Thesis
Nordstrom Inc. (JWN) has seen the start of a great recovery in 2010. The company is projected to increase its yearly sales by 5-6% as the company has seen a return of its luxury shoppers and the beginning of its fruitful expansion of the Nordstrom Rack line. During the economic downturn, luxury retailers and high-ticket items across the board were easily looked over. Yet, as signs of an economic recovery have continued to sprout up for the American economy, luxury retail has begun to start to get its feet underneath it. Nordstrom is the leading retailer in luxury retail with twice as many stores as competitors Saks and Neiman Marcus. The company has seen growth in its revenue operating income over the past two years, and sales are up significantly so far in 2010. Nordstrom looks to open twelve new stores in 2010, and seventeen already planned for 2011.
Fourteen out of the seventeen stores in 2011 will be Nordstrom Rack locations, and the development f the Nordstrom Rack line is the first place of significant growth for Nordstrom. The development of the Rack store has allowed Nordstrom to tap a new market since the breadth of its luxury markets and locations are already established. The Rack store has been criticized by some because it is thought to take away from the image and sales of the full line, but the Rack truly does not cross the same shopping circles. The Rack appeals to a different market and sells a different line. Only 25% of the inventory at Rack stores come from Nordstrom’s full line. So, similar goods are not available at both stores. It is more similar to the successful Gap/Old Navy difference that have mid-end to low-end differences. The company, further, swears by the two-store concept as a way to maximize their potential and has seen success with it ever since its conception.
Through its duality of high-end to mid-end clothing, the company faces sever competition. Yet, the company has been able to create itself a small economic moat through its luxury shopping experience that is well established. Yet, in the luxury scope, the company faces competition from other high-end retail department stores, such as Neiman Marcus and Saks. Nordstrom does possess the most market share in the industry with many more stores than both companies. They additionally now have more second line stores than Saks’ Off 5th with more…
