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Originally published June 13, 2012 at 4:51 PM | Page modified June 14, 2012 at 9:46 AM

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Nordstrom expanding through Rack stores, online

The company says it expects to spend some $600 million over the next five years on potential expansion into Canada, as well as a long-anticipated Manhattan store.

Seattle Times business reporter

Nordstrom at a glance

Founded: 1901, as Wallin & Nordstrom shoe store (present company incorporated in 1946)

Headquarters: Seattle

Major operations: 231 stores in 31 states and Washington, D.C.; California has the most, with 61.

President: Blake Nordstrom

Employees: 56,500

What they do: Fashion retailer, through 117 full-line stores, 110 Rack stores and one clearance store.

What sets them apart: Combining historical emphasis on customer service with aggressive push into online retail

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Last year, Nordstrom had one of the best years in its 111-year history: a $683 million profit on record revenue of $10.5 billion, record earnings per share of $3.14, and $666 million in free cash flow.

But Blake Nordstrom, president of the company his great-grandfather started, knows that business success is neither a birthright nor a given, no matter who you are. The company's performance in 2011 was strong enough to land the Seattle company at No. 3 in The Seattle Times' annual ranking of public companies based in the Northwest.

"I'm reminded every day how fragile that can be," the 51-year-old Nordstrom said from in his office, which happens to be in the old Frederick & Nelson building in downtown Seattle.

When he was younger, Nordstrom said of Frederick's, "they were one of the finest retailers around, and we were a shoe store."

But Frederick's went bust in 1992 after a long decline — proof, as if any were needed, that reputation and past success are no defense against changing retail tides.

Caught between cash-strapped consumers and Amazon.com's juggernaut, many once-dominant retailers are struggling to survive (Sears, Best Buy, Barnes & Noble) or already have disappeared entirely (Borders, Linens 'n Things). Sticking with what worked in the past isn't an option.

So while for many shoppers Nordstrom will always mean attentive salespeople and live piano music in posh stores, the company is counting on its discount Rack stores and nascent e-commerce segment for much of its future growth.

By the end of this year, there likely will be more Nordstrom Racks than full-line stores. The company thinks there's room to open around 15 new Racks a year around the country, as opposed to perhaps eight more full-line stores than the 117 it now has.

"After Nordstrom went into what for them were secondary markets (with full-line stores) and found those stores were not performing as well, they realized that building more stores wasn't the answer," analyst Richard Jaffe, of Stifel Nicolaus said.

Last fiscal quarter, Rack sales grew by 19.5 percent from the same period last year, versus 7.3 percent growth at Nordstrom's full-line stores. Much of that difference is because the company has opened more new Racks than full-line stores; still, same-store Rack sales grew 6.8 percent last quarter, versus 5.6 percent for the full-line stores.

Not that Nordstrom is ignoring those stores, which generated nearly 67 cents of every dollar in retail sales last quarter. The company says it expects to spend some $600 million over the next five years on potential expansion into Canada, as well as a long-anticipated Manhattan store.

But Nordstrom also plans to spend $140 million this year, and close to $1 billion over the next five years, on its online operations. Already it has begun free shipping and free returns for online purchases — a clear response to Amazon. It released iPhone and Android mobile apps, and has bought HauteLook, an online "flash-sale" retailer that Jaffe says could mesh well with Nordstrom's buying power and the Rack stores' clearance capability.

"They're willing to try new things," he said, "but what they do best has been this continual, endless focus on service and selection."

Now, Blake Nordstrom says, the company's task is to bring that same focus to online retail — building an easy-to-navigate website that offers a selection of merchandise that would not be feasible for a physical store, and making payment, shipping and returns as hassle-free as possible.

"Customers' definition of service is changing, and our challenge as merchants is to evolve with that," he said. "There's no finish line, and you never arrive."

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

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