Nordstrom JWN looks to Nordstrom Rack for growth

  • Nordstrom is linking the revival to Nordstrom Rack, as it plans to open stores this year, with more to follow.
  • Nevertheless, the off-price banner has lagged behind its competitors and its namesake Nordstrom banner.
  • In an interview, Chief Stores Officer Jamie Nordstrom said the company has reached top-selling brands and will benefit from value-conscious customers.

Signage outside a Nordstrom Rack store in New York, United States, on Thursday, August 25, 2022.

Gabby Jones | Bloomberg | Getty Images

Shoppers are hungry for deals as they pay more for food and essentials. People are looking for clothes and accessories as they juggle parties, vacations and days at the office again.

But that hasn’t helped Nordstrom’s off-price chain, Nordstrom Rack. The brand remains a weak point in Nordstrom’s overall portfolio, with sales totaling $4.81 billion in the most recent fiscal year, below pre-pandemic levels. In the holiday quarter, Nordstrom Rack’s net sales fell about 8%, which was worse than the roughly 2% decline of the company’s namesake.

Despite Rack’s struggles, the Seattle-based warehouse operator is betting it can turn the lagging chain into a growth driver. It is planned to open 20 stores this year – and more to come after that.

Nordstrom Rack has formed a dedicated leadership team, which includes some off-price veterans. And that sharpened the focus on the well-liked brands that sell well.

The success or failure of the Nordstrom Rack effort could shape the company’s future. Nordstrom’s overall sales were stagnant even before the Covid pandemic. Now, discretionary goods are under pressure due to inflation, and higher costs of necessities have pushed consumers more towards low-cost names. These chains like TJMaxx, Ross Stores and Burlington Stores have opened more stores and attracted new customers, leading to higher foot traffic than Nordstrom Rack has seen.

Nordstrom, meanwhile, is bracing for a sales decline. It said in March that it expects revenue to fall 4% to 6% this fiscal year compared with the previous one. That includes the impact of the recent decision to close the stores and the online business in Canada.

Company executives attributed declining sales to Nordstrom-specific problems, as well as a tougher economy.

In an interview with CNBC, Chief Stores Officer Jamie Nordstrom said Rack locations were hit by inventory issues during the pandemic. The shelves fluctuated between having too many items and too few. And, he added, too many items came from brands that fashion-forward customers didn’t recognize.

“If you walked into a Nordstrom Rack, you saw a brand you’ve never heard of. It’s probably not something our customers are looking for,” he said. “If I walked into a Rack store — and I’ve worked in this business all my life — if there’s a brand I’ve never heard of, [it’s] probably not a good brand. That’s what we fixed.”

said CEO Erik Nordstrom shoppers have also become more hesitant to spend. On a call with investors in March, he said the retailer saw shoppers pull back on spending in late June and through the holiday season. The trend was more pronounced at Rack and among customers with lower incomes than at the chain’s flagship stores.

He said just over half of Rack’s sales decline in its fiscal fourth quarter was driven by the company’s actions to boost profits. These include moves to eliminate store-based fulfillment of online orders and increase the minimum amount people must spend online to get free shipping.

In the company’s recent letter to shareholders, Erik Nordstrom acknowledged that the company fell short in the past year. He said improving Nordstrom Rack’s sales is one of the top priorities.

Digital sales could give Rack an edge: Off-price players have been slower to move online as they focus on the treasure hunt in person.

But store traffic at Nordstrom Rack has lagged behind traditional discount banners such as Ross Dress for Less, Burlington, Marshalls and TJ Maxx compared to the year-ago period, according to monthly data from, which tracks retail foot traffic. In April, for example, store traffic was down nearly 16% year-over-year at Nordstrom Rack compared to roughly 3% growth at both TJMaxx and Marshalls. Year-over-year April store traffic was down about 7% at Ross and about 3% at Burlington.

However, store traffic does not capture how many items customers leave behind – or how much they buy online at home.

Nordstrom’s struggles have attracted outside scrutiny. Activist investor Ryan Cohen, chairman of GameStop and founder of Chewy, bought a stake in the company earlier this year through his investment firm, RC Ventures. He has pushed for changes in the company as sales stagnate.

Cohen withdrew a proposal to nominate two candidates to Nordstrom’s board, but is keeping his options open — including proposing board member changes again, according to a source familiar with the matter.

Cohen declined to comment. Nordstrom also declined to comment on the activist dispute, but said in a statement that the company “remains focused on executing its strategy and driving long-term profitable growth and value creation.”

Separately, the company recently added Eric Sprunk, former Nike COO, to its board. This week, it also named former Target CEO Cathy Smith as its new chief financial officer.

Shares in Nordstrom reflect the weak performance. The stock is down about 6% so far this year, underperforming the S&P 500’s 7% gain and retail-focused XRT’s 1% gain. The stock closed at $15.13 on Thursday, about half of its 52-week high.

Nordstrom will offer updates on its turnaround strategy when it reports earnings on May 31.

Nordstrom Rack, a brand that caters to fashion-conscious fashionistas, was founded in 1973. As the department store retailer has closed some full-line stores, it has opened more off-price locations.

Nordstrom Rack stores outnumber the company’s namesake, with 241 locations nationwide, according to company filings. But other off-price names have higher sales and a larger footprint.

Jamie Nordstrom said the Rack stores are the retailer’s “biggest vehicle for acquiring new customers.” Customers who are younger and with less disposable income are often introduced to Nordstrom through the cheaper chain, then move to the more expensive same store, Jamie Nordstrom said. He added that Nordstrom customers tend to shop both brands.

Nordstrom Rack stores accounted for more than 40% of new customers in 2022, CEO Erik Nordstrom said on the March earnings call..

The stores are also a way to move merchandise out of its full-line business, but still sell it in a profitable way, Jamie Nordstrom said. Rack also buys from the brands’ final sales.

While it puts growth hopes in places outside of prices, Nordstrom has also turned Rack stores into e-commerce hubs. Customers can pick up and return online purchases at Rack locations, which tend to be closer and more convenient than malls.

Other department stores have also expanded to off-price. Names like Saks Off Fifth and Macy’s Backstage stores fit into the increased emphasis on lower-priced merchandise.

Still, retailers face an inherent tension if they try to juggle both types of stores, said Simeon Siegel, a retail analyst with BMO Capital Markets. Off-price retailers make money by being opportunistic. They pick up eye-catching items from reputable brands that are eager to offload off-season or excess items.

Retailers with full price businesses can fall into the trap of using the stores to park their own goods that have not sold and that few people want, he said. It can damage the buyers’ experience and the discipline of the sellers.

“Off-price must have a manic focus on buying other people’s mistakes,” he said. “Not yours.”

Adrienne Yih, a retail analyst for Barclays, said that in the early years, Nordstrom Rack relied heavily on the department store’s merchandise. It doesn’t have the same muscle of long-time off-price players, who have teams snapping up hot-ticket items quickly.

She called 2023 off-prices’ “golden moment” because many retailers and brands were stuck with a lot of extra inventory. Sophisticated shoppers can get great items for less.

“Knowing what to buy at what price may be more important in this environment,” Yih said.

Yih added that Rack does not have the same breadth as discount competitors, which have large categories such as home goods and food. In addition, Nordstrom risks stealing sales from the business of the same name, she said.

Jamie Nordstrom said a small percentage of Nordstrom Rack’s merchandise comes from its full-size stores. He declined to specify further. Along with transfer from stores, it buys direct and closed purchases from brands and has some products made by Nordstrom.

But he and other Nordstrom executives acknowledged that Rack lost his way.

Jamie Nordstrom said the company has already taken steps to turn around the off-price chain. It zeroes in on items that customers want, including high-end brands not typically found at low-price competitors. It has rolled out a new logo and updated its website.

Nordstrom Rack has also tapped some off-price veterans, including Nancy Mair, senior vice president of Rack merchandising, formerly of Burlington; and Kelly Wotton, vice president and division merchandise manager at Rack, formerly of Macy’s Backstage and TJMaxx’s parent company TJX.

On the company’s website, Rack sells clothes, shoes, bags and more from brands such as Vince, Kate Spade and Ferragamo. Jamie Nordstrom said it needs to keep the forward-looking approach sharp while emphasizing the value.

“Our customers are brand first, price second,” he said. “Where we went – with good intentions – we went price first, brand second. And our customers didn’t respond to that.”

Sales are stronger at the company’s three newest Rack stores, Chief Brand Officer Pete Nordstrom told investors on the March call. He called it a “proof point” that when brands are popular and items are fresh, buyers respond.

As customers watch their budgets, Jamie Nordstrom said Rack is poised to take advantage. He called the post-Great Recession stretch “the best run we’ve had in the modern history of the company.”

“We believe that opportunity is right in front of us today,” he said.

He added that Nordstrom Rack’s footprint will grow. It has a small fraction of locations compared to TJX’s approximately 4,700 stores, Ross’ nearly 1,700 stores and Burlington’s approximately 900 stores.

“When we find great places to open a Rack store, we’re going to be very interested,” he said. – We think it is a long runway.

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