Upscale department store chain Nordstrom plans to open 23 off-price Rack locations — the biggest source of where it expects to gain new customers — in the United States over the next two years.
Nordstrom, after having opened or relocated eight Rack locations in the first quarter, plans to open 23 more between fall of this year and spring of 2025, including the biggest chunk, or 10, in California, the Seattle-based retailer said in a statement late Wednesday.
The remainder of the planned Rack openings are in Georgia, Florida, Texas, Oregon, Washington state, Kansas, Colorado, Illinois and Ohio.
Nordstrom reported an 11.6% drop in total sales and a net loss of $205 million for its fiscal first quarter that ended April 29.
Nordstrom isn't planning any store openings under its full-price namesake banner. Rack’s future opening plans comes after the unit opened just two locations last fiscal year and two more in the first quarter.
Rack stores are “a great investment,” Erik Nordstrom, chief executive of the department store chain, said on a conference call late Wednesday, adding Rack stores generate returns that top the cost of capital and are “a short payback.” What’s more, he said Rack stores represent “the largest source of new customers for Nordstrom.”
Store Closings
The store opening plan comes after Nordstrom has announced plans to exit its operations in Canada, including closing a total of 13 Nordstrom and Rack stores there. The company ended the first quarter with 347 total locations, including 243 Rack stores, down from 356 a year earlier. The number of full-priced U.S. Nordstrom stores stood unchanged at 94 at the end of the first quarter.
Meanwhile, the retailer joined a slew of others with saying it’s not renewing its leases for its outposts at the Westfield San Francisco Centre and a nearby Nordstrom Rack at 901 Market St. as San Francisco is hurt by crime and other concerns.
In the first quarter, Nordstrom banner sales decreased 11.4% while those at the Rack unit fell 11.9%. While results were hurt by the exit of the Canadian business, they also were hurt by the end of store fulfillment of online orders at Nordstrom Rack.
Nordstrom said first-quarter’s performance also had a tough comparison against the year-earlier quarter, when consumers with pent-up demand coming out of the pandemic helped to drive sales at the time.
Meanwhile, in the recent quarter, “customer demand continued to be pressured given current macroeconomic backdrop,” Nordstrom said on the call.
Still, the economic backdrop aside, the retailer’s results also looked to have been hurt by its own missteps on the merchandise assortment and other fronts, analysts said. When stripping out the impact of the pandemic, total sales, compared to the pre-pandemic levels in 2019, dropped by 8.5%, led by “an eyewatering 15.1%” slide in the Rack unit, Neil Saunders, managing director of GlobalData, said in a report Wednesday.
Nordstrom “has also become a much frailer business that seems to lack the energy or ability to quickly get back on the front foot,” he said. “This is seen in the poor state of its department stores which lack the merchandising skills that used to be a key point of differentiation, in the relatively lackluster assortments across both full- and off-price, and in the weaker standards of customer service across all stores….The lack of a compelling offer and an increasing tendency to use Rack to sell through bland excess inventory has cost the division dearly.”
CEO Nordstrom said on Wednesday the company plans to increase “the penetration” of “top-performing strategic brands” at Rack to bolster demand, and said sales have seen an improvement since April, adding new Rack stores also have outperformed the fleet average.