Retailer Nordstrom is looking to capitalize on growing demand for its discount Rack store concept by opening 22 locations this year, a slight bump from last year.
The Seattle-based chain opened 11 Rack stores in the fourth quarter of 2023 for an annual total of 19 in the format that executives called “a growth engine."
“Opening new Rack stores is a profitable investment as well as a key way to reach more new customers and drive more Rack banner growth,” CEO Erik Nordstrom told investors during the company’s fourth-quarter earnings call.
Rack store sales grew nearly 15% during the quarter, offsetting a 3% decline in sales for the flagship concept and adding to a nearly 13% profit bump to $134 million for the company during the quarter.
Growth for the discounted segment of Nordstrom comes as the retailer expects a muted 2024, forecasting full-year revenue to range from a 2% decline to a 1% gain compared with last year, in part from having one less week in the fiscal year compared with last year.
Big box retail chains like Nordstrom are feeling the pinch as customers become more price-conscious after a year of rising interest rates and inflationary pressures. Macy's plans to shut 150 of its namesake stores, including a flagship in San Francisco, and sell enough real estate to generate $600 million to $750 million in proceeds. Discount giant Target, meanwhile, plans to open more than 300 new stores over the next decade.
Economic Conditions
Nordstrom’s net earnings dropped 45% to $134 million in its fiscal year that ended Feb. 3, compared with $245 million for the prior-year period ended Jan. 28, 2023.
"Unfortunately, economic conditions are not blowing in Nordstrom’s favor and even its somewhat more affluent consumers cut back in the final quarter, much as they have done across the fiscal year," Neil Saunders, managing director of GlobalData, wrote in a note to clients.
The retailer’s quarterly revenue increased about 2% to $4.42 billion. Executives attributed just under $200 million of the sales increase to having an extra week in the most recent fiscal quarter compared with the same time last year.
Nordstrom Rack generates more than 40% of new customers for the company, according to Nordstrom's CEO. Expanding the brand “brings our omnichannel services closer to the customer, giving them more reason and opportunities to engage with us,” Nordstrom said.
The retailer plans to open six Rack stores across California and two stores each in Florida, Georgia, North Carolina, Ohio and Texas, plus single stores in Arizona, Illinois, Indiana, Nebraska, New York and Tennessee in 2024, executives said.
Rack stores also support loyalty to Nordstrom’s brand by helping steer customers to the company’s larger department stores, the CEO said.
“Roughly a quarter of retained Rack customers migrate to the Nordstrom banner within four years,” Nordstrom said.
Saunders notes that in order to thrive in the face of economic uncertainty and wavering consumer confidence, Nordstrom needs to commit to restoring "the energy and excitement that was once a hallmark of its shops," as well as maintain sales momentum for Nordstrom Rack.
"A failure to do this will likely result in Nordstrom entering a spiral of decline that is very hard to pull out of," he said.