Monday, September 16, 2013

Coach, Nordstrom Stores Boost Retail Outlet Expansion


Outlet centers have gained momentum the past couple of years as high-end retailers and brands have moved to feed the consumer's hunger for value in a slowly improving economy.

Upscale retailers like Nordstrom (JWN) and luxury handbag and accessories designer and retailer Coach (COH)have expanded their outlet store operations as they look to draw a new customer base and expand their multichannel efforts.

Nordstrom Rack is the off-price retail division of Nordstrom offering customers on-trend apparel, accessories, and shoes at an everyday savings of 30% to 70% off. The Rack carries merchandise from Nordstrom stores and, as well as specially purchased items from many of the top brands sold at Nordstrom, spokeswoman Kate DeToye told IBD via email.

The Rack is part of a larger growth story for the company with growth coming from online, full-line stores, and the Rack. Nordstrom has 127 Rack stores across the U.S., with plans to have 141 stores by the end of this year and 230 stores by the end of 2016.

The Rack is a strong contributor to the total Nordstrom offering, says DeToye, and Rack stores are "extremely productive" in terms of sales per square foot. Last year, the Rack exceeded $2.5 billion in total sales.

Nordstrom selects Rack locations where there's an opportunity to serve more customers. The idea is to locate the stores so they are as convenient and accessible as possible. Only five of its Rack stores nationwide are in outlet centers.

Coach also has big plans to expand its factory stores. Coach had 193 factory stores and 351 full-price stores in North America at the close of fiscal 2013, which ended June 29.

It plans to open about 20 new stores in fiscal 2014 ending June 28, at least 15 of which will be factory outlets, says spokeswoman Andrea Shaw Resnick.

Coach sees outlet stores as a way to serve a different set of customers than those who shop at its full-price stores.

"For years we've explained that it is a very different customer that shops in the respective channels," said Resnick. "The full-price customer wants what's hot now, while the factory consumer wants brands but is value/price conscious and is willing to 'wait'," she said.

About 85% of what is sold in factory stores is made for factory, she adds, with the remainder full-price discontinued product from previous seasons/years.

"Full-price has to lead the brand and provide halo and buzz and fashion credibility," said Resnick.

"But factory represents a growth opportunity in North America as the channel continues to evolve."

Coach is the second-largest company by market cap in IBD's Apparel-Clothing Manufacturers group, after VF Corp. (VFC) and before Michael Kors Holdings (KORS), while Nordstrom is third largest in the Retail-Department Stores industry group after Macy's (M) and Kohl's Corp. (KSS) .


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