Nordstrom Rack bets on high-end products in the face of rising prices

August 30, 2022

Nordstrom Rack sales increased 6% during the second quarter. That’s the good news. The bad news is that Nordstrom’s off-price channel sales began to decline towards the end of the quarter.

Erik Nordstrom, CEO of Nordstrom, said last week about the company earnings call, that the retailer was unaffected by macroeconomic pressures during the first quarter and most of the second. He attributed this to the “higher income profile” of the retailer’s customer base.

“This continued through most of the second quarter until late June when demand started to slow, primarily in Nordstrom Rack. Compared to the first two months of the quarter, July sales slowed by nine percentage points in the Rack banner,” Nordstrom said. “Across both banners, the easing trend has been greatest in customer segments with lower income profiles.”

Nordstrom is looking to make Rack more appealing to consumers by improving its merchandise selection. In recent years, the retailer has introduced lower-priced merchandise to appeal to entry-point consumers, but found that Rack customers were seeking deals on the same products sold at Nordstrom’s larger stores. Ninety percent of the brands sold in Nordstrom’s full-price stores are found in Rack stores.

“Premium brands are a differentiator for the Rack, and we focus on the best brands at the best prices in each of our locations,” Nordstrom said. “This quarter, sales of our top 100 brands at The Rack increased 17%, underscoring the opportunity to increase our premium brand offering.”

Nordstrom Rack actively seeks to incorporate premium brands and weed out inferior products. The retailer expects this to put pressure on its margins for the second half of the year, although management still expects to post a year-on-year profit increase ultimately. .

Mr. Nordstrom said Rack played a vital role in the company’s fortunes.

“Our [Closer to You] offers customers convenience, connection and access to the best selection of products through a strong store fleet, two unique banners and market-level linked omnichannel capabilities,” he said.

Nordstrom has scaled Closer to You, he added, “by expanding next-day order pickup capabilities to more than 60 additional Rack stores in our top 20 markets. And our top 20 markets outperformed our other markets by seven percentage points.”

DISCUSSION QUESTIONS: Do you group Nordstrom Rack with other overpriced ones (TJX, Ross, Burlington, et al) or do you see it falling into another category? Do you expect department stores Nordstrom to continue to outperform Rack for the rest of 2022 or will that change?

Braintrust

“Premium brands in a discounted environment – it’s a win-win.”

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