Nordstrom Makes Its Case for Growth

Not all that many years ago, I studied physics in college. I spent a whole year realizing that I didn't really love math the way you really have to love math to study physics. But the experience instilled a reverence for experimentation in me. So I love when such companies as Nordstrom (NYSE: JWN  ) make a whole plan out of experimentation. CFO Mike Koppel explained some of the brand's upcoming strategies and they're all intriguing.

Unlike other retailers, Nordstrom is uninterested in being the next big thing in China, focusing instead on continuing the 112-year-old legacy that it has in the U.S. In the presentation at the Bank of America retail conference, Koppel explained how the company is going to grow by focusing on new channels and new customers. Here's what's coming up and what it means for investors.

Buy it anywhere
If Nordstrom wants to keep growing, it needs to sell more things to more people. To expand its borders without leaving them, Nordstrom is going to be investing in direct sales channels over the next few years. That means selling online, though mobile devices, and in new physical locations. Luckily for investors and for Nordstrom, the company has been an early adopter of the omnichannel selling experience. The premise is very basic, and yet maddeningly hard to get right -- let people shop in the best way for them wherever they are and tweak the experience to their circumstances.

Nordstrom's take on this idea is laid out in its $240 million digital strategy. The company currently gets about 100,000 visits every day to its mobile site, and has invested in the site to give customers more information about products. Customers are already responding to the upgrades and in 2012, with 20% of direct sales were through mobile.

But mobile sales alone won't be enough, which is why Nordstrom is investing in physical locations as well. The biggest will be a flagship store planned for 2018 on New York's Columbus Circle. The mere fact that the company announced it already sends a signal that it's going to keep up the pace to compete against its high-end rivals both online and in brick-and-mortar form.

Tapping the youth market
"The stuff we love, we can't afford and the stuff we can afford, we don't like too much." That's the problem with truly high-end retailers -- they have a limited consumer base. But faced with this quote, Nordstrom came up with a way to tap the younger, less affluent audience that aspires to its halls. The company has already brought U.K. retailer Topshop into 14 of its stores, with plans to expand this year. Topshop sells much more accessible clothing, with jeans in the $80 range, putting in competition with companies such as Gap and Macy's.

That market will be further encroached on by Nordstrom's expansion of its Rack brand. Nordstrom Rack is a discount version of Nordstrom, which offers a mix of sale pieces from Nordstrom and product purchased specifically for Rack. The prices can run 60% lower than Nordstrom's normal price, and offer aspiring shoppers an easier inlet to those fashions. The company is planning to open 24 new locations in 2013, with a goal of generating 50% of revenue from Rack and direct sales. Right now, those segments make up roughly a third of sales.

The bottom line
Nordstrom is trying a lot of things out and a lot of them are showing signs of success. Strong mobile sales should be just the beginning of Nordstrom's direct channel growth, and I'll be watching to see if its in-store investments start to generate sales. The Topshop and Rack brands are going to prove to be a real challenge for competitors. Macy's recent success has been driven by a better flow of fashionable merchandise, and more Rack stores in the area are going to put those sales in jeopardy.

Likewise, Gap's brand turnaround has been spectacular to watch, but if Topshop takes off, it could face some interesting competition. Topshop's style strikes me as being between Gap and H&M, and it plays a huge role in British middleclass fashion -- much as Gap does in the U.S. That expansion isn't going to stop Gap from succeeding, but it's certainly going to be on the radar. As a result, I'm going to be expecting very good things from Nordstrom over the next year.

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