Nordstrom Is Racking up Growth With Nordstrom Rack

Sixty-two years after opening the first full-line store – Nordstrom (NYSE: JWN  ) - in 1902, the founders opened Nordstrom Rack, an outlet store selling apparel, accessories, and jewelry from the Nordstrom stores but at a discounted price. At Nordstrom Rack, customers can expect designer brands at a 30% to 70% discount which makes all the difference to the middle-class shopper whereas those in the top tax bracket can afford to shop at Nordstrom, whose sales have remained strong and steady in spite of even the "Great Recession". With what started as a boutique shoe store over 100 years ago, Nordstrom has grown into an extraordinary, billion-dollar corporation.

Taking a closer look
Nordstrom has plans in the works to continue its domination over other designer-brand retailers. The Seattle-based company currently operates 261 stores including 117 Nordstrom full-line stores and 141 Nordstrom Racks. Its goal is to open 23 Nordstrom Racks by 2016 to better compete with Macy's (NYSE: M  ) and Kohl's (NYSE: KSS  ) . ]Unlike Nordstrom's full-line stores, Nordstrom Rack caters to a similar clientele that also shop at Macy's and Kohl's – customers seeking designer brands at a discount. While Macy's and Kohl's earn higher annual revenues and net incomes than Nordstrom, they also have 3 to six times as many stores as Nordstrom which gives Nordstrom plenty of room to still grow and expand to the average consumer.

Rack of opportunity
On October 30, Nordstrom announced plans to open a second Nordstrom Rack in Brooklyn, New York at the Gateway Center. The project is set to be completed with doors opening by Fall 2014. The first Nordstrom Rack in Brooklyn is actually not even open yet, but is scheduled to open by Spring 2014 . During that same season, Nordstrom also plans on opening a Nordstrom Rack in Manhasset, New York. Nordstrom Racks are not only opening in New York but all across the United States and Canada over the next year and a half which includes stores locations in California (4), Hawaii (1), Florida (3), Illinois (3), Massachusetts (1), Ohio (1), Oklahoma (1), Nevada (1), Texas (2), Utah (1), and Wisconsin (1).

Racking up against Kohl's and Macy's
Nordstrom currently operates 261 retail stores whereas Macy's operates over 850 department stores and Kohl's operates 1,506 stores, making Kohl's the largest retail department store chain in the United States as of February 2013. Based on the figures below, Nordstrom has had the highest consistent amount of growth over the past three years when compared to Macy's and Kohl's. Furthermore, Nordstrom has not been affected nearly as much as the other retailers have been in recent years.

MACY'S

FY 2013

FY 2012

FY 2011

 Annual Revenue

$27.69 Billion (4.85%)

$26.41 Billion (5.64%)

$25.00 Billion

Annual Net Income

$1.34 Billion (6.35%)

$1.26 Billion (48.8%)

$847 Million

KOHL'S

FY 2013

FY 2012

FY 2011

Annual Revenue

$19.28 Billion (2.55%)

$18.80 Billion (2.23%)

$18.39 Billion

Annual Net Income

$986 Million (-15.73%)

$1.17 Billion (4.46%)

$1.12 Billion

NORDSTROM

FY 2013

FY 2012

FY 2011

Annual Revenue

$12.15 Billion (11.67%)

$10.88 Billion (12.16%)

$9.70 Billion

Annual Net Income

$735 Million (7.61%)

$683 Million (11.42%)

$613 Million

Move to capture the average consumer
Nordstrom will use its competitive advantage with its full-line stores to make its move with Nordstrom Rack. With the rich customer already in its grasp, Nordstrom is making inroads into mainstream retail seeking to capture an ever larger customer footprint. The relative size of Nordstrom to its larger cousins tells the tale: if Nordstrom were able to capture even a minor fraction of the customers that currently make clothing purchases at Kohl's and Macy's, it would have major implications for Nordstrom shareholders.

Small but mighty
Nordstrom is one of the premier retailers in existence today. It boasts smaller but comparable revenues to its larger cousins Kohl's and Macy's on a much smaller store footprint. However, the retail market within the United States can only sustain so many Nordstrom stores given the price point much of its items sell at – so a shift is currently under way by the company to open ever more Nordstrom Rack locations. Shockingly, there are actually more Nordstrom Rack locations currently open in the United States than Nordstrom department stores, and this trend is set to continue. To Foolish investors looking to place a bet in the retail space, Nordstrom might just be getting started with its expansion. Shareholders of Macy's and Kohl's should definitely be on the lookout as this top of the line brand name retailer goes mainstream through its Nordstrom Rack brand. 

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