dear customers

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maximizing women’s apparel

We’ve pinpointed Women’s Apparel as key to increasing our share of our customers’ spending. This merchandise category has great potential in relation to total company sales and we’re laying the groundwork in 2006 to make it an even stronger part of our business. We are approaching this effort from the perspective of the customer — combining feedback from our selling floor with objective demographic data — to gain a clearer picture of how we can better serve our customers. Being competitive in this category requires a blend of art (merchandising talent) and science (operational efficiencies). To that end, we’ve carefully reorganized our merchant teams, and we’re leveraging our system tools in an effort to identify market opportunities and react to them quickly.

a seamless shopping experience

Early on, our focus in Direct — our catalog and online business — was to promptly get up to speed with the growing trend of online shopping. Now that we have a foundation to build upon, we have fine-tuned our approach to better serve all our customers. We’ve learned already that customers who have a multi-channel relationship with Nordstrom spend four times as much with us as those who do not. We believe that by offering our customers a consistent “Nordstrom experience” — whether they shop with us by phone, online or in our stores — we’ll attract new customers, many of whom will eventually become loyal to Nordstrom Full-Line stores.

Last fall we introduced new Nordstrom catalogs, which closely mirror the merchandise assortment in our stores and are designed to inspire customers to shop with us along whichever “path” they prefer. We’re also making a substantial investment in our Web site, which is now more robust and easier to use. And on the horizon, system upgrades will enable us to have a single view of inventory, ultimately providing a seamless customer experience.

expansion opportunities

One big story, in terms of expansion, is our entry into the Boston market. Other than Manhattan, Boston is the last major U.S. metropolitan market where we do not have a presence. Starting with Natick Mall, we will open four stores in the Boston area between 2007 and 2010.

Another great opportunity, due to the changing retail landscape around us, is the availability of desirable real estate. We anticipate more clarity on specific sites and markets available to us by year’s end. Our primary expansion focus remains on Full-Line stores, be they in new or existing markets. In 2005, we opened four new Full-Line stores: Phipps Plaza in Atlanta, Georgia; The Shops at La Cantera in San Antonio, Texas; Irvine Spectrum Center in Irvine, California; and NorthPark Center in Dallas, Texas. In March of 2006, we opened a 144,000-square-foot store at The Gardens Mall in Palm Beach Gardens, Florida. Also this fall, we’ll be opening a new 200,000-square-foot store at Westfield Shoppingtown Topanga in Canoga Park, California (a relocation of our 154,000-square-foot Topanga store that opened in 1984), and a Nordstrom Rack at Grand Plaza in San Marcos, California.

We believe one of our greatest competitive advantages is our ongoing commitment to allocating appropriate spending for store remodels. This year we are designating approximately 30% of our capital spending to remodeling existing stores. Our ultimate objective is to make the Nordstrom experience the best it can be for all our customers.

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