This week, Nordstrom (NYSE:JWN) subsidiary Trunk Club announced that it's bringing its popular in-home shopping service to a whole new market: women. Trunk Club, which blends the high-touch experience characteristic of upscale stores with the convenience of e-commerce, has catered exclusively to men since its launch about five years ago.
Trunk Club is already a fast-growing business, as it has struck a chord with customers, and is benefiting from strong word-of-mouth promotion. Partnering with Nordstrom -- which bought the company about a year ago -- should also help drive growth. Expanding into the women's fashion market could further turbocharge growth at Trunk Club, and for Nordstrom more broadly.
A promising concept
Trunk Club has become extremely successful in a short time by taking the stress out of shopping for men who want to look good without facing daunting racks of clothing at the mall.
Customers are paired with personal stylists, who send a trunk of clothing to try on. The customer can keep and pay for what he likes, and send the rest back for free. Thanks to the Nordstrom acquisition, Trunk Club customers also can get free alterations at local Nordstrom stores.
This innovative business model has allowed Trunk Club to achieve tremendous sales growth. After starting from a base of just $1 million in sales in 2010, Trunk Club reached $100 million in annual sales last year. Moreover, Nordstrom believes that Trunk Club can double its sales in 2015.
A big growth opportunity
Entering the women's apparel business dramatically increases Trunk Club's addressable market. While needing to dress well, but hating shopping is stereotypically a male problem, there are undoubtedly plenty of women who would like to have a personal stylist send them boxes of stuff to try on at home.
Furthermore, the women's apparel market is almost twice the size of the men's apparel market in the U.S. Given the success of the men's business, the marketing value of the Nordstrom tie-up, and the fact that Trunk Club is now an established name, Trunk Club for Women seems likely to contribute meaningful sales growth within a year or two.
Investors shouldn't be caught off guard by this move, either. Shortly after Nordstrom announced the Trunk Club acquisition, Erik Nordstrom -- currently one of three company Co-Presidents -- stated on a conference call that the combination could make it easier to launch a women's version of the service. Nordstrom is committed to moving quickly, so it's no surprise to see it following through on the idea already.
Nordstrom is firing on all cylinders
Trunk Club represents a big growth opportunity for Nordstrom, and it is already profitable at the operating level. However, it's just one of many promising initiatives to drive sales growth.
Nordstrom is investing heavily in e-commerce more broadly for both its full-line and off-price businesses. Total e-commerce sales reached $2.36 billion last year, up from $563 million in 2009.
Nordstrom is also expanding its physical footprint. By 2020, it plans to operate 300 Nordstrom Rack off-price outlets, up from just 69 at the beginning of 2010. It's even adding full-line stores, mainly through an expansion into Canada, which could eventually be a $1 billion market.
Nordstrom expects all of these growth avenues together to lift its sales to at least $20 billion by 2020, compared to $13.1 billion in 2014 (excluding credit card revenue). That implies consistent high single-digit growth.
Furthermore, as Nordstrom's growth investments start to mature, the company's profit margin should begin rising again. While Nordstrom stock is definitely not cheap -- it trades for about 21 times projected 2015 earnings -- it could still be a steal for long-term investors, thanks to the massive potential of growth businesses like Trunk Club and Nordstrom Rack.