Retail, typically, is not something that I tend to suggest long term. Retailers that are creators of their own lines, especially, are subject to a lot more cyclicality than distribution-based retailers. A retailer that distributes a broad line of clothing can move better with trends and offer lines that appeal to a wide array of buyers. Luxury retail, additionally, has the ability to grow significantly coming out of the recession. Let us investigate on luxury retailer that has great potential…
Long Term Investment: Nordstrom’s Inc. (JWN)
Thesis
With 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. At these low valuations, Nordstrom Inc. (JWN) appears to be quite a great opportunity for long term investing. The company 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 ten already planned for 2011.
The development and success of the Nordstrom Rack is the first place of significant growth for the future of Nordstrom. The development of the Nordstrom Rack has allowed Nordstrom to tap a new market and allow for the company to develop a new market that will give the company a chance for significant future growth, since it is well developed in many luxury markets
already. The Rack has been criticized for some because it is thought to take away from the image and sales of the full line. Yet, this does not seem to really make sense because it is a completely different market that will take advantage of the Rack items that would not be willing or able to buy the quantity that they could at the Rack.
The criticism tends to be of cross-shopping, but the company has a history of placing Rak locations near full line locations. 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…
