20 Jan

Nordstrom’s Expansion Plans for Off-Price Rack Business

WRITTEN BY Sharon Bailey FEATURED IN Company News, Insights, & Analysis

New Nordstrom Rack stores

On January 7, 2016, Nordstrom (JWN) announced its plans to open an off-price Nordstrom Rack store in Braintree, Massachusetts, in fall 2016. Prior to this, on January 5, the company announced its plans to open a Nordstrom Rack store at The Outlet Collection at Riverwalk in New Orleans, Louisiana. This store, which is scheduled to open in fall 2016, will be the first Nordstrom Rack in New Orleans. It will also be the third Rack store in Louisiana, the first being the Nordstrom Rack at the Mall of Louisiana in Baton Rouge, opened in October 2015, followed by the Nordstrom Rack store at Ambassador Center in Lafayette, which is scheduled to open on March 10, 2016.

Nordstrom’s Expansion Plans for Off-Price Rack Business

Rack expansion plans

As of 3Q15 ended October 31, 2015, Nordstrom operated 121 full-line stores in the United States, Canada, and Puerto Rico and 194 Nordstrom Rack stores in the United States. Nordstrom aims to generate over $20 billion in sales by 2020. The company sees more growth opportunities in its Rack and online businesses. Nordstrom expects its off-price Rack business to grow at a CAGR (compound annual growth rate) in the low double digits between 2015 and 2020, and its full-price business to grow by mid-single digits over the same period.

In the first nine months of fiscal 2015, Nordstrom opened 27 Nordstrom Rack stores and five full-line stores. The company also relocated its full-line store at the South Bay Galleria in Redondo Beach, California to the nearby Del Amo Fashion Center. In its 4Q14 conference call, Nordstrom disclosed its plans to open about 25 Rack stores in 2016. By 2020, Nordstrom aims to have 300 Rack stores. Nordstrom also sees the potential for 15 Rack stores in Canada in the near future. The iShares Russell Mid-Cap ETF (IWR) has 16.3% exposure to the consumer discretionary sector and 0.1% to Nordstrom. The iShares US Consumer Services ETF (IYC) has 0.2% exposure to Nordstrom.

As Of October 31, 2015, off-price retailers The TJX Companies, Ross Stores, and Burlington Stores had 2,679, 1,448, and 565 retail stores, respectively, in the United States. For an overview of the Burlington Stores, read A Burlington Stores Spotlight Feature: The 2016 Investor’s Guide.

Off-price expansion plans of other department stores

Macy’s (M) made its debut in the off-price market in 2015 through its Macy’s Backstage stores. In November 2015, the company revealed its plans to open ~50 free-standing Backstage stores over a two-year period. Macy’s is also planning to pilot Backstage stores within up to ten existing Macy’s store locations in spring 2016. The company believes that this new hybrid model will attract new customers to the full-line stores. Kohl’s (KSS), which launched its first Off/Aisle by Kohl’s store in 2015, will be opening two more Off/Aisle stores this year.

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