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WIKI ANALYSIS
Nordstrom (NYSE: JWN) sells apparel, shoes, cosmetics and accessories to customers who are typically between 25-54 years of age and generate a household income in excess of $100,000. The company positions itself as an "affordable luxury" retailer that operates all of its 100+ Nordstrom full-line department stores in the U.S. exclusively. The company also operates 70+ off-price Nordstrom Rack stores.
Near-luxury and discount retailers, like Nordstrom, are vulnerable to slowdowns in consumer spending on such merchandise, which typically exaggerates the peaks and valleys of the overall economy.
Company Overview
Based in Seattle, Washington, Nordstrom has developed its own niche in the retail industry as an "affordable luxury" retailer, positioned between mid-tier retailers such as the Macy's Inc. (M) stores and high-end, luxury retailers, including Saks Fifth Avenue and privately-held Neiman Marcus. The company sells high-quality apparel, shoes, cosmetics and accessories, targeting customers between 25-54 years of age with an average household income of $100,000.
Business Segments
The company operates through two principle branches:
Retail Stores, Direct, and Other (96% of net sales)
- Retail Stores: Nordstrom primarily gets its revenues from sales of high-quality shoes, cosmetics and accessories. The company's stores sell merchandise in seven different categories:
- Women's Apparel: 34% of net sales
- Shoes: 22% of net sales
- Men's Apparel: 15% of net sales
- Women's Accessories: 12% of net sales
- Cosmetics: 11% of net sales
- Children's Apparel: 3% of net sales
- Other: 3% of net sales
- Direct: Nordstrom also sells its merchandise through its e-commerce website Nordstrom.com and catalogs.
- Other: This segment involves the product development and design team, Nordstrom Product Group and corporate center operations
Credit (4% of net sales)
- Credit: In owning its own federal savings bank, Nordstrom offers a private label card, two co-branded Nordstrom VISA credit cards and a debit card for Nordstrom purchases. These give rise to a shopping-based loyalty program designed to create incentives for increased customer consumption.
Business Growth
FY 2010 (ended January 30, 2011)[1]
- Net sales increased 12.7% to $9.3 billion.
- Net income increased 39% to $441 million.
Trends and Forces
Near-Luxury Retailers Suffer in Sluggish Economy
Near-luxury retailers, like Nordstrom or even Abercrombie & Fitch, that depend on aspiring middle class customers -- customers that are affected by recessions and cut back on spending -- are the ones that suffer through tough economic times. As these consumers cut back on spending, Nordstrom feels the pinch on its bottom line.
Innovate Online Tools Allow Nordstrom To Gain Competitive Advantage In Rebounding Economy
New technology, such as RFID chips, has allowed companies to better manage their stores. Using this technology, Nordstrom has developed a way to better manage its inventory and to better serve its customers. Customers that go to the store's website are able to see what items are available at a specific store location, as well as items that are available in the company's warehouses. This system has made it much easier for customers to shop online, and has even allowed customers to find items online and then request to try them on at stores. The change in inventory management has allowed Nordstrom to better serve its customers, which has translated into higher sales.
Competition
Nordstrom's competitors in the mid-tier department store industry include Macy's Inc. (M), Dillard's (DDS) and J.C. Penney (JCP). These companies provide near-luxury full-price items but also have discount stores as well. Mid-tier department stores are the most affected by the economic downturn because they rely on aspiring middle income consumers to generate revenue-- middle income consumers typically cut back spending and look for discounts as a way to save money during tough economic times.
Nordstrom also competes with companies in the luxury retail industry which include Saks Fifth Avenue (SKS) and companies in the discount retail industry like Kohl's (KSS). Nordstrom occupies a positioning between discount and luxury department stores in terms of the price it sells its merchandise at.
References
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