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Nordstrom: Spending aggressively to generate results

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Expenditure to support growth

Nordstrom (JWN) has increased its capital expenditures over the past few years to support its growth plans. The company’s growth in multiple channels has strengthened its position over peers like Macy’s (M), Neiman Marcus, Saks Fifth Avenue, Dillard’s (DDS), Sears (SHLD), and TJX Companies (TJX).

Nordstrom is a component of the SPDR S&P 500 ETF Trust (SPY), which has 0.06% exposure to the company.

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Nordstrom’s capital expenditures

The company’s capital spending has increased substantially over the past five years. In fiscal 2014, capital expenditure increased by 7.2% to $861 million compared to the previous year. Besides increasing the company’s Rack store count, the company invested in the launch of Nordstromrack.com and in entering the Canadian market.

Tech spending to dominate future capex plans        

Nordstrom plans to spend $4.3 billion over the fiscal 2015–2019 period. The company’s investment in technology and fulfillment centers will account for 35% of the spending plan. This will help it seamlessly integrate its multiple channels.

For instance, mobile kiosk devices and tablets provided to store sales staff are making the point-of-sale, or POS, completely mobile. Through these POS devices, sales staff can help customers check out from anywhere in the store and avoid long line-ups at the counter. These devices also help the staff look for a product across the company’s multiple stores and fulfillment centers.

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What’s more, the company has entered into some interesting partnerships to enhance the online shopping experience. Nordstrom’s 2014 partnership with Like2Buy will allow shoppers to buy products directly through the company’s Instagram page. Also, the recent partnership with Twilio, a cloud communications company, will facilitate the texting of merchandise images to customers.

Other areas of investment

On top of technology upgrades and fulfillment centers, Nordstrom has allocated 25% of its future spending to expanding Canadian and Manhattan stores. The company plans to spend $0.8 billion and $0.9 billion on new stores and reinvestments, respectively, over the fiscal 2015–2019 period.

Fiscal 2015 capital expenditure

In fiscal 2015, Nordstrom’s capital expenditures are expected to be $1.2 billion, or 8% of net sales. This compares to capital expenditures, net of property incentives, of $751 million in fiscal 2014. The company’s 2015 capital spending will be directed toward new stores, including flagship stores in Vancouver, Toronto, and Manhattan. Nordstrom also plans to remodel its flagship stores in Seattle, Chicago, and San Francisco, and to invest further in a new East Coast fulfillment center.

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