandise planning process over the next few years. If we encounter challenges associated with change management, the ability to hire and retain key personnel involved in these efforts, implementation of associated information technology, or adoption of new processes, our ability to continue to successfully execute this strategy could be adversely affected. As a result, we may not derive the expected benefits to our sales and profitability, or we may incur increased costs relative to our current projections.

IMPACT OF COMPETITIVE MARKET FORCES
The retail industry environment continues to change for many of our vendors and customers. In the future, our competition may partner more effectively with vendors to serve consumers’ needs. If we do not effectively respond to changes in our environment, we may see a loss of market share to competitors, declining sales and declining profitability due to higher markdowns.

Our credit segment faces competition from large banks, and other credit card companies, some of which have substantial financial resources. Many of our competitors offer general-purpose credit card products with a variety of loyalty programs. In addition, there is intense competition for cardholders with “prime” credit ratings who make up a significant portion of our credit portfolio. If we do not effectively respond to the competitive banking and credit card environment, we could lose market share to our competitors, which would have an adverse effect on our credit business.

CAPITAL MANAGEMENT AND LIQUIDITY
Our access to debt and equity capital, and our ability to invest capital to maximize the total returns to our shareholders, is critical to our long-term success. We utilize capital to finance our operations and working capital, make capital expenditures, manage our debt levels and return value to our shareholders through dividends and share repurchases. As a result of the financial crisis, global credit and equity markets have undergone significant disruption, making it difficult for many businesses to obtain financing on acceptable terms or at all. Our ability to obtain capital and the cost of the capital depend on financial market conditions and independent rating agencies’ short and long-term debt ratings, which are based largely on our performance as measured by credit metrics including interest coverage and leverage ratios. If our access to capital is restricted or if our cost of capital increases, our operations and financial condition could be adversely affected. Further, if we do not properly allocate our capital to maximize returns, our operations and cash flows could be adversely affected and our long-term cost of capital could increase.

SUPPLY CHAIN DISRUPTION
The effective and efficient operation of our supply chain, including merchandise sourcing and procurement, receiving and distribution, is critical to the success of our business. Our supply chain operations may be adversely impacted by difficulties with our suppliers, such as production capacity constraints, errors in meeting merchandise specifications, including specifications dictated by consumer product safety laws, insufficient quality control, failures to meet production deadlines, or increases in manufacturing costs. Additionally, unforeseen disruptions in our supply chain due to severe weather, natural or man-made disasters, labor disputes, shipping problems, or information systems malfunction, may adversely affect our ability to deliver merchandise to our stores or our customers and could increase our costs.

Nordstrom, Inc. and subsidiaries 7

RELATIONSHIPS WITH VENDORS
Our relationships with our merchandise vendors have been a significant contributor to our past success and our position as a retailer of high-quality fashion merchandise. Some of our vendors have experienced serious cash flow problems due to the credit market crisis and economic deterioration. To address these problems, our vendors could attempt to increase their prices, alter payment terms or seek other relief, all of which could increase our costs. In some cases, they may be forced to reduce their operations or file for bankruptcy protection, which could have an adverse effect on our business if we are unable to procure the desired merchandise on acceptable terms.

We also have no guaranteed supply arrangements with our key vendors, many of whom limit the number of retail channels they use to sell their merchandise. Competition to obtain and sell this merchandise is intense. Nearly all of the brands of our top vendors are sold by competing retailers, and many of our top vendors also have their own dedicated retail stores. If one or more of our top vendors were to increase sales of merchandise through their own stores or to the stores of our competitors, or to limit or reduce our access to their merchandise, our business could be adversely affected.

GEOGRAPHIC LOCATION OF STORES
A significant amount of our total sales is derived from stores located on the west and east coasts, particularly California, which increases our exposure to local economic conditions, severe weather, natural disasters and other natural or man-made disruptions within these regions. Deterioration in economic conditions and consumer confidence within these regions has negatively impacted our business, including a reduction in overall sales, reduced gross margins and increased expenses, including bad debt expense. Any continued economic deterioration, severe weather patterns, natural disasters or other disruptions in these regions, could have a significant adverse effect on our business. In addition, many states in these regions are facing significant budget shortfalls, and may seek to address those shortfalls through unfavorable changes in tax laws and interpretation of existing laws which could adversely affect our results of operations.

EMPLOYMENT LAWS AND REGULATIONS
Our policies and procedures are designed to comply with employment laws and regulations set forth by the federal government and in each of the states and municipalities where we do business. These include laws and regulations related to wages and hours, meals and rest periods, and commissions. These laws and regulations are complex and continuously evolving, and the related enforcement is increasingly aggressive, particularly in the state of California. Significant legislative changes that impact our relationship with our workforce could increase our expenses and adversely affect our operations. Possible legislative changes include changes to an employer’s obligation to recognize collective bargaining units, the process by which collective bargaining agreements are negotiated or imposed and health care mandates. In addition, if we fail to comply with applicable laws and regulations we could be subject to damage to our reputation, class action lawsuits, legal and settlement costs, disruption of our business, changes to our employment practices, and loss of customers and employees, which could result in a loss of sales, increased employment costs, low employee morale, and harm to our business and results of operations.

REGULATORY COMPLIANCE
Our policies and procedures are designed to comply with all applicable laws and regulations, including those imposed by the SEC, NYSE, the banking industry and foreign countries. Additional legal and regulatory requirements, and the fact that foreign laws occasionally conflict with domestic laws, have increased the complexity of the regulatory environment and the cost of compliance. Failure to comply with the various regulations may result in damage to our reputation, civil and criminal liability, fines and penalties, increased cost of regulatory compliance and restatements of our financial statements.

IMPACT OF PUBLIC HEALTH CONCERNS
Our business and operations could be materially and adversely affected by a regional or widespread pandemic, which could cause, among other things, a decrease in consumer spending that would negatively impact our sales; staffing shortages in our stores, distribution centers, or corporate offices; supply chain disruptions; or disruptions in the operations of our merchandise vendors or property developers. Any of these effects could have a significant adverse impact on our sales, costs, reputation and long-term growth plans.

FOREIGN CURRENCY
We purchase a portion of our inventory from foreign suppliers whose cost to us is affected by fluctuations of their local currency against the U.S. dollar or who price their merchandise in currencies other than the U.S. dollar. Changes in the value of the U.S. dollar relative to foreign currencies may increase our cost of goods sold, and if we are unable to pass these cost increases on to our customers, our gross margins, and ultimately our earnings, would decrease.

ANTI-TAKEOVER PROVISIONS
We are incorporated in the state of Washington and subject to Washington state law. Some provisions of Washington state law could interfere with or restrict takeover bids or other change-in-control events affecting us. For example, one provision prohibits us, except under specified circumstances, from engaging in any significant business transaction with any shareholder who owns 10% or more of our common stock (an “acquiring person”) for a period of five years following the time that the shareholder became an acquiring person.

None.

The following table summarizes the number of retail stores owned or leased by us, and the percentage of total store square footage represented by each listed category at January 30, 2010:

						% of total store
		Number of Stores				square footage
Owned on leased land			58				46.5%
Leased stores			91				28.9%
Owned stores on owned land			34				23.9%
Partly owned and partly leased			1				0.7%
Total			184				100.0%

The following table summarizes our store opening activity during the last three years:

Fiscal year		2009				2008				20071
Number of stores, beginning of year			169				156				191
Stores opened			16				14				5
Stores acquired			-				-				2
Sale of Façonnable boutiques			-				-				(41	)
Stores closed			(1	)			(1	)			(1	)
Number of stores, end of year			184				169				156

In 2009, we opened three full-line stores (Cherry Hill, New Jersey; Peabody, Massachusetts; and Cincinnati, Ohio), relocated one full-line store (Murray, Utah) and opened thirteen Rack stores (Paramus, New Jersey; Dallas, Texas; Sandy, Utah; Orland Park, Illinois; East Palo Alto, California; Southlake, Texas; Maple Grove, Minnesota; Los Angeles, California; Pasadena, California; San Jose, California; Austin, Texas; Orlando, Florida; and Cincinnati, Ohio). To date in 2010, we have opened three new Rack stores (Houston, Texas; Kendall, Florida; and Coral Gables, Florida). During the remainder of 2010, we are scheduled to open three full-line stores (Braintree, Massachusetts; Newport Beach, California; and Santa Monica, California), relocate one full-line store (Cerritos, California) and open fourteen additional Rack stores (Denver, Colorado; Framingham, Massachusetts; Atlanta, Georgia; New York, New York; Arlington, Virginia; Fairfax, Virginia; Durham, North Carolina; St. Louis, Missouri; Boca Raton, Florida; Chicago, Illinois; Tampa, Florida; Lakewood, California; Burbank, California; and Peoria, Arizona).

We also own six merchandise distribution centers, located in Portland, Oregon; Dubuque, Iowa; Ontario, California; Newark, California; Upper Marlboro, Maryland; and Gainesville, Florida, which are utilized by the Retail Stores segment. The Direct segment utilizes one fulfillment center in Cedar Rapids, Iowa, which is owned on leased land. Our administrative offices in Seattle, Washington are a combination of leased and owned space. We also lease an office building in the Denver, Colorado metropolitan area for our Credit segment.

Nordstrom, Inc. and subsidiaries 9

The following table lists our retail store facilities as of January 30, 2010:

										Year																Year
						Square				Store												Square				Store
Location		Store Name				Footage				Opened				Location				Store Name				Footage				Opened
Full-Line Stores
														HAWAII
ALASKA														Honolulu				Ala Moana Center					211,000				2008
Anchorage		Anchorage 5th Avenue Mall					97,000				1975
														ILLINOIS
ARIZONA														Chicago				Michigan Avenue					274,000				2000
Chandler		Chandler Fashion Center					149,000				2001			Oak Brook				Oakbrook Center					249,000				1991
Scottsdale		Scottsdale Fashion Square					235,000				1998			Schaumburg				Woodfield Shopping Center					215,000				1995
														Skokie				Old Orchard Center					209,000				1994
CALIFORNIA
Arcadia		Santa Anita					151,000				1994			INDIANA
Brea		Brea Mall					195,000				1979	1		Indianapolis				Circle Centre					216,000				1995
Canoga Park		Topanga					213,000				1984	1		Indianapolis				Fashion Mall					134,000				2008
Cerritos		Los Cerritos Center					122,000				1981
Corte Madera		The Village at Corte Madera					116,000				1985			KANSAS
Costa Mesa		South Coast Plaza					235,000				1978	1		Overland Park				Oak Park Mall					219,000				1998
Escondido		North County					156,000				1986
Glendale		Glendale Galleria					147,000				1983			MARYLAND
Irvine		Irvine Spectrum Center					130,000				2005			Annapolis				Annapolis Mall					162,000				1994
Los Angeles		The Grove					120,000				2002			Bethesda				Montgomery Mall					225,000				1991
Los Angeles		Westside Pavilion					150,000				1985			Columbia				The Mall in Columbia					173,000				1999
Mission Viejo		The Shops at Mission Viejo					172,000				1999			Towson				Towson Town Center					205,000				1992
Montclair		Montclair Plaza					134,000				1986
Palo Alto		Stanford Shopping Center					187,000				1984			MASSACHUSETTS
Pleasanton		Stoneridge Mall					173,000				1990			Burlington				Burlington Mall					143,000				2008
Redondo Beach		South Bay Galleria					161,000				1985			Natick				Natick Collection					154,000				2007
Riverside		Galleria at Tyler					164,000				1991			Peabody				Northshore Mall					143,000				2009
Roseville		Galleria at Roseville					149,000				2000
Sacramento		Arden Fair					190,000				1989			MICHIGAN
San Diego		Fashion Valley					220,000				1981			Clinton Township				Partridge Creek					122,000				2008
San Diego		Horton Plaza					149,000				1985			Novi				Twelve Oaks Mall					172,000				2007
San Diego		University Towne Center					130,000				1984			Troy				Somerset Collection					258,000				1996
San Francisco		San Francisco Centre					350,000				1988
San Francisco		Stonestown Galleria					174,000				1988			MINNESOTA
San Jose		Valley Fair					232,000				1987	1		Bloomington				Mall of America					240,000				1992
San Mateo		Hillsdale Shopping Center					149,000				1982
Santa Ana		MainPlace					169,000				1987			MISSOURI
Santa Barbara		Paseo Nuevo					186,000				1990			Des Peres				West County					193,000				2002
Thousand Oaks		Thousand Oaks					145,000				2008
Walnut Creek		Broadway Plaza					193,000				1984			NEVADA
														Las Vegas				Fashion Show					207,000				2002
COLORADO
Broomfield		FlatIron Crossing					172,000				2000			NEW JERSEY
Denver		Cherry Creek Shopping Center					142,000				2007			Cherry Hill				Cherry Hill Mall					143,000				2009
Lone Tree		Park Meadows					245,000				1996			Edison				Menlo Park					204,000				1991
														Freehold				Freehold Raceway Mall					174,000				1992
CONNECTICUT														Paramus				Garden State Plaza					282,000				1990
Farmington		Westfarms					189,000				1997			Short Hills				The Mall at Short Hills					188,000				1995
FLORIDA														NEW YORK
Aventura		Aventura Mall					172,000				2008			Garden City				Roosevelt Field					241,000				1997
Boca Raton		Town Center at Boca Raton					193,000				2000			White Plains				The Westchester					219,000				1995
Coral Gables		Village of Merrick Park					212,000				2002
Miami		Dadeland Mall					150,000				2004			NORTH CAROLINA
Naples		Waterside					81,000				2008			Charlotte				SouthPark					151,000				2004
Orlando		The Florida Mall					174,000				2002			Durham				The Streets at Southpoint					149,000				2002
Palm Beach Gardens		The Gardens					150,000				2006
Tampa		International Plaza					172,000				2001			OHIO
Wellington		The Mall at Wellington Green					127,000				2003			Beachwood				Beachwood Place					231,000				1997
														Cincinnati				Kenwood Towne Centre					144,000				2009
GEORGIA														Columbus				Easton Town Center					174,000				2001
Atlanta		Perimeter Mall					243,000				1998
Atlanta		Phipps Plaza					140,000				2005			OREGON
Buford		Mall of Georgia					172,000				2000			Portland				Clackamas Town Center					121,000				1981

¹This store has been subsequently relocated.

										Year																Year
						Square				Store												Square				Store
Location		Store Name				Footage				Opened				Location				Store Name				Footage				Opened
Full-Line Stores (continued)														Nordstrom Rack Group (continued)
OREGON (continued)
Portland		Downtown Portland					174,000				1966	1		Los Angeles, CA				Beverly Connection Rack					30,000				2009
Portland		Lloyd Center					150,000				1963	1		Los Angeles, CA				The Promenade at Howard Hughes
Salem		Salem Center					71,000				1980							Center Rack					41,000				2001
Tigard		Washington Square					189,000				1974	1		Ontario, CA				Ontario Mills Mall Rack					40,000				2002
														Oxnard, CA				Esplanade Shopping Center Rack					38,000				2001
PENNSYLVANIA														Pasadena, CA				Hastings Village Rack					42,000				2009
King of Prussia		King of Prussia					238,000				1996			Roseville, CA				Creekside Town Center Rack					36,000				2001
Pittsburgh		Ross Park					143,000				2008			Sacramento, CA				Howe `Bout Arden Center Rack					54,000				1999
														San Diego, CA				Mission Valley Rack					57,000				1985	1
RHODE ISLAND														San Francisco, CA				555 Ninth Street Retail Center Rack					43,000				2001
Providence		Providence Place					206,000				1999			San Jose, CA				Oakridge Rack					30,000				2009
														San Jose, CA				Westgate Mall Rack					48,000				1998
TEXAS														San Leandro, CA				San Leandro Rack					44,000				1990
Austin		Barton Creek Square					150,000				2003			San Marcos, CA				Grand Plaza Rack					35,000				2006
Dallas		Galleria Dallas					249,000				1996			Woodland Hills, CA				Topanga Rack					64,000				1984
Dallas		NorthPark Center					212,000				2005			Broomfield, CO				Flatiron Marketplace Rack					36,000				2001
Frisco		Stonebriar Centre					149,000				2000			Lone Tree, CO				Meadows Marketplace Rack					34,000				1998
Houston		Houston Galleria					226,000				2003			Orlando, FL				Millenia Crossing Rack					36,000				2009
Hurst		North East Mall					149,000				2001			Sunrise, FL				The Oasis at Sawgrass Mills Rack					27,000				2003
San Antonio		The Shops at La Cantera					149,000				2005			Buford, GA				Mall of Georgia Crossing Rack					44,000				2000
														Honolulu, HI				Ward Centers Rack					34,000				2000
UTAH														Chicago, IL				The Shops at State and
Murray		Fashion Place					144,000				1981	1						Washington Rack					41,000				2003
Orem		University Mall					122,000				2002			Naperville, IL				Springbrook Prairie Pavilion Rack					37,000				2008
														Northbrook, IL				Northbrook Rack					40,000				1996
VIRGINIA														Oak Brook, IL				The Shops at Oak Brook Place Rack					42,000				2000
Arlington		The Fashion Centre at												Orland Park, IL				Orland Park Place Rack					35,000				2009
		Pentagon City					241,000				1989			Schaumburg, IL				Woodfield Rack					45,000				1994
Dulles		Dulles Town Center					148,000				2002			Danvers, MA				Liberty Tree Mall Rack					43,000				2008
McLean		Tysons Corner Center					211,000				1988			Gaithersburg, MD				Gaithersburg Rack					49,000				1999
Norfolk		MacArthur Center					166,000				1999			Towson, MD				Towson Rack					31,000				1992
Richmond		Short Pump Town Center					128,000				2003			Grand Rapids, MI				Centerpointe Mall Rack					40,000				2001
														Troy, MI				Troy Marketplace Rack					40,000				2000
WASHINGTON														Bloomington, MN				Mall of America Rack					41,000				1998
Bellevue		Bellevue Square					285,000				1967	1		Maple Grove, MN				Arbor Lakes Rack					34,000				2009
Lynnwood		Alderwood					151,000				1979	1		Paramus, NJ				Bergen Town Center Rack					34,000				2009
Seattle		Downtown Seattle					383,000				1963	1		Las Vegas, NV				Silverado Ranch Plaza Rack					33,000				2001
Seattle		Northgate Mall					122,000				1965			Westbury, NY				The Mall at the Source Rack					48,000				1997
Spokane		River Park Square					137,000				1974	1		White Plains, NY				City Center Rack					36,000				2008
Tacoma		Tacoma Mall					144,000				1966	1		Cincinnati, OH				Rookwood Pavilion Rack					35,000				2009
Tukwila		Southcenter					170,000				1968			Lyndhurst, OH				Legacy Village Rack					40,000				2008
Vancouver		Vancouver					71,000				1977			Beaverton, OR				Tanasbourne Town Center Rack					53,000				1998
														Clackamas, OR				Clackamas Promenade Rack					28,000				1983	1
Other														Portland, OR				Downtown Portland Rack					32,000				1986	1
														King of Prussia, PA				The Overlook at King of
Atlanta, GA		Jeffrey					12,000				2007							Prussia Rack					45,000				2002
New York, NY		Jeffrey					11,000				2007			Austin, TX				Gateway Center Rack					35,000				2009
														Dallas, TX				Park Lane Rack					36,000				2009
Nordstrom Rack Group														Plano, TX				Preston Shepard Place Rack					39,000				2000
														San Antonio, TX				The Rim Rack					35,000				2008
Chandler, AZ		Chandler Festival Rack					37,000				2000			Southlake, TX				Shops of Southlake Rack					36,000				2009
Phoenix, AZ		Last Chance					48,000				1992	1		Salt Lake City, UT				Sugarhouse Rack					31,000				1991
Scottsdale, AZ		Scottsdale Promenade Rack					38,000				2000			Sandy, UT				The Commons at Southtowne Rack					35,000				2009
Brea, CA		Brea Union Plaza Rack					45,000				1999			Sterling, VA				Dulles Town Crossing Rack					41,000				2001
Chino, CA		Chino Spectrum Towne Center Rack					38,000				1987	1		Woodbridge, VA				Potomac Mills Rack					46,000				1990
Colma, CA		Colma Rack					31,000				1987			Auburn, WA				SuperMall of the Great
Costa Mesa, CA		Metro Pointe at South Coast Rack					50,000				1983	1						Northwest Rack					48,000				1995
East Palo Alto, CA		Ravenswood 101 Rack					41,000				2009			Bellevue, WA				Factoria Mall Rack					46,000				1997
Fresno, CA		Villaggio Retail Center Rack					32,000				2002			Lynnwood, WA				Golde Creek Plaza Rack					38,000				1985	1
Glendale, CA		Glendale Fashion Center Rack					36,000				2000			Seattle, WA				Downtown Seattle Rack					42,000				1987
Laguna Hills, CA		Laguna Hills Mall Rack					35,000				2008			Spokane, WA				NorthTown Mall Rack					28,000				2000
Long Beach, CA		Long Beach CityPlace Rack					33,000				2002			Tukwila, WA				Southcenter Square Rack					35,000				2007

¹This store has been subsequently relocated.

Nordstrom, Inc. and subsidiaries 11

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Item 3. Legal Proceedings.

We are subject from time to time to various claims and lawsuits arising in the ordinary course of business including lawsuits alleging violations by us of state and/or federal wage and hour laws. Some of these suits purport or have been determined to be class actions and/or seek substantial damages. While we cannot predict the outcome of these matters with certainty, we do not believe any such claim, proceeding or litigation, either alone or in aggregate, will have a material impact on our financial condition, results of operations or cash flows.

Item 4. Reserved.

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

MARKET, SHAREHOLDER AND DIVIDEND INFORMATION
Our common stock, without par value, is traded on the New York Stock Exchange under the symbol “JWN.” The approximate number of holders of common stock as of March 12, 2010 was 134,493 based upon the number of registered and beneficial shareholders, as well as the number of employee shareholders in the Nordstrom 401(k) Plan and Profit Sharing Plan. On this date we had 218,020,643 shares of common stock outstanding.

The high and low sales prices of our common stock and dividends declared for each quarter of 2009 and 2008 are presented in the table below:

		Common Stock Price
		2009								2008								Dividends per Share
		High				Low				High				Low				2009				2008
1st Quarter			$23.17				$11.19				$40.59				$30.72				$0.16				$0.16
2nd Quarter			$26.70				$18.15				$38.65				$25.67				$0.16				$0.16
3rd Quarter			$36.52				$26.25				$37.00				$13.66				$0.16				$0.16
4th Quarter			$39.01				$31.32				$18.17				$6.61				$0.16				$0.16
Full Year			$39.01				$11.19				$40.59				$6.61				$0.64				$0.64

STOCK PRICE PERFORMANCE
The following graph compares, for each of the last five fiscal years ending January 30, 2010, the cumulative total return of Nordstrom, Inc. common stock, Standard & Poor’s Retail Index and Standard & Poor’s 500 Index. The Retail Index is comprised of 30 retail companies, including Nordstrom, Inc., representing an industry group of the Standard & Poor’s 500 Index. The cumulative total return of Nordstrom, Inc. common stock assumes $100 invested on January 29, 2005 in Nordstrom, Inc. common stock and assumes reinvestment of dividends.

PERFORMANCE GRAPH

End of fiscal year:		2004				2005				2006				2007				2008				2009
Nordstrom, Inc. common stock			100				179				243				172				56				158
Standard & Poor’s Retail Index			100				108				123				99				61				93
Standard & Poor’s 500 Index			100				110				124				119				71				92

(Dollars in millions except sales per square foot and per share amounts)

The following selected financial data are derived from the audited Consolidated Financial Statements and should be read in conjunction with Item 1A “Risk Factors,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Consolidated Financial Statements and related notes included in Item 8 of this Annual Report on Form 10-K.

Fiscal year		2009				2008				20076				20067				2005
Earnings Results
Net sales			$8,258				$8,272				$8,828				$8,561				$7,723
Credit card revenues			369				301				252				105				97
Gross profit1			2,930				2,855				3,302				3,207				2,835
Selling, general and administrative (“SG&A”) expenses:2
Retail stores, direct and other segments (“Retail”)2			(2,109	)			(2,103	)			(2,161	)			(2,180	)			(2,006	)
Credit segment2			(356	)			(274	)			(198	)			(92	)			(85	)
Earnings on investment in asset-backed securities, net2,3			-				-				18				109				89
Earnings before interest and income taxes (“EBIT”)			834				779				1,247				1,149				930
Interest expense, net			(138	)			(131	)			(74	)			(43	)			(45	)
Earnings before income taxes (“EBT”)			696				648				1,173				1,106				885
Net earnings			441				401				715				678				551
Balance Sheet and Cash Flow Data
Accounts receivable, net			$2,035				$1,942				$1,788				$684				$640
Investment in asset-backed securities			-				-				-				428				561
Merchandise inventories			898				900				956				997				956
Current assets			4,054				3,217				3,361				2,742				2,874
Land, buildings and equipment, net			2,242				2,221				1,983				1,757				1,774
Total assets			6,579				5,661				5,600				4,822				4,921
Current liabilities			2,014				1,601				1,635				1,433				1,623
Long-term debt, including current portion			2,613				2,238				2,497				631				934
Shareholders’ equity			1,572				1,210				1,115				2,169				2,093
Cash flow from operations			1,251				848				312				1,142				776
Performance Metrics
Same-store sales percentage (decrease) increase4			(4.2%	)			(9.0%	)			3.9%				7.5%				6.0%
Gross profit % of net sales			35.5%				34.5%				37.4%				37.5%				36.7%
SG&A % of net sales:
Retail			25.5%				25.4%				24.5%				25.5%				26.0%
Total			29.8%				28.7%				26.7%				26.5%				27.1%
EBIT as a percentage of total revenues			9.7%				9.1%				13.7%				13.3%				11.9%
EBT as a percentage of total revenues			8.1%				7.6%				12.9%				12.8%				11.3%
Net earnings as a percentage of total revenues			5.1%				4.7%				7.9%				7.8%				7.1%
Return on average shareholders’ equity			31.7%				34.5%				43.6%				31.8%				28.4%
Sales per square foot5			$368				$388				$435				$423				$392
Retail SG&A expense per square foot5			$94				$99				$106				$108				$102
Per Share Information
Earnings per diluted share			$2.01				$1.83				$2.88				$2.55				$1.98
Dividends per share			0.64				0.64				0.54				0.42				0.32
Book value per share			7.22				5.62				5.05				8.43				7.76
Store Information (at year end)
Full-line stores			112				109				101				98				98
Rack and other stores6			72				60				55				57				57
International Façonnable boutiques6			-				-				-				36				32
Total square footage			22,773,000				21,876,000				20,502,000				20,170,000				20,070,000

Nordstrom, Inc. and subsidiaries 15

Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar, share and square footage amounts in millions except percentages, per share and per square foot amounts)

OVERVIEW
Nordstrom is a fashion specialty retailer offering high-quality apparel, shoes, cosmetics and accessories for women, men and children. We offer a wide selection of brand name and private label merchandise. We offer our products through various channels: our ‘Nordstrom’ branded full-line stores and Web site (which we refer to as “multi-channel”), our off-price ‘Nordstrom Rack’ stores, and our ‘Jeffrey’ boutiques. Our stores are located throughout the United States. In addition, we offer our customers a loyalty program associated with a variety of payment products and services, including credit and debit cards.

We believe our multi-channel offering is important to our success and is consistent with our commitment to customer service. Our goal is to provide a seamless integrated shopping experience to our customers whenever and however they choose to shop. With that in mind, we are continuing to make improvements to our multi-channel capabilities. In 2008, we launched the “Buy Online, Pick Up in Store” service, which allows customers to purchase merchandise online and then pick up their item(s) at a Nordstrom store on the same day. In 2009, we updated our inventory platform to create shared inventory across all of our full-line stores and our online store, allowing us to fulfill online orders from any full-line store. These enhancements have led to greater merchandise selections online, improved convenience, as well as significant improvements in our sell-through rates (the proportion of available merchandise that we are able to sell) and inventory turnover.

Our merchandising efforts have also been a significant contributor to our recent success. By managing our inventory levels effectively during the economic downturn that began approximately two years ago, we were well positioned to increase purchases as sales improved and maintain fresh merchandise in our stores without taking excessive markdowns. Our customers have continued to respond favorably to our merchandise assortment, thereby contributing to additional sales growth and higher rates of regular-priced sales.

Throughout 2009, we demonstrated discipline in the management of our expenses. Our model is focused on controlling our fixed expenses, while flexing our variable and performance-related expenses with our sales and earnings results. Our sales per square foot in 2009 declined to $368, consistent with our sales per square foot of $369 in 2004. However, as a result of our expense management efforts, we decreased our selling, general and administrative expenses per square foot for our Retail Stores, Direct and Other segments over the same time period, from $100 in 2004 to $94 in 2009. This flexibility in managing our business and the ability to adjust quickly to changes in trends have put us in a healthy position heading into 2010.

The economic environment continues to have a significant impact on our customers. Consumers are cautious about spending, unemployment levels continue to be high and economic uncertainty remains. As a result of these conditions, we experienced elevated delinquency and write-off rates on our credit card portfolio. We expect unemployment levels will remain elevated during 2010.

We recognize the importance of increasing our presence in top retail markets across the country. During 2009 we opened three Nordstrom full-line stores, relocated another, and opened 13 Nordstrom Racks. In 2010 we will continue to open full-line and Rack stores while returning to a more regular remodeling schedule of five-to-six in 2010, compared to one remodel in 2009, as we continue to pursue our long-term growth strategy.

We entered 2009 with considerable uncertainty, including an economic downturn and a volatile retail environment. Our continued focus on improving service through our multi-channel offering, improved merchandising and disciplined inventory, expense and capital management, enabled us to adapt as our trends improved, and as a result we are well positioned going into 2010. Following a year of improving performance and with a more efficient business model, we are focused on improving execution and growing our market share. We believe that our response to the adversity of the past two years has left us better positioned financially, competitively, and most important, with our customers.

RESULTS OF OPERATIONS

Retail Stores, Direct and Other Segments

Summary
Our Retail Stores segment includes our full-line, Rack and Jeffrey stores; our Direct segment includes our online store; and our Other segment includes our product development group and corporate center operations (collectively the “Retail Business”). The following table summarizes the combined sales and expenses of our Retail Business for the fiscal years ended January 30, 2010, January 31, 2009 and February 2, 2008:

Fiscal year		2009				2008				2007
Net sales			$8,258			$	8,272				$8,828
Cost of sales and related buying and occupancy costs			(5,273	)			(5,367	)			(5,479	)
Gross profit1			2,985				2,905				3,349
Selling, general and administrative expenses			(2,109	)			(2,103	)			(2,161	)
% of net sales:
Cost of sales and related buying and occupancy costs			63.9%				64.9%				62.1%
Gross profit			36.1%				35.1%				37.9%
Selling, general and administrative expenses			25.5%				25.4%				24.5%

¹Gross profit is calculated as net sales less cost of sales and related buying and occupancy costs for our Retail Business.

Retail Business Net Sales

Fiscal year		2009				2008				2007
Net sales			$8,258				$8,272				$8,828
Net sales (decrease) increase			(0.2%	)			(6.3%	)			3.1%
Same-store (decrease) increase by channel:
Full-line stores			(7.2%	)			(12.4%	)			2.5%
Direct			14.5%				8.4%				17.9%
Multi-channel			(5.0%	)			(10.6%	)			3.5%
Rack			2.5%				3.1%				8.7%
Total company			(4.2%	)			(9.0%	)			3.9%
Percentage of net sales by merchandise category:
Women’s apparel			34%				34%				35%
Shoes			22%				21%				20%
Men’s apparel			15%				16%				18%
Women’s accessories			12%				12%				11%
Cosmetics			11%				11%				11%
Children’s apparel			3%				3%				3%
Other			3%				3%				2%
Total			100%				100%				100%

NET SALES - 2009 VS 2008
Net sales for 2009 were approximately flat compared to 2008. The decline in multi-channel same-store sales was mostly offset by new store openings during 2009 and an increase in same-store sales for Rack.

Our multi-channel same-store sales declined 5.0% compared to 2008 as the decrease at our full-line stores was partially offset by the strong performance of Direct. During 2009, we made continued progress on our multi-channel strategy, providing our customers with access to more of our merchandise. In the fall of 2009, we updated our inventory platform to allow for shared inventory across all of our full-line stores and our Web site, allowing us to fulfill online orders from any full-line store or from our fulfillment center. These enhancements increased sales and led to significant improvements in our sell-through rates and inventory turnover, following their implementation in the second half of the year. Our merchandising efforts also contributed to our improving multi-channel sales trends during the second half of the year. By managing our inventory levels effectively during the downturn in sales over the past two years, we had the flexibility to increase purchases as sales improved and maintain current merchandise in our stores without taking excessive markdowns. As a result, our percentage of regular price sales improved measurably over the course of the year.

Same-store sales for our full-line stores decreased 7.2% compared to the same period last year. Highlights for the year included both women’s shoes and accessories. Women’s shoes benefited from sales of high-end shoes and boots, while fashion jewelry led accessories. Men’s clothing, particularly young contemporary wear and men’s furnishings, remained challenging throughout the year. This continues the trend we experienced last year as sales of men’s clothing declined in conjunction with economic deterioration. The South and Mid-Atlantic regions were the top performing geographic areas for full-line stores. California and the Northwest had same-store sales below the full-line store average in 2009, although we saw improvements in both regions during the latter part of the year.

Direct’s net sales increased 14.5% for the year, with results driven by the accessories, women’s apparel and women’s shoes categories. Accessories benefited from the sales of handbags and fashion jewelry while women’s apparel was led by special occasion dresses. Junior footwear and high-end shoes drove the improvement in women’s shoes. The growth in our Direct business was helped by our investments in technology and systems to better align our merchandise offering and improve the online shopping experience.

Rack had its eighth consecutive year of positive sales growth with a same-store sales increase of 2.5% for the year. The shoes and women’s apparel categories led the positive performance for the year. Junior and active footwear drove shoes while women’s apparel benefited from knitwear and blouses.

During 2009 we opened three full-line and thirteen Rack stores. These stores represent 2.6% of our total net sales for 2009, and increased our gross square footage by 4.1% during 2009.

NET SALES - 2008 VS 2007
Net sales declined 6.3% in 2008 compared to 2007. The decrease was due to same-store sales declines in our full-line stores, partially offset by increases in same-store sales for Rack and Direct, as well as new store openings.

Same-store sales for our full-line stores decreased 12.4% compared to the same period in 2007 primarily as a result of the economic downturn. The largest same-store sales decreases came in women’s apparel and men’s apparel. Women’s apparel continued to experience a market-wide deterioration and we saw a decline in men’s apparel correspond to the economic downturn, particularly during the fourth quarter. Regionally, business trends were most challenging in markets undergoing the largest housing price corrections. California was the most challenging region throughout 2008, with same-store sales below the full-line store average. All other regions were above the same-store sales average for full-line stores.

Nordstrom, Inc. and subsidiaries 17

Direct net sales increased 8.4% in 2008, driven by our efforts to better align our merchandise offering and experience with our full-line stores. Our new “Buy Online, Pick Up in Store” service was launched in 2008 and proved to be a convenient and valued service for our customers. The accessories, women’s apparel and kids’ merchandise categories led the growth in our Direct sales in 2008.

Rack same-store sales increased 3.1% for the year in 2008. The accessories category, led by designer handbags, and men’s apparel category, led by premium denim, drove this growth. All regions contributed to the positive same-store sales results.

During 2008 we opened eight full-line and six Rack stores. These stores represented 3.3% of our total net sales for fiscal 2008, and increased our gross square footage by 6.7% during 2008.

SAME-STORE SALES OUTLOOK - 2010
We expect 2010 same-store sales to increase approximately 2% to 4%. The same-store sales increase in the first half of 2010 is expected to be approximately 300 basis points higher than in the second half of 2010.

As of March 19, 2010, we have opened three Rack stores. In total, we plan to open three full-line stores, relocate one full-line store and open fourteen additional Rack stores during the remainder of 2010. This will increase retail square footage by approximately 4.5%.

Retail Business Gross Profit

Fiscal year		2009				2008				2007
Gross profit1			$2,985				$2,905				$3,349
Gross profit rate2			36.1%				35.1%				37.9%
Average inventory per square foot			$43.96				$49.00				$52.70
Inventory turnover rate3			5.41				5.20				5.16

¹Gross profit is calculated as net sales less Retail Business cost of sales and related buying and occupancy costs.
²Gross profit rate is calculated as gross profit divided by net sales.
³Inventory turnover rate is calculated as annual cost of sales and related buying and occupancy costs (for all segments) divided by 4-quarter average inventory.

GROSS PROFIT - 2009 VS 2008
Retail gross profit increased $80 from last year while our gross profit rate improved 101 basis points compared with the same period in 2008. Retail gross profit consists of merchandise margin offset by buying and occupancy costs. The improvement for the year was driven by overall improvement in our merchandise margin, particularly in the second half of the year. The latter half of 2008 was highly promotional among retailers, meaning many competitors took steep markdowns and/or offered special events or incentives to attract customers, as sales declined. We were able to be less promotional and reduce markdowns during 2009, particularly during the second half of the year, by aligning inventory with sales trends. All major merchandise categories at our full-line stores contributed to this improvement over 2008. The improvement in our merchandise margin was offset by an increase in our buying and occupancy costs. Buying and occupancy costs as a percentage of sales increased 51 basis points. This increase was primarily driven by incentives that were a result of strong company performance relative to our plans for 2009.

Our inventory turnover rate increased 4.0% over last year while our average inventory per square foot decreased 10.3%. Our merchandising efforts have enabled us to manage inventory levels consistent with sales trends and maintain fresh merchandise in our stores. Combined with the increased sell-through resulting from our improved multi-channel inventory capabilities, these efforts led to a significant increase in our inventory turnover rate.

GROSS PROFIT - 2008 VS 2007
Retail gross profit in 2008 decreased $444 from 2007 while our gross profit rate declined 280 basis points. The deterioration in 2008 was driven primarily by a decrease in our merchandise margin rate as we utilized markdowns to respond to slower sales and a more promotional environment. All major merchandise categories at our full-line stores contributed to this decrease. Our buying and occupancy costs as a percentage of sales increased 76 basis points as many of these costs were fixed relative to the sales decline.

Our inventory turnover rate improved slightly in 2008 while our average inventory per square foot decreased 7.0%. Our merchants’ efforts to align inventory levels to lower demand resulted in the improvement in our inventory turnover rate and our lower inventory per square foot. Our objective was to match the change in inventory per square foot, which declined 7.0% on average, with our same-store sales rate, which declined 9.0% for the year.

GROSS PROFIT OUTLOOK - 2010
In 2010, we expect a 20 to 60 basis point improvement in our total company gross profit rate, which includes both our Retail gross profit and our cost of loyalty points within our Credit segment. We expect greater improvement in the first half of the year when compared to 2009, when weaker sales trends in the first and second quarters increased markdown pressure. The improvement will be partially offset by additional occupancy expense for the three new full-line and seventeen new Rack stores in 2010.

Retailers do not uniformly record the costs of buying and occupancy and supply chain operations (freight, purchasing, receiving, distribution, etc.) between gross profit and selling, general and administrative expense. As such, our gross profit and selling, general and administrative expenses and rates may not be comparable to other retailers’ expenses and rates.

Retail Business Selling, General and Administrative Expenses

Fiscal year		2009				2008				2007
Selling, general and administrative expenses			$2,109				$2,103				$2,161
Selling, general and administrative rate1			25.5%				25.4%				24.5%

¹Selling, general and administrative rate is calculated as selling, general and administrative expenses for our Retail Business as a percentage of net sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - 2009 VS 2008
Our Retail Business selling, general and administrative expenses (“Retail SG&A”) increased $6 due to increased performance-related incentives, partially offset by lower variable expenses and cost savings resulting from controlling our fixed costs. We increased our provision for performance-related expense as the year progressed to reflect the improved performance of our overall business relative to our plan. This reflects our ‘pay for performance’ approach to compensation. Our variable expenses decreased in conjunction with lower sales volume, and we worked diligently to maintain our discipline in managing fixed costs. During 2009, we opened three full-line stores and thirteen Rack stores, which contributed $41 of additional expenses. Although we opened more stores compared to 2008, the majority were Rack stores, which incur lower expenses than a full-line store. These drivers led our Retail SG&A expenses as a percentage of net sales to be approximately flat versus last year.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - 2008 VS 2007
Our SG&A expenses for our Retail Business decreased $58 due to lower variable expenses as well as cost savings resulting from our focus on controlling fixed expenses, partially offset by the additional expenses related to our new stores. During 2008, we opened eight full-line stores and six Rack stores, which contributed $72 of additional expenses. Our Retail SG&A expenses as a percentage of net sales increased 94 basis points. The increase as a percentage of net sales was due to the fixed nature of many of our selling, general and administrative expenses and the impact of declining sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES OUTLOOK - 2010
In 2010, our Retail SG&A dollars are expected to increase $125 to $175, while our Retail SG&A expenses as a percentage of net sales will decrease 10 to 20 basis points. The majority of this increase relates to our expectations for increased variable expenses consistent with the planned increase in sales, as well as approximately $50 to $60 of additional selling, general and administrative expenses from new stores to be opened during 2010.

Gain on Sale of Façonnable
During the third quarter of 2007, we completed the sale of the Façonnable business in exchange for cash of $216, net of transaction costs, and realized a gain on sale of $34. The impact to reported earnings per diluted share for 2007 was $0.09, net of tax of $13.

Nordstrom, Inc. and subsidiaries 19

Credit Segment

The Nordstrom credit card products are designed to strengthen customer relationships and grow retail sales by providing valuable services, loyalty benefits and payment products. We believe that owning our credit card business allows us to fully integrate our rewards program with our retail stores and provide better service to our customers, thus deepening our relationship with them and driving greater customer loyalty. Cardholders can participate in the Nordstrom Fashion Rewards^® program, through which customers accumulate points based on their level of spending (generally two points per dollar spent at Nordstrom and one point per dollar spent outside of Nordstrom). Upon reaching two thousand points, customers receive twenty dollars in Nordstrom Notes^®, which can be redeemed for goods or services in our stores. As customers increase their level of spending they receive additional benefits, including rewards such as complimentary shipping and alterations in our retail stores. Our cardholders tend to visit our stores more frequently and spend more with us than non-cardholders. We believe the Fashion Rewards program, including these additional rewards, helps drive sales in our Retail Stores and Direct segments.

The table below illustrates a detailed view of the operational results of our Credit segment, consistent with the segment disclosure provided in the notes to the consolidated financial statements. In order to view the economic contribution of our credit card program, the following items are also included in the table below:

•

Intercompany merchant fees represent the estimated intercompany income of our credit business from the usage of our cards in the Retail Stores and Direct segments. To encourage the use of Nordstrom cards in our stores, the Credit segment does not charge the Retail Stores and Direct segments an intercompany interchange merchant fee. On a consolidated basis, we avoid costs that would be incurred if our customers used third-party cards.

•

During 2007, we combined our Nordstrom private label credit card and Nordstrom VISA credit card programs into one securitization program. At that time the Nordstrom VISA credit card receivables were brought on-balance sheet. While the underlying economics of the business did not change (Nordstrom has always owned 100% of its Credit segment), the accounting for this business segment did change. For comparability between years, off-balance sheet income (expense), net (credit card revenues, net of bad debt and interest expense) is shown for 2007.

Interest expense is assigned to the Credit segment in proportion to the amount of estimated capital needed to fund our credit card receivables, which assumes a mix of 80% debt and 20% equity. The average accounts receivable investment metric included in the following table represents our best estimate of the amount of capital for our credit card program that is financed by equity. As a means of assigning a comparable cost of capital for our credit card business, we believe it is important to maintain a capital structure similar to other financial institutions. Based on our research, debt as a percentage of credit card receivables for other credit card companies ranges from 70% to 90%. We believe that debt equal to 80% of our credit card receivables is appropriate given our overall capital structure goals.

Fiscal year		2009				2008				2007
Finance charge revenue			$264				$215				$194
Interchange - third party			71				69				47
Late fees and other revenue			35				18				12
Total credit card revenues			370				302				253
Interest expense			(41	)			(50	)			(64	)
Net credit card income			329				252				189
Cost of sales and related buying and occupancy costs - loyalty program			(55	)			(50	)			(47	)
Selling, general and administrative expenses			(356	)			(274	)			(198	)
Total expense			(411	)			(324	)			(245	)
Earnings on investment in asset-backed securities, net			-				-				18
Credit segment loss before income taxes, as presented in segment disclosure			(82	)			(72	)			(38	)
Inter-company merchant fees			50				48				48
Off-balance sheet income, net1			-				-				9
Credit segment (loss) contribution, before income taxes			($32	)			($24	)			$19
Average accounts receivable investment (assuming 80% of accounts receivable is funded with debt)			$420				$382				$332
Credit segment (loss) contribution, net of tax, as a percentage of average accounts receivable investment			(4.7%	)			(3.9%	)			3.5%

Net Credit Card Income
Credit card revenues include finance charges, interchange fees, late fees and other fees. Interchange fees are earned from the use of Nordstrom VISA credit cards at merchants outside of Nordstrom.

Credit card revenues increased to $370 in 2009 compared with $302 in 2008 due to an increase in our annual percentage rate terms implemented in the fourth quarter of 2008, growth in our accounts receivable balance and increased finance charges and late fees associated with increased delinquencies during the economic downturn. The increase in credit card revenues from $253 in 2007 to $302 in 2008 was in part due to the Nordstrom VISA portfolio being on-balance sheet for a full year in fiscal 2008 compared to only three quarters in fiscal 2007. The increase was also due to portfolio growth and the change in our credit card pricing terms implemented in the fourth quarter of 2008, partially offset by a significant reduction in the average prime rate.

In 2010, credit card revenues are expected to increase $35 to $45, due to moderate growth in our accounts receivable.

In May 2009, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “Credit CARD Act”) was passed. In January 2010, final rules implementing portions of the Credit CARD Act were issued, including new restrictions on credit card pricing, finance charges and fees, customer billing practices and payment application. These rules are requiring us to make changes to our credit card business practices and systems. We have completed and implemented the necessary changes and new procedures to enable compliance with those rules that had a mandatory effective date of February 22, 2010. However, the Credit CARD Act’s full impact on our business is unknown at this time. Additional proposed rules implementing other portions of the Credit CARD Act, effective in August 2010, were published in early March, and interpretations of the new and proposed rules continue to emerge. Depending on the nature and extent of the full impact from these rules, any interpretations or additional rules, the practices, revenues and profitability of our credit business could be adversely affected.

Interest expense decreased to $41 in 2009 from $50 in 2008 and $64 in 2007. These year-over-year decreases were due to declining variable interest rates, partially offset by higher average borrowings.

Credit Segment Cost of Sales and Related Buying and Occupancy Costs
Cost of sales and related buying and occupancy costs, which includes the estimated cost of Nordstrom Notes that will be issued and redeemed under our Fashion Rewards program, increased to $55 in 2009 compared with $50 in 2008. The increase was primarily due to increased use of Nordstrom credit cards, resulting in additional expense related to the Fashion Rewards program. Cost of sales and related buying and occupancy costs of $50 in 2008 increased slightly from $47 in 2007 due to growth in volume.

Credit Segment Selling, General and Administrative Expenses
Selling, general and administrative expenses for our Credit segment are made up of operational and marketing expenses and bad debt. These expenses are summarized in the following table:

Fiscal year		2009				2008				2007
Operational and marketing expense			$105				$101				$91
Bad debt expense			251				173				107
Total credit selling, general and administrative expense			$356				$274				$198

Operational and marketing expenses are incurred to support and service our credit card products and the related rewards programs, and are included in selling, general and administrative expenses in the consolidated statement of earnings. Operational and marketing expense remained relatively constant at $105 in 2009 compared with $101 in 2008. This reflects expenses that are relatively fixed when compared to portfolio growth and our continued focus on controlling expenses. The increase to $101 in 2008 compared with $91 in 2007 was due to additional marketing expenses as a result of an increase in promotions related to our loyalty program in 2008.

Bad debt expense increased to $251 in 2009 from $173 in 2008 due to increased write-offs reflecting consumer credit trends.

The following table illustrates the allowance for doubtful accounts activity for the past three fiscal years:

Fiscal year		2009				2008				2007
Allowance at beginning of period			$138				$73				$17
Bad debt provision1			251				173				86
Net write-offs (on-balance sheet)			(199	)			(108	)			(30	)
Allowance at end of period			$190				$138				$73
Allowance as a percentage of ending accounts receivable			8.8%				6.8%				4.1%
Delinquent balances over thirty days as a percentage of accounts receivable			5.3%				3.7%				2.5%
Bad debt provision as a percentage of average on-balance sheet accounts receivable			11.9%				9.1%				5.8%
Net write-offs as a percentage of average receivables2			9.5%				5.6%				3.5%

Delinquency rates and write-offs ran at elevated levels throughout 2009. As of January 30, 2010, our delinquency rate was 5.3%, an increase from 3.7% in 2008 and 2.5% in 2007. Write-offs increased $91 to $199, or 9.5% of average receivables in 2009 compared with $108, or 5.6% of average receivables in 2008. Our write-offs have a strong long-term correlation with national unemployment rates, and this trend continued during 2009 as U.S. unemployment increased from 7.6% to 9.7%. In California, unemployment rates in 2009 trended above the national unemployment rate. California continues to experience particular weakness relative to our other geographic regions and accounts for approximately 50% of our total write-offs. We are currently planning our business assuming an average unemployment rate of approximately 10.5% in 2010. In light of this economic

Nordstrom, Inc. and subsidiaries 21

environment and based on our delinquency and write-off trends, we increased our allowance for doubtful accounts by $52 to $190 in 2009 compared with an increase of $65 to $138 in 2008.

We anticipate that 2010 selling, general and administrative expenses for our Credit segment will decrease by $10 to $25, primarily due to lower bad debt expense relative to 2009 as growth in the unemployment rate and growth in our associated write-offs slows down.

Total Company Results

Interest Expense, Net

Fiscal year		2009				2008				2007
Interest expense, net			$138				$131				$74

Interest expense, net increased $7 in 2009 compared with 2008 due to higher average debt levels resulting from the $400 debt offering in the second quarter of 2009, partially offset by the $250 senior notes which matured in January 2009 and the impact of declining variable interest rates.

Interest expense, net increased $57 in 2008 compared with 2007 due to higher average debt levels resulting from the $1,000 debt offering in the fourth quarter of 2007, as well as the $850 securitization transaction in May 2007.

We anticipate interest expense, net to decrease by $15 to $25 in 2010 due to lower debt levels, reductions in interest rates and lower borrowing facility fees.

Fiscal year		2009				2008				2007
Income tax expense			$255				$247				$458
Effective tax rate			36.6%				38.1%				39.0%

The increase in our income tax expense in 2009 compared with 2008 was driven by the increase in our earnings before income taxes, while the decline in income tax expense in 2008 compared with 2007 correlated with the decline in earnings before income taxes.

The following table illustrates the components of our effective tax rate for 2009, 2008 and 2007:

Fiscal year		2009				2008				2007
Statutory rate			35.0%				35.0%				35.0%
State and local income taxes, net of federal income taxes			3.5				3.4				3.4
Deferred tax adjustment			(1.8	)			(3.2	)			-
Permanent differences			(0.6	)			2.0				-
Other, net			0.5				0.9				0.6
Effective tax rate			36.6%				38.1%				39.0%