Introduction
Nordstrom, Inc. is the company of interest in this discussion. Nordstrom, Inc. is an upscale retailer native to America that sells brand name and private label accessories and apparel merchandise. Initially, the founders started the company in 1901 as a shore store. Since then, the company has grown tremendously, and is now offering a variety of products and services beyond shoes including fragrances, cosmetics, and jewelry. Throughout this report, Nordstrom’s brief background, financial overview, business sector, target market analysis, business operations as compared to competitors, as well as strategies to sustain the business will be discussed.
Company Overview
Nordstrom, Inc. (NYSE: JWN) is an upscale fashion specialty in the United States that sells apparel, cosmetics, shoes, and accessories to customers who are typically between the ages 25 and 54 and generate a gross household income more than $100,000 (CSIMarket, Inc., 2017). Based in Seattle, Washington, the company presents itself as a leading ‘affordable luxury’ retailer that is positioned between mid-tier fashion retailers such as the Macy’s, Inc. (M) departmental stores and the high-end luxury stores like the privately-held Neiman Marcus and the Saks Fifth Avenue. Nordstrom, Inc. was incorporated in 1946, and as of fiscal 2015, the company was operating approximately 320 stores in 40plus stores in the United States alone as well as an independent e-commerce business through ‘Last Chance’ clearance store. It was also running a personalized clothing service TrunkClub.com, Nordstrom.com, Nordstromrack.com platforms, and an online private sale site HauteLook platforms (CSIMarket, Inc., 2017). The company also operates over 190 off-price outlets Nordstrom Rack Stores, three Nordstrom full-line stores in Canada, and a range of Nordstrom Customer Royalty Rewards Programs in a myriad of payment products and services that include credit and debit cards (Vault, Inc., 2017). The company operates four primary segments: Retail stores, Credit operations, Catalog & the Internet, and Nordstrom Corporate and Other, including Nordstrom Rack (CSIMarket, Inc., 2017) (See Table 1).
Information as retrieved from (CSIMarket, Inc., 2017)
Offering one of the easiest merchandise return policy coupled with touches such as ‘Thank-You Notes’ from its employees, Nordstrom has earned a reputation and crafted a niche for top-notch customer service. Administratively, Nordstrom family members (own about 25% of the company’s stock) closely supervise the store (CSIMarket, Inc., 2017). Other than shoes and handbags, Nordstrom’s portfolio of products also comprises of branded and private label merchandise that includes home accents as well as bath and beauty products.
In the upscale retail departmental store, Nordstrom, Inc. competes with several other national, regional, and local retail establishments such as Neiman Marcus Group, Lord & Taylor, and Von Maur. These businesses carry similar lines of merchandise including boutiques, mail order and internet businesses, specialty stores, and departmental stores (Jonker, 2015). Together with other competitors such as Macy’s (M), Kohl’s (KSS), TJX Companies (TJX), Dillard’s (DDS), and JCPenney (JCP). Collectively, these competing retailers are part of the SPDR S&P 500 ETF (SPY), which together had 12.29% holdings in the consumer discretionary sector as of FY 2015. In the same period, they also had 0.06% holdings in Nordstrom (Jonker, 2015; Morningstar, Inc., 2017). However, comparing the results to its competitors, Nordstrom Inc. reported a Total Revenue increase by 6.43% year on year during the third-quarter of the 2016 FY, while a majority of the competition experienced revenue contraction by -2.43% in the same quarter (CSIMarket, Inc., 2017). Overall, the Revenue in Retail Stores segment grew by 9.8%, which is less than Nordstrom Inc., peers within the division. Nevertheless, with revenue growth of 9.73% within the Total industry sector, Nordstrom realized improvement in the overall market share, within the Total segment to about 5.76% (Jonker, 2015).
Concerning stock market, Nordstrom Inc. stock has performed quite well on Wall Street. For instance, in the last three years, the company’s stock price increased by 30.4% as of the end of FY 2015 (Jonker, 2015). According to Jonker (2015), the firm gave its investors about 37.4% of the total return in 2015. Even though the stock market has fallen by 4.31% in the third quarter of FY 2016, Nordstrom, Inc. in comparison to its peers has been able to hold up while the others felt the heat. For example, for the same period, Macy’s, Kohl’s, and Sears Holdings lost 20.3%, 21.6%, and 15.6% of their value respectively (CSIMarket, Inc., 2017). This trend reflects in Nordstrom’s recent growth in revenues. Technical analysis shows that in 2015 FY, Nordstrom’s revenue increased by 7.7% over the last fiscal year, which is a substantial leap compared to its peers such as Macy’s and Kohl’s who saw their revenue rise by just 0.62% and fall by 0.04% respectively (Jonker, 2015).
Regarding its organic growth rate, technical analysis shows that Nordstrom has averaged approximately 5.2% over the past five FYs, which is quite high compared to Macy’s (0.7%) and Kohl’s and Sear Holdings which failed to register any positive organic growth for the period. Moreover, for the last FY, Nordstrom, Inc. also recorded an inorganic growth rate – growth in square footage attributed to opening/closing of stores by a company – of about 4% with a five-year average of 35 square footage (Jonker, 2015). Because Nordstrom can manage both the organic and inorganic growth rates, sustainability does not seem to be a major issue for the company going into the future.
Operations
Nordstrom, Inc. was incorporated in 1946 in the State of Washington as a successor of the Wallin & Nordstrom Stores. The founders John Nordstrom and Carl Wallin first started the stores in 1901 based on the premise: the “Customer is always right” (CSIMarket, Inc., 2017). Since 2000, the company also operated as specialty boutiques under the name “Faconnable.” Today, the family-run business has approximately 102 registered trademarks such as “Baby N,” “Frenchi,” “Brass Plum,” “Classiques Entier,” “Halogen,” “Caslon,” and “Rubbish” (Nordstrom, Inc., 2017). The company operates two primary business segments: Retail and Credit.
Business Segments
The retail segment accounted for 98% of the company’s revenue in FY 2016 (Vault, Inc., 2017). It includes approximately 120 Nordstrom branded full-line stores in the U.S. and Nordstrom.com and over 200 off-price Nordstrom Rack Stores. It also comprises of roughly three Canada full-line operations, HauteLook, five Trunk Club Houses, TrunkClub.com, two Jeffrey boutiques, and Last Chance (Nordstrom, Inc., 2017; Reuters, 2017). This segment further offers a range of brand name, and private label products focused on accessories, shoes, cosmetics, and apparel. Online purchases are packaged and shipped to clients from the company’s Cedar Rapids, San Bernardino, and East Coast fulfillment centers as well as through the Nordstrom full-line stores. Online orders can also be picked in any of the full-line stores if the inventory is available (Reuters, 2017).
Nordstrom’s credit segment (about 2-3% of sales) allows clients to access a range of payment products and services among which are a Nordstrom-branded private-label card, Visa Credit Cards, and a Debit Card for Nordstrom, Inc. purchases (Nordstrom, Inc., 2017). The cards also feature a loyalty program that rewards shoppers depending on their shopping levels by accumulating points. Upon reaching certain point thresholds, the cardholders receive company note, which they can redeem for goods or services at any of the company’s off-line and on-line outlets thus creating incentives for increased customer consumption.
For the FY2016, Nordstrom’s full-line stores generated nearly 53% of the company’s net sales while its Nordstrom Rack department contributed another roughly 25%. Its rapidly expanding Nordstrom.com channel produced 16% of the net sales as Nordstromrack.com and HauteLook channels combined to make up nearly 4% (Vault, Inc., 2017). By product, Nordstrom, Inc. generated 31% of its FY2016 net sales from women apparels and 23% from shoe sales. The rest of Nordstrom's net sales came from cosmetics (11%), men’s clothing (17%), Kid’s Apparel (3%), Women accessories (12%), and other items (3%) (CSIMarket, Inc., 2017).
Competition
Nordstrom, Inc. has several notable competitors in the retail industry that also offer high-end fashion in similar departmental store format such as Dillard’s (DDS), Neiman Marcus and Saks among others (see Tables 2 and 3). Therefore, despite its reputation for high-quality designer merchandises, Nordstrom faces stiff competition from other actors in the sector. One of its closest competition is Lord & Taylor, which is similar to Nordstrom with regard to high-end clothing lines. They are however less appealing to the younger generations with the greatest share of its target being women of the age bracket 35-55. Macy’s is another of Nordstrom’s top competitor, which according to Reuters (2017) has been growing into a more desired store for a broad range of different demographics.
Other competitors are Saks Fifth Ave and Gap, Inc. are famous for their expensive luxury clothing, shoes, and accessories. Saks Fifth Avenue, for instance, operates high-end departmental stores that overlap in their merchandise portfolio, ranging from athletic wear to evening gowns. Based in New York, Saks further have extensions of international stores located in regions such as Canada, Middle East, and Mexico, with each store having competitive sales comparable to Nordstrom.
Information as retrieved from (NASDAQ, 2017).
As highlighted in above, the external environment in which Nordstrom, Inc. operates is highly competitive since there are plenty of equally successful upscale retailers that offer a broad range of products and services similar to those provided by Nordstrom. However, compared to the other retailers, Nordstrom, Inc. possess the largest number of store outlets and are well known for anchoring several upscale malls both domestically across the US and regionally to neighboring countries. Overall, technical, and financial analysis shows that Nordstrom is far outperforming its competitors regarding both revenue growth and market share and floor space expansion (Reuters, 2017).
Emerging Trends
The apparel and fashion industry is one of the rapidly changing business sectors in our contemporary commercial world: hemlines rise and fall; seasons change; innovation fades and become retro, and so do sales figures of companies in the sector. Of the various factors that can affect retailers in the apparel industry, technology is one single element, which has and will continue to greatly influence sales of the leading retail trends (Loeb, 2016). One of the emerging trends and retailer considerations that highlight the increasing importance of technology in apparel and fashion retail is wearable technology – from smart watches and designer headsets to fitness and health devices. This technology is increasingly being embraced by shoppers especially the tech-savvy and fashion sensitive millennials (Nordstrom’s key market segment) for ease of accessing product, offers, and store information (Laughlin et al., 2006).
Another emerging trend is the ‘New Retail Holidays’ where retailers look beyond the standard calendar to link sales to special observances as well as create own shopping holidays to not only attract new shoppers but also engage with existing base of clientele to boost loyalty and repeat spending (Spector & McCarthy, 1999). Another emerging trend in this sector is the increased use of mobile, online, and alternative payments platforms such as MasterCard, VISA, Credit, and Debit cards. As retailers, Nordstrom being one of them are transforming shopping terminals and developing ecommerce platforms to accept new methods of payment and engage with shoppers, consumers in the other end are adopting smart watches and devices, branded wallets, and wallet apps with payment capabilities.
In a whole sector perspective, the domestic apparel market in the US continues to show growth trends. Especially in the recent past, the growth of this segment results primarily from the ongoing change in consumer demand patterns, tastes, and preferences, which has shifted from the basic need-drive purchases to occasion-specific acquisitions. Today, many categories continue to be added to consumer wardrobes than they were years before, including formal wear, sports/gym wear, night wear, occasion-specific wear, etc. hence, the overall consumption of the modern day consumer as well as average spending has increased dramatically.
Corporatized retail trend is also expected to increase going into the future partly due to the increasing importance given to shopping convenience by consumers because of severe time-paucity (Laughlin et al., 2006). The today’s consumer, therefore, tends to prefer an all-under-one-roof shopping formats like lifestyle stores, malls, multi-brand outlets, and lately online retail, mobile commerce, and direct selling platforms. Particularly in the U.S. and other developed economies, this trend continues to propel the growth of corporatized retail within the apparel segment (Nordstrom, Inc., 2017). Moreover, consumers, especially the youth, continue to evolve to evaluate their purchases on various parameters other than the mere product price and fit. In urban settings, the youth seek value through such attributes as product quality, fashion trend, the convenience, and experience of shopping, pack size, and width of assortment. As a result, retailers and brands that offer such additional values are accepted better (Laughlin et al., 2006).
Nordstrom’s Target Market Analysis
One of the primary target consumer group is the millennial market (individuals between 16 and 34 years of age), which has been the key drivers of their online sales, and incognizant of the importance of this market bracket Nordstrom has been in the forefront in appealing to them. Online shopping and payment methods, as well as marketing through social platforms, are just some of the ways the company has developed in their pursuit of this young generation. In its 2015 annual report, Nordstrom Inc. indicates that more than 5 million new people shopped in Nordstrom Rack channel alone, while about 2.9 million men have shopped in its Nordstrom platform in the first quarter of the year alone (Nordstrom, Inc., 2017). This figure represented about 2.6% of the total adult male population in the U.S. (The Street Ratings, 2017). In the same quarter, the report shows that approximately 7.2 million shopped at the company, which makes the women population more prominent Nordstrom consumers than their male counterparts. A majority of Nordstrom Inc. primary customer make a household income of $75,000-$149,000 (The Street Ratings, 2017). This income range indicates that Nordstrom’s target audience is those who have a taste (preference) and can afford that high-end clothing, shoes, and accessories that company offers, judging by their income. Therefore, looking at the company’s demographics, Nordstrom’s target audience is mostly shoppers of the upper and middle class.
While those who shop at Nordstrom view the company as a high retail store with a wide variety of merchandise and services to choose from, those who do not shop at its stores perceive the company as snobby, wealthy and urbanized. Nordstrom’s 2015 annual report further emphasizes the company’s efforts to be on the leading edge of retail innovation (Nordstrom, Inc., 2017). Its devout attention to customer care has not only made shopping in its stores a delight but has also contributed in adding momentum to Nordstrom’s sales as well as help in identifying consumer priorities. Additionally, the use of new cutting-edge technology such as RFID chips has also allowed the company to manage its stores better (Spector & McCarthy, 1999). For instance, Nordstrom, Inc. has used the technology to develop better ways of managing both of its inventory and better serve its customers. Shoppers visiting the company’s online outlets are thus able to see what items are available at particular stores, better shopping experience, and ultimately translating into higher sales. Other innovations Nordstrom has been pursuing in recent years include TextStyle, Curbside Delivery, Redesigned Stores such as SPACE, and sustained retail partnerships with successful brands such as Madwell, Topman, and Topshop (Loeb, 2016).
Strategies
The Recent financial analysis suggests that Nordstrom, Inc. revenue has been marching onward since its FY2010 and advancing further 7.5% in FY2016 to $14.4 billion (Vault, Inc., 2017). In segment category, full-price net revenue in full-line Nordstrom and Nordstrom Rack increased 2.7%, as the off-price sales in Nordstrom Rack improved 9.9%. Shoes and Cosmetics line of product was the company’s best-performing category for the period, while the South emerged the best performing region (Vault, Inc., 2017). However, despite the growth in revenue, net income for Nordstrom has been less impressive in the past few years and fell 17% in FY2016 to $600million. Due to such decline in revenue, the first strategy Nordstrom, Inc. should implement to sustain the business is improving its online sales by dedicating more time and money into their ecommerce segment (Vault, Inc., 2017). This strategy is particularly true given that one of Nordstrom’s target audience and the market is the millennials who increasingly rely on social media and other digital platforms to identify trends as well as shop. One easy fix would be to place company social media icons conspicuously at the top of the website rather than at the bottom, to grab the attention of shoppers in an instant. The company could also offer incentives to their online followers on various social media outlets by providing either discount codes or coupons to increase their followers.
The second strategy the company should explore is to retain its younger customer base. With a growing baby boomer class, with many young people both domestically and abroad becoming more financial equipped and fashion conscious of shopping at Nordstrom, this segment represent a huge market for the firm. The company should also ensure that millennials do not feel and view the stores as too formal in appearance for their liking. Guaranteeing continuous flow of cutting-edge and up-to-date fashion line currently in style could help address the issue. Moreover, Nordstrom needs to balance the needs of its older clientele by sticking to its traditional line of classic-cut clothing and those of the younger generations and meeting these conflicting demands aptly through a holistic purchasing strategy. Other potential strategies to increase the growth of the company include furthering the idea of discounted products from its full-line segments to other segments such as Rack stores. Secondly, Nordstrom can transform itself into a social meeting place through common interests in both vendors and clients other than just a locale for selection of merchandise. Lastly, the firm can expand its group operations and franchise into international markets.
Conclusion
Overall, Nordstrom, Inc. is an apparel company with high standards in customer service and offers quality product portfolio for their clients. In this highly competitive business segment, the company has several rival retail stores most of which offers a similar line of goods. However, as long as Nordstrom continues to work harder at melding and improving their customer care, cater for their clients irrespective of age or geographical location, and invest in their ecommerce segment, they could continue to be the best and most successful apparel retail store.
References
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Laughlin, C., Hix, A., Lee, K., Florex, K., Holley, S., & Kratzer, Z. (2006). Nordstrom, Inc. Equity Valuation and Analysis. Retrieved from Nordstrom, Inc. website: http://mmoore.ba.ttu.edu/ValuationReports/Fall2006/Nordstrom-Fall2006.pdf
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