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Nordstrom’s fiscal 2014: Multichannel strategy fuels growth

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Overview

Nordstrom (JWN) is a leading upscale department store that sells apparel, shoes, cosmetics, and accessories for women, men, and children. The company is currently run by the fourth-generation successors of founder John W. Nordstrom.

This high-end department store chain currently has 291 stores across 38 states in the US, and two stores recently opened in Canada. The Consumer Discretionary Select Sector SPDR Fund (XLY) has 0.48% exposure to Nordstrom.

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Nordstrom’s multichannel strategy

Nordstrom’s multichannel strategy has helped the company strategically expand beyond its full-line Nordstrom stores to new channels:

  • Nordstrom.com – full-price online channel
  • Nordstrom Rack stores – off-price brick and mortar stores
  • Norstromrack.com and flash-sale site Hautelook.com – off-price online channels

With its presence in high-end as well as off-price segments, Nordstrom is able to target more customers at different price points. Nordstrom also believes that its presence in multiple channels is attracting more customers and bringing in greater loyalty. About one-third of Rack customers also shop at the company’s full-price stores.

Competition

In the full-price segment, Nordstrom competes with high-end department stores like Neiman Marcus and Saks Fifth Avenue, which was acquired by Canada-based Hudson’s Bay Company.

In the off-price or outlets category, Nordstrom’s competitors include TJX Companies (TJX) and Ross Stores (ROST). Meanwhile, this category is attracting many department stores. Recently, Macy’s (M) announced its plans to venture into the off-price space.

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New channels contribute significantly

About 59% of Nordstrom’s fiscal 2014 net sales were derived from its full-line stores, down from 63% in fiscal 2013. Nordstrom Rack stores contributed 25% of the net sales, up from 23% in fiscal 2013. Online channels together accounted for 18% of fiscal 2013 net sales.

The proportion of sales derived from Nordstrom Rack and online channels has increased year-over-year, reflecting the company’s rapid expansion in these areas. The company expects more than 50% of its future sales from online channels and Rack stores.

Overall, the company’s net sales for fiscal 2014 grew by 7.7% to $13.5 billion compared to the previous year. This was mainly a result of Nordstrom Rack expansion and the acquisition of the Trunk Club. The company’s revenue growth rate in the previous year was 3.3%. So what else has been driving the company’s robust net sales growth? Read the next part of this series to find out.

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