April 8 (Bloomberg) -- Nordstrom Inc. is outperforming other department-store chains during the U.S. recession in part by moving fashions off the racks at about twice the pace of its rivals.

The chain holds inventory for 62 days on average, while Macy’s Inc. keeps its goods for 119 days and Saks Inc. for 140, according to data compiled by Bloomberg. With less cash tied up in inventory, Seattle-based Nordstrom can devote resources to projects that otherwise would have required borrowing.

The efficiency has helped Nordstrom shares post a 40 percent gain this year, compared with declines for Saks and Macy’s. Fast-turning inventories are a sign a retailer is well- managed, making it more attractive to investors, especially in an uncertain economy, said Patricia Edwards, a retail analyst.

“If Nordstrom were a car, it would be a hybrid Cadillac Escalade that gets 20 miles per gallon instead of the normal 12,” said Edwards, founder of the research firm Storehouse Partners LLC in Bellevue, Washington.

Nordstrom’s gain this year outpaced the 13 percent advance of the Standard & Poor’s 500 Retailing Index. Saks had dropped 50 percent in 2009, and Macy’s, the second-biggest U.S. department-store chain, has lost 0.3 percent. Nordstrom sank 64 percent last year.

Nordstrom jumped $1.73, or 10 percent, to $18.67 at 4 p.m. in New York Stock Exchange composite trading.

Nordstrom limits new orders based on past sales, targets specific merchandise for markdowns instead of entire lines and ships non-selling items to outlet stores. Macy’s relies on general one-day sales and coupons to clear stock, Edwards said. Saks had been boosting orders, only to get caught when consumer spending plunged in September.

‘More With Less’

The brisk inventory turnover means “Nordstrom’s investment to drive sales is lower,” said Liz Dunn, an analyst with Thomas Weisel Partners LLC in New York. “They are doing more with less,” said Dunn, who rates the shares “overweight.”

All three companies will report March sales figures tomorrow. The National Retail Federation predicts 2009 industry sales will post their first drop in at least 14 years as U.S. shoppers confront mounting job losses and declining home values.

Improving inventory management has been the biggest focus of the generation of the Nordstrom family that took over in 2000, Pete Nordstrom, president of merchandising, said in an April 3 telephone interview.

Orders must better correspond with recent sales trends, he said. For example, a buyer for Nordstrom’s gift department won’t be allowed to order 10 percent more merchandise if sales fell 5 percent in the previous two months, he said.

‘Very Hopeful’ Buyers

“What you always find with buyers and merchandisers is that they are very hopeful,” said Nordstrom, 47.

The company, which runs 110 namesake stores, won’t say how much it has spent upgrading systems. The chain ended fiscal 2008 with inventory totaling $900 million, compared with $945.6 million in 2000, even though it added more than 30 stores.

Macy’s figures aren’t comparable on that basis because the company bought May Department Stores Co. in 2005, while Saks sold its mid-priced chains.

Nordstrom’s “control over inventories has been remarkable,” said Bernard Sosnick, a retail analyst with Gilford Securities in Melville, New York. He recommends the stock.

Nordstrom shrank its 2008 year-end inventory per square foot 12 percent from a year earlier, compared with a 12.5 percent decline in fourth-quarter same-store sales, reducing supplies in line with shrinking demand.

Sales Drops

At Macy’s and Saks, the inventory decline didn’t keep up with the drop in sales. Saks cut year-end per-square-foot inventory 12.2 percent, while comparable sales dropped 15.3 percent. Macy’s inventories fell 5.2 percent while its sales retreated 7 percent.

Representatives of Macy’s and Saks declined to comment. Cincinnati-based Macy’s operates more than 800 Macy’s and 40 Bloomingdale’s stores. New York-based Saks runs 53 Saks Fifth Avenue locations.

Nordstrom has combined its in-store and online inventory systems, creating a single view of goods. Four years ago, it installed “markdown optimization” software to help it discount merchandise more profitably. Before that, it introduced a system that gives sales staff more information at their cash registers.

These investments help the chain determine, for example, what will move at a 25 percent discount versus 35 percent, and identify which single jacket style needs to be marked down, instead of discounting a collection, Edwards said.

Removing unsold items from the store is also key, Nordstrom said. The chain sends leftover merchandise to its Nordstrom Rack outlets.

‘Move It Out’

“If we can identify what is not performing and move it out to bring in fresh merchandise, that’s a decision we want to make,” he said.

Nordstrom is now focused on getting more of the right goods to the right stores in the first place, he said. The benefits of that should be felt in two years, he said.

The chain’s operating margin -- operating income as a fraction of sales -- was 8.98 percent in the most recent year, compared with 5.63 percent at Macy’s, according to Bloomberg data. Saks was in the negative.

Nordstrom’s net income dropped 68 percent to $68 million, or 31 cents a share, in the quarter that ended Jan. 31. Macy’s reported a loss after writing down of the value of its assets. Saks also posted a loss.

“If I am going to put my money behind a retailer in this rocky economic environment, I want it to be one of the best-run companies out there,” Edwards said. “Nordstrom is one of those.”

To contact the reporter on this story: Cotten Timberlake in Washington at ctimberlake@bloomberg.net

Last Updated: April 8, 2009 16:19 EDT