• Retail Dive

Nordstrom leans on off-price, digital to chase customers and profits

By Daphne Howland

Published Feb. 5, 2021

With a goal of boosting its assortment fivefold, the department store is also making sweeping changes to how it works with suppliers.

During its investors day conference on Thursday, Nordstrom executives shared plans for profitable growth that are partly an expansion of its existing strategy and partly a remarkable departure from how it has historically done business. Most notable is the integration of its off-price Rack with its full-line business, along with an embrace of e-commerce that leaves physical locations — usually the centerpiece for any department store — in a supporting role.

"At the heart of our business transformation is the recognition that the unique combination of the Nordstrom and Nordstrom Rack brands, along with our combined physical and digital expertise, create a powerful opportunity to get closer to the customer than ever before," CEO Erik Nordstrom said via video conference.

In financial terms, the goals are to accelerate revenue growth, "with opportunity to reach $17 billion in sales over the medium term;" expand profit margin, with the "potential to sustain 6% or higher EBIT margin going forward; improve return on investment through shifts in inventory and assortment management; and "consistently generate more than $1 billion in operating cash flow annually."

Connecting Rack

Nordstrom has spent the last year bringing its off-price Rack business more fully into its market strategy, announced in 2018, which knits together online and offline operations in a given area. On Thursday, executives said that the Rack and Nordstrom websites will also merge into one.

The market approach is perhaps seen most vividly in New York City, where a new flagship, two Local stores, several Rack stores and the website work in concert. In the last year, it has been rolled out to the company's top 10 markets, which provide about half its total sales. That will expand to 20 markets, representing 75% of sales through 76 Nordstrom stores, seven Nordstrom Locals and counting, and 167 Rack Stores.