On Monday, Nordstrom (JWN +0.00%) announced changes to its senior leadership. Two long-tenured Nordstrom executives are retiring: chief marketing officer Scott Meden and Geevy Thomas, president of the Nordstrom Rack business. Their duties will be taken over by other members of Nordstrom's executive team.
Most notably, Jamie Nordstrom is taking the new role of chief stores officer, expanding his oversight beyond the company's full-line stores to the Nordstrom Rack off-price chain as well. The decision to have yet another insider lead the long-suffering Rack business looks like a big missed opportunity for Nordstrom.
Years of underperformance
A decade ago, Nordstrom unleashed an aggressive growth plan for its off-price unit, recognizing that value was becoming increasingly important to consumers. For a while, the growth plan was extremely successful. Nordstrom Rack's sales surged from $1.4 billion in fiscal 2009 and $1.7 billion in fiscal 2010 to $3.6 billion by fiscal 2014.
The Nordstrom Rack store in downtown Seattle. Image source: Nordstrom.
Off-price sales continued to grow at a more modest pace over the next few years, reaching a peak of $5.2 billion by fiscal 2018. But comparable sales for Nordstrom Rack's brick-and-mortar stores stopped growing after fiscal 2014, in sharp contrast to leading off-price retailers TJX Companies and Ross Stores.
The Nordstrom Rack chain's performance has worsened further over the past few years. In fiscal 2021, it posted sales of $4.8 billion, down 8% from fiscal 2018. Over the same period, Ross Stores grew its top line by 26%, and TJX grew domestic sales by 29%.
Nordstrom doesn't disclose the profitability of its Rack division. But considering the unit's weak sales trends (particularly in stores, where margins are higher) and the overall trajectory of the company's profits, it's safe to assume that Nordstrom Rack is dramatically less profitable than the leading off-price retailers.
Not the new leadership the Rack needed
Geevy Thomas has led Nordstrom Rack since 2010, except for a brief stint as Nordstrom's chief innovation officer between January 2017 and March 2018. While he oversaw the chain's incredible growth a decade ago, Thomas more recently has overseen years of stagnation. In short, a leadership change at Nordstrom Rack was overdue.
However, I'm skeptical that Jamie Nordstrom is the right choice to lead the Rack forward. As a member of the founding family, he has spent his entire career at Nordstrom. While he helped spearhead the launch of Nordstrom Rack's online presence, he has no other off-price retail experience. Moreover, Jamie Nordstrom will continue to run the full-price stores, which have also been struggling, so he won't be able to devote his full attention to fixing the Rack.
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Key Data Points
In announcing the leadership changes, the company emphasized that Nordstrom Rack recently added three experienced executives to its leadership team. Two have merchandising experience at larger off-price retailers, including Nancy Mair, who spent over 25 years at Burlington Stores and now leads the Nordstrom Rack merchandising group.
Adding outside talent with significant off-price experience represents a step in the right direction. That said, Burlington was a serial underperformer in the off-price industry for most of Mair's time there. Furthermore, since Nordstrom Rack's new hires aren't at the top of the leadership pyramid, they might not have enough autonomy to implement major strategy changes.
Nordstrom Rack needed a bigger change
After years of subpar performance, Burlington Stores has rapidly grown its sales and dramatically improved its profitability since 2015 by hiring new leaders from better-run competitors. In fact, Burlington's top three executives each spent over a decade at Ross Stores. They know how to run a successful off-price business and have acted decisively to make Burlington a best-in-class retailer.
Nordstrom Rack should have followed Burlington's lead. As a longtime Nordstrom shareholder, I'm disappointed that the company is instead putting another insider in charge of the Rack. With the help of Nordstrom Rack's other new leaders, Jamie Nordstrom might be able to get the off-price chain on a better trajectory. Nevertheless, poaching a top executive from TJX or Ross Stores (or possibly Burlington) would have provided a much clearer path to maximizing Nordstrom Rack's considerable untapped potential.
