It is important to note that Nordstrom’s recent addition of Top Shop boutiques in many locations has bolstered the young customer’s interest in full line stores. The upward trend in average age which plagues many department stores has been arrested at Nordstrom where the average customer’s age has dropped to about 43 years. That is good news indeed.
In addition, the company acquired the Trunk Club this past August, a company that specializes in providing personalized service to the young male customer on the go. Trunk Club has extraordinary service online and in a few showroom locations in select cities including Chicago, Dallas, Washington and Los Angeles. New York City, a new location, will open on December 1 at Madison Ave and 51st Street. While this is a highly service oriented organization catering to men, I am sure that they will soon add women.
Nordstrom reported that their inventory increased by 18% in the quarter, which outpaced the total sales increase of 8.9%. Management indicated that while this increase exceeded plan by 2% and they would strive to be on plan by the end of the fiscal year. I am not worried about some inventory increase while the company’s Rack stores are growing so fast. Traditional department and specialty stores have to be in line with their inventory at every seasonal change, since new goods keep flowing into inventory. However, I am less concerned about the Rack’s inventory since much of it is packed away and is housed in a warehouse for a season in order to break it out at the next season. Using this approach unusually good values are sold in the Rack at the right time. The fast growth of these units means an increasing need for new fashion merchandise, albeit a year old. I am sure that management will trim the inventory by the end of the year, but I hope they will not pass up good deals that could go into Rack stores down the road.
On the other hand, I am worried about Nordstrom’s (and other retailers) full line traditional department stores that have shown decreases in their comparable store sales for some time. I don’t know how many older store units are showing major decreases, but I believe that Nordstrom as well as Macy’s, J.C.Penney, Kohl’s, Dillard’s and others are concerned that some of their stores are no longer pulling their weight. That some stores may be recording increasingly large decreases in sales and is threatening to become unprofitable. Sales have moved to the Internet – which in Nordstrom’s case is growing at a very fast rate – 22% in the last quarter – and together with the fast expanding Rack stores are zapping some of the full line store’s ability to grow. Retail companies have closed some stores as leases expire and I think it is reasonable to expect that more closings will occur in the next few years. As I have written about in previous blogs, I believe the concept of mega-centers will become more important because of the concentration of stores which begets customers focus on these locations.
Turning to the fourth quarter and holiday outlook, I believe Nordstrom will see strong increases with comparable store sales around 3½%. Nordstrom, are not opening on Thanksgiving since management believes that their store associates should be with family or friends on this very special day. Other stores such as Barnes &
