Nordstrom (JWN)

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Bulls: Reasons To Buy Feeling Bullish? Be the first to explain why this would make a good investment See all Bears Reasons Bears: Reasons To Sell Nordstrom Announces Huge Same Stores Sales Decline 100% agree Nordstrom Announces Huge Same Stores Sales Decline Nordstrom (JWN) announced after the close 1st quarter EPS of 54 cents a share on a 6.5% same store sales decline. Net income declined by 24%. After a long string of impressive same store sales increases, Nordstrom’s same store sales turned negative in the Jan08 quarter and... read more View or Edit Reason 1 votes 100% agree Send the authors a comment or suggestion depreciation method [Dismiss] [Done] accounting [Dismiss] [Done] depreciation [Dismiss] [Done] See All Suggestions

Top Contributors Amy Chen Shawn Woodhull Jamison Hill Related Articles Luxury Consumption Macy's Inc. (M) Saks (SKS) Kohl's (KSS) Dillard's (DDS)

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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^[1]. The company positions itself as an "affordable luxury" retailer that operates its eponymous department stores in the U.S. exclusively (these generated 95% of all revenue). As of the end of its fiscal 2007, Nordstrom's only exposure to international consumers came from its much smaller Façonnable boutiques.

In 2007 Nordstrom's total sales increased 3.1% from the previous year to $8.8 billion. The company experienced median growth compared to some of its key competitors on the basis of the crucial same store sales retail metric; Nordstrom's 3.9% growth from in 2007 put it in between Saks (11.7%) and Macy's (-1.3%). A portion of this difference can be attributed to its fashion focus on "wear-to-work" apparel, which it offered under its own private label.

The company averaged 7% annual revenue growth from 2001 to 2006, reflecting the growing demand in its "affordable luxury" products. However, like other luxury and near-luxury retailers, Nordstrom is especially vulnerable to slowdowns in consumer spending on such merchandise, which typically exaggerates the peaks and valleys of the overall economy. Consequently, as the economy has slowed down since the subprime lending crisis in the summer of 2007, Nordstrom's sales growth has slowed. In 2007, Nordstrom's total sales grew only 3.1% and its troubles have worsened in 2008 as first quarter sales decreased 3.8% as same store sales in the quarter declined 6.5%. Nordstrom continued to falter in the second quarter of 2008, as same store sales declined 6.0% as net sales fell 4.3%.^[2]

[edit] Business Financials

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^[3]. The company operates through four principal branches:

• Retail Stores: More than 95% of the company’s total revenues are generated through its retail store division, which, as of May 2008, consisted of 105 Full-Line ‘Nordstrom’ stores, 50 discount ‘Nordstrom Rack’ stores, two clearance ‘Last Chance’ stores, and two boutique shoe stores.
• Direct: Nordstrom also sells its products through its e-commerce website Nordstrom.com and catalogs.
• 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^[4].
• Other: This segment involves the product development and design team, Nordstrom Product Group and corporate center operations^[5].

Nordstrom has realized consistent growth for the past four years; in fiscal 2006, the company experienced a 10.8% jump in net sales and a 7.5% increase in same-store sales, a slight step up from 6% in fiscal 2005.^[6] Such growth can be attributed to the aggressive integration of designer products into store inventories as well as the increase in store locations. However, sales growth began to slow in 2007 as total sales grew only 3.1% during fiscal 2007 and sales declined 3.8% in the first quarter of fiscal 2008.

[edit] Trends and Forces

[edit] Luxury retail exaggerates swings in economic cycles

Since Nordstrom, an affordable luxury retailer, has seen substantial growth from expanding its designer product inventory, decreased luxury consumption could considerably affect the company’s success. Luxury goods are cyclical and correlate with GDP in specific regions, often exaggerating the up- and down-swings; in boom times, consumers' demand tends to grow faster than the growth of economies (as measured by GDP). On the flipside, slowdowns can cause sales to retreat rapidly, as consumers buy fewer high-priced luxury goods.

[edit] High dependence on fashion trends

Much of success in the retail business depends on the company’s ability to predict and anticipate consumer tendencies as order agreements are made months in advance of sales to consumers. Consequently, if the company inaccurately predicts consumer preferences, it could face lower sales, an overflow in inventories and lower profit margins—all of which would adversely affect the company’s financial health.

[edit] Information technology puts Nordstrom ahead of its competitors

Information technology allows for retail stores to manage their inventory and more quickly manage their merchandise based on what appeals to customers. Given the value of information technology to effective merchandise management and development, Nordstrom commits approximately $170 million per year on such initiatives.

[edit] Competition

Key competitors in the mid-tier department store industry include Macy's Inc. (M) , Dillard's (DDS) and JC Penney, and companies in the luxury retail industry include Saks Fifth Avenue and privately held Neiman Marcus. Nordstrom occupies a positioning between mid-tier and luxury department stores in terms of its merchandise offerings.

• Macy's Inc. (M) operated 853 retail stores in the U.S., Puerto Rico and Guam as of April 2008.
• Saks has 54 stores, with its top-tier Saks Fifth Avenue chain having locations in Saudi Arabia, the United Arab Emirates, Mexico City and China.

 Nordstrom

	Select All  |  Select None Metrics Gross Profit Sales Growth Number of Stores Square Footage Net Income Sales per Store Comparable Sales Growth Website and Catalogue Sales Revenue Cancel

	Select All  |  Select None Companies Nordstrom (JWN) Gap (GPS) Limited Brands (LTD) American Eagle Outfitters (AEO) Abercrombie & Fitch Company (ANF) AnnTaylor Stores (ANN) Aeropostale (ARO) Big Dog Holding (BDOG) Buckle (BKE) Bakers Footwear Group (BKRS) Cache (CACH) Christopher & Banks (CBK) Charlotte Russe Holding (CHIC) Charming Shoppes (CHRS) Chico's FAS (CHS) Casual Male Retail Group (CMRG) Dress Barn (DBRN) DSW (DSW) Finish Line (FINL) Foot Locker (FL) Genesco (GCO) Guess? (GES) Hot Topic (HOTT) J. Crew Group (JCG) Jos. A. Bank Clothiers (JOSB) Men's Wearhouse (MW) Mothers Work (MWRK) New York (NWY) Pacific Sunwear of California (PSUN) Ross Stores (ROST) Retail Ventures (RVI) Shoe Carnival (SCVL) Shoe Pavilion (SHOE) Stein Mart (SMRT) Stage Stores (SSI) Talbots (TLB) Tween Brands (TWB) Urban Outfitters (URBN) Wilsons The Leather Experts (WLSN) Zumiez (ZUMZ) Citi Trends (CTRN) Gymboree (GYMB) Children's Place Retail Stores (PLCE) Collective Brands, Inc. (PSS) Cato (CTR) Lululemon (LULU) Dick's Sporting Goods (DKS) Wet Seal (WTSLA) Cancel

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Company	Data From	Revenue	Net Income	Sales per Store	Comparable Sales Growth	Website and Catalogue Sales
Abercrombie & Fitch Company (ANF)	2007	$3.75B	$476M	3.47M	(1%)	$298M
Limited Brands (LTD)	2006	$10.7B	$676M	2.81M	(2%)	Add
Nordstrom (JWN)	2006	$8.56B	$668M	44.8M	7.5%	Add
Ross Stores (ROST)	2006	$5.57B	$242M	6.99M	4%	Add
Urban Outfitters (URBN)	2007	$1.22B	$116M	5.81M	(6.2%)	$21.8M

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See all Apparel Stores Industry WikiData

[edit] Operational Metrics Compared

As shown below, Nordstrom remains in the middle of the pack in net sales, but its operating margin is the second highest amidst the competition at 10.6%^[20]. Importantly, Nordstrom has consistently seen the greatest same-store sales growth, topping off at 7.5% while the next highest figure is 5.9%, belonging to Kohl’s.

[edit] References

1. ↑ Nordstrom (JWN) 10-K, Fiscal year 2007, “Business,” p. 4
2. ↑ Nordstrom (JWN) Press Release, Second Quarter 2008 Earnings
3. ↑ Nordstrom (JWN) 10-K, Fiscal year 2007, “Business,” p. 4
4. ↑ Nordstrom (JWN) 10-K, Fiscal year 2007, “Business,” p. 4
5. ↑ Nordstrom (JWN) 10-K, Fiscal year 2007, “Business,” p. 4
6. ↑ Nordstrom (JWN), Fiscal year 2007, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” p. 14
7. ↑ ^{7.0 7.1 7.2} Abercrombie & Fitch FY2007 10-K, 03/28/08, pg. 25, Item 6: Selected Financial Data
8. ↑ Abercrombie & Fitch FY2007 10-K, 03/28/08, pg. 28, Item 7, Financial Summary
9. ↑ Abercrombie & Fitch FY2007 10-K, 03/28/08, pg. 4
10. ↑ ^{10.0 10.1 10.2} LTD, 2006 10-K, Item 6, Pg. 14
11. ↑ LTD, 2006 10-K, Item 6, Pg. 13
12. ↑ ^{12.0 12.1 12.2} JWN, 2006 10-K, Item 8, Pg 29
13. ↑ JWN, 2006 10-K, Item 7, Pg 16
14. ↑ ^{14.0 14.1 14.2} ROST, 2006 10-K, Item 8, Pg 26
15. ↑ ROST, 2006 10-K, Item 7, Pg 15
16. ↑ ^{16.0 16.1} URBN, 2006 10-K, Item 15, Pg F-5
17. ↑ URBN, 2006 10-K, Item 15, Pg F-8
18. ↑ URBN, 2006 10-K, Item 7, Pg 25
19. ↑ URBN, 2006 10-K, Item 7, Pg 20
20. ↑ Company data