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Nordstrom Steals Thunder from Department Store Peers in 1H15

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Sales growth in 1H15

The upscale department store Nordstrom (JWN) reported a 9.4% rise in its total revenue, including credit card revenue, in the first half of fiscal 2015, which ended on August 1, 2015. Nordstrom’s peers Kohl’s (KSS), J.C. Penney (JCP), and Dillard’s (DDS) reported sales growths of 0.9%, 2.4%, and 2%, respectively, in 1H15.

Macy’s (M), the largest department store chain in the US, posted a 1.7% decline in its 1H15 net sales. Sears Holdings’ (SHLD) sales declined by 23.9% in 1H15.

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What’s driving Nordstrom’s sales

Nordstrom’s sales growth in 1H15 was driven by impressive growth across all its channels, including its full-line stores, online businesses, and off-price Nordstrom Rack stores. The company’s women’s apparel and cosmetics categories performed well in 1H15. The company even upgraded its fiscal 2015 sales guidance based on its strong performance in 1H15.

Nordstrom has been quite aggressive in expanding its online channels and its presence in off-price retailing. Nordstrom opened its first Rack store in 1973. The Rack stores have since then displayed continued momentum and have helped the company offset weaknesses in its high-end full-line stores during difficult economic conditions.

Nordstrom accounts for 0.3% of the iShares Russell Mid-Cap Growth ETF (IWP) and 1.1% of the SPDR S&P Retail ETF (XRT).

Nordstrom Rack stores compete with off-price retailers like TJX Companies (TJX), Ross Stores (ROST), and Burlington Stores (BURL), Neiman Marcus’s Last Call outlets, and Saks Fifth Avenue Off 5th stores. A cautious outlook toward the economy is driving consumers from department stores to off-price stores, where similar merchandise is sold at discounted prices.

Why peers are lagging

Nordstrom’s peers lack its well-diversified business model, which includes high-end retail stores, digital businesses, and off-price stores. Nordstrom’s online presence is also considered superior among its peer group. Nordstrom, along with J. C. Penney, ranks second in the list of digital savvy department stores compiled by L2, a benchmarking and education firm. The company is investing heavily in offering compelling merchandise along all its channels.

In the next part of this series, we’ll discuss other initiatives taken by department stores to improve their same-store sales.

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