Nordstrom is beefing up its department store portfolio at a time when we are constantly being told the department store is dying. This summer, Macy’s announced it was closing 15 percent of its American stores after six straight quarters of declining sales. Since 2014, J.C. Penney has closed 80 locations; Sears closed nearly 300. According to the US Department of Commerce, department store sales have declined 30 percent from $87.46 billion in 2005 to $60.65 billion in 2015.
Department stores face a grim future, and it gets even gloomier when Amazon, which is set to outpace them in apparel sales, is factored into the equation. Yet Nordstrom is envisioning eight stores in Canada and three more new stores in the US by 2019, including a flagship in New York City.
Nordstrom certainly hasn’t been immune to the squeeze — in-store sales were down slightly from $7.9 billion in 2012 to $7.6 billion in 2015. But in 2015, Nordstrom’s total sales actually reached an all-time high of $14.1 billion, up 35 percent since 2011.
It ranks as the nation’s favorite fashion retailer pretty much every single year, according to research firm Market Force; its anniversary sale is arguably one of the most anticipated annual shopping events, and it’s been hailed as “one of the most innovative retailers around” by WWD. Shoe designer Steve Madden recalled to Bloomberg Businessweek a few years ago that when he was first invited to meet with Nordstrom buyers, “it was like an invite to the White House.”
Its sales per square foot come in at $370, beating both Saks and Macy’s. The 115-year-old retailer that’s largely been run by one family since its humble beginnings is aiming for $20 billion in net sales by 2020.
Nordstrom listens closely to its customers, responding to them even if no further action will be taken. After a woman wrote an open letter to the retailer asking it to stop carrying Ivanka Trump’s fashion line in late October, Nordstrom replied on Twitter that it hoped “offering a vendor’s products isn’t misunderstood as us taking a political position; we’re not.
In addition to transparent customer relations, Nordstrom stocks an impressive mix of higher- and lower-end brands, without managing to alienate anyone. Who else could get away with selling Christian Louboutin next to Crocs?
Excellent customer service and a balanced product assortment help, but analysts who follow Nordstrom closely all say the secret sauce is the brand’s ability to think ahead. Take, for example, the fact that Nordstrom began developing its e-commerce business way back in 1998, when other retailers were contracting third-party companies to sell their goods online or totally separating their online and brick-and-mortar businesses, if not ignoring online shopping altogether.
Another example of Nordstrom’s foresight is its emphasis on cool, contemporary brands you wouldn’t otherwise find in department stores. It has exclusive wholesale deals with British fast-fashion favorite Topshop, menswear brand Bonobos, J.Crew’s trendier sister brand Madewell, and even J.Crew itself, as of this past summer.
Nordstrom also strikes exclusive retail partnerships with celebrity designers like Khloe Kardashian, whose denim line Good American just launched.
And now the company wants to be the best outside of the US too. Nordstrom began its international expansion by opening a store in Calgary in September 2014, and it’s been slowly staking its claim in Canada ever since. It opened stores in Ottawa and Vancouver in 2015, and after the Eaton Centre Toronto opening in September, a second Toronto store opened in the city’s Yorkdale mall in October. Nordstrom plans to open another Canadian location, in Toronto’s Sherway Gardens, next fall.
This Canadian expansion is in keeping with the Nordstrom strategy of rolling out stores in busier “destination locations.” Whereas malls used to be built as an anchor that would bolster the community’s shopping culture — if you build it, shoppers will come — Nordstrom is investing in neighborhoods that its executives know are already dynamic.
Nordstrom’s forthcoming New York City location, which will open in the Central Park Tower on 57th Street in 2019, is getting plenty of buzz. Jamie says the location is something the brand has been talking about for decades.
But for all it’s doing to upgrade the American department store, the most successful Nordstrom experiment so far may be its off-price Nordstrom Rack division, which saw a 75 percent increase in sales from 2011 to 2015.
The company has had the off-price concept since 1973, when the Nordstrom family opened a clearance section in the basement of the downtown Seattle store. It expanded to another in Clackamas, Oregon 10 years later and then opened dozens more in the decades after, but it wasn’t until after the recession that Nordstrom got really aggressive about expanding its off-price business. The number of Rack stores has nearly tripled since 2010, from 86 to 215. Nordstrom expects to have 300 Nordstrom Racks by 2020.
While brands like Michael Kors, Coach, and Kate Spade have reacted to consumers’ apparent addiction to off-price shopping by pulling back on promotions and sales over concerns they hurt brand equity, Nordstrom and other department stores have a more pragmatic approach. Bloomingdale’s, Neiman Marcus, Barneys, and Saks all have off-price models similar to Rack. Even Macy’s, which is constantly running sales and promotions, recently rolled out an off-price concept called Backstage in select stores.
All have yet to achieve the same level of success, though. Nordstrom Rack’s sales per square foot come in at a whopping $523, and annual sales jumped from $2.4 billion in 2013 to $3.5 billion in 2015.
In 2015, the company reported it had acquired 5 million new customers thanks to its Rack stores, and customer acquisition patterns suggest that its robust bet on its Rack division will not dilute Nordstrom’s image as a luxury retailer nor end up hurting the brand’s reputation in the long run.
This is why the company strategically puts Nordstrom Rack stores near regular Nordstroms, often around the corner or even directly across the street, like in Seattle.
Still, it’s clear the overall department store landscape is not going to improve. Siegel believes “department stores exist in a very challenged box,” and even if a brand like Nordstrom focuses on store offerings, design, and location, and offers up an off-price alternative that truly can convert customers, “the fears of what’s to come have not been fully addressed.”
And to borrow a mantra that’s guided the Nordstrom family for 115 years, the customer is always right.