Nordstrom’s Rack stores and online channel are top performers

Nordstrom: Strong 2014 earnings keep expansion plans on track (Part 5 of 9)

(Continued from Part 4)

Multichannel business

Upscale department store Nordstrom (JWN) has managed to attract more customers by growing beyond just full-line stores. Nordstrom’s Rack stores sell clearance and end-of-season merchandise at deep discounts. Today there are 167 Nordstrom Rack stores across the US, outnumbering the 116 full-line stores.

The company’s accelerated growth in the e-commerce space has also boosted its sales. Nordstrom is a component of the SPDR S&P 500 ETF Trust (SPY), which has 0.06% exposure to the company.

4Q14 performance

Full-line store net sales increased 1.2% in 4Q14. That’s because there were two more stores operating than there were last quarter. The online channel continued to register strong growth. Net sales for Nordstrom.com were up 19%. The off-price online channel, which includes Nordstromrack.com and HauteLook net sales, increased 28%, driven by expanded merchandise offerings. Nordstrom Rack net sales registered 17% growth on incremental volume and the addition of 27 new stores.

Rack and online business get stronger

Nordstrom’s expansion into the off-price and online categories has boosted its revenues. In 2014, the Nordstrom’s Rack stores attracted nearly four million customers. In doing so, it became the company’s biggest source of new customers.

Nordstrom is also implementing other strategies to increase the traffic at stores. One such strategy is to allow customers to return purchases from HauteLook and Nordstromrack.com through any of the Rack stores. This has led to about one million incremental trips to Rack stores.

To cater to customers who prefer shopping online, Nordstrom has enhanced its online business at Nordstrom.com and has added Nordstromrack.com for off-price merchandise. Other initiatives to enhance its online channels include these:

• upgraded website

• updated mobile app

• increased product availability and delivery speed via fulfillment centers

• expanded merchandise offerings

Nordstrom is also pursuing an inorganic growth strategy for expansion. The August 2014 acquisition of Trunk Club, a personalized online clothing service provider for men, reflects this strategy. You can read more about this acquisition and other information about the company in our Nordstrom overview series.

Competing growth in the online space

Nordstrom’s peers including Macy’s (M), Sears Holdings (SHLD), Dillard’s (DDS), and TJX Companies (TJX) are similarly focused on the expansion of online business. For example, in 2014, upscale department store Neiman Marcus strengthened its online presence with the acquisition of Mytheresa.com, a German luxury specialty retailer.

Continue to Part 6

Browse this series on Market Realist:

• Part 1 - Nordstrom’s fiscal 2014: Multichannel strategy fuels growth

• Part 2 - Nordstrom’s 4Q14 sales beats estimates, stock surges

• Part 3 - Nordstrom’s 4Q14 earnings miss expectations