Just how old is Nishi? According to The Other Wiki the film takes place in 1994, and Nishi appears to be in his sixties, maybe seventy at the most. He claims to have studied in Germany "before the war" and fell in love with that woman. Yet in the flashbacks showing how he first found the Baron the costumes do not look anything like 1930s fashion - if anything they look like something from the years prior to WWI. It could be that the artists were taking liberties, but it does not seem plausible that he could be old enough to have done the things he claimed to have done.
Let him be born a bit before 1920 - 20, 21 as he left Germany, around 75 in the movie. He opens or closes the shop depending on his mood, so it's a retirement hobby at this point, and he doesn't find it all that easy to move around anymore as far as I can see - Shizuku had to help him with the stepladder. I saw nothing out of the ordinary for a guy in his seventies. As for the clothing in the flashback, it's probably part artistic choice, part mirroring the dolls themselves (which are most probably a good bit older than the 1930s).
The clothing makes sense once you realize that this scene isn't a true flashback so much as Shizuku's visualization of the e events as they are told to her.