LL Bean and Nordstrom Flex Pop-Up Strategy

by Sarah Mahoney, Wednesday, Oct 1, 2013, 2:09 PM - mediapost.com

Just in time for the holidays, both Nordstrom and LL Bean are adding pop-up shops in a bid to build sales and broaden their appeal. And retail experts say they expect to see even more pop-ups as retailers try to win back online shoppers.

“While pop-up stores have been around for a long time, they will begin to play an even more critical role in the future,” retail consultant Doug Fleener tells Marketing Daily. “As more sales are done online, physical pop-ups offer new ways to connect with consumers and build buzz.”

Nordstrom is reportedly initiating a program called Pop-In @ Nordstrom, which Women’s Wear Daily describes as “an ongoing series of themed pop-up shops in eight Nordstrom stores and on nordstrom.com.” Ranging in size from 450 to 1,000 square feet, WWD says the first Pop-In will celebrate all things French, stocking a section of vintage Chanel and other designers, as well as items from Merci in Paris, a store that donates 100% percent of its sales to Madagascar. (A spokesperson for Nordstrom declined to comment.)

And L.L. Bean opened a Boston pop-up shop just briefly, driving its Bootmobile down from Freeport, Maine headquarters. Its shop, at a two-day event designed to showcase American craftsmanship, showed off its stitching prowess, and offered shoppers the chance to buy some 60 varieties of its namesake boot.

A spokesperson for L.L. Bean says the next pop-up is planned for NYC Flea in December, and that the retailer will also have a pop-up holiday kiosk in the Natick, Mass., mall, selling Bean Boot colors that will only be available in the pop-up.

Fleener, president of Dynamic Experiences Group, these efforts are more than a marketing tactic. “It can be a retail strategy, as well.” With holiday sales accounting for some 30% of most retailers’ revenue, seasonal pop-ups can add significantly to sales. “If you look at how much e-commerce has taken out of the market, it’s huge. People used to go to stores to seek out something different, and now they do that online. So pop-ups a chance to bring new ideas to customers.” He says that he also expects to see more co-branding pop-ups, such as Nordstrom’s partnership with Nike’s Converse All Stars earlier this year.

Fleener says that as consumers have become increasingly comfortable with limited-edition offerings, including the popularity of flash-sale websites, the bar is much higher.

The bar is much higher, though—consumers expect pop-ups to offer something truly special. “If the pop-up experience is unique, people will seek it out.”

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Used Shoes at Nordstrom's Rack Outlet Stores?

Coach, Nordstrom Stores Boost Retail Outlet Expansion

By MARILYN MUCH, INVESTOR'S BUSINESS DAILY Posted 09/10/2013 03:46 PM ET

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 Nordstrom.com, 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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Neiman Marcus, Nordstrom, Bloomingdales and Saks increase outlets

Nordstrom Rack Opening 103 New stores

Neiman Marcus, Nordstrom, Bloomingdales and Saks increase outlets

By Kyle Stock - July 16, 2013 Bloomberg Business Week

High-end department stores are slumming … sort of.

At pricey apparel retailers such as Neiman Marcus and Bloomingdales (M), outlet stores may soon outnumber traditional locations, according to a new report by Bloomberg Industries. In fact, they already do at Saks (SKS) and Nordstrom (JWN). Some 60 percent of Saks locations are now outlets, and all but two of the 15 stores it plans to open in the next two years will be discount centers. Nordstrom meanwhile, has 127 “Rack” outlets and plans to open another 17 by the end of the year..

The strategy is a simple play for the bargain-hunters who have driven handsome returns for Ross Stores and TJ Maxx of TJX Companies (TJX). “It’s predominantly an entirely different customer for these companies,” says Bloomberg Analyst Poonam Goyal. “They know they can’t afford the full-line stuff, but they still desire the brand.”

A steady stream of thrifty customers pays off in tight times. As the economy buckled in 2009, combined revenue at Ross and TJX swelled by 5 percent, while sales at Neiman Marcus, Nordstrom, and Saks slid by 10 percent.

“It really took the recession for them to see the opportunity there,” Goyal says.

Separating shoppers by willingness to pay—better known as price differentiation—has long been a proven business strategy. It’s tough for a mid-market player such as Macy’s, but it’s perfect for a company that focuses on pricier products.

The trick, however, is to make sure that people who are willing to pay the higher price can’t easily switch to the cheaper option. That’s the beauty of outlets; they physically separate buyers. They also let high-end brands offload stale inventory without slashing prices in flagship stores, conditioning affluent customers to wait for discounts.

The discount stores are often more profitable than the glitzier retail hubs. In terms of revenue per square foot, Nordstrom Rack locations sell 40 percent more than the company’s traditional locations, according to the Bloomberg analysis. And expenses are lower at outlets, whose shoppers generally don’t need to be enticed by a swarm of sales staff, or by expensive displays and fixtures.

“The only real danger for outlets,” Goyal says, “is if everyone suddenly wants to pay full price.”

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Nordstrom Rack Opening 103 New stores

By Channing Hargrove June 17,2013 - blogs.glam.com

Nordstrom Rack started in the basement of the downtown Seattle Nordstrom flagship store in 1973 as a way to clear merchandise. Since then the chain has successfully done the job, and earned a spot as an integral earner for the Nordstrom brand.

With success comes growth, and the news that Nordstrom Rack is looking to expand all over the country by adding a whooping 103 new stores! Beginning with 24 this year, including a 42,000-square-foot store in Brooklyn, the store will follow through with another 30 new stores in 2014. Besides Brooklyn, Nordstrom Rack is also expanding with stores in California, Texas, South Florida and Chicago.

In addition to brick-and-mortar stores aiding in the expansion, Rack could be making the jump to e-commerce. “It’s been helpful to work with Hautelook.com [which Nordstrom acquired in 2011],” said Colin Johnson, a spokesperson for Nordstrom. “We see a lot of potential to create a more robust experience. We realize that we have a way to go to make our online shopping capabilities a lot better.”

Nordstrom Rack works in tandem with flagship store

By the end of the year, the company could have more Rack locations than full-price stores.

Article by: AMY MARTINEZ , Seattle TimesUpdated: March 17, 2012 - 5:49 PM

After 25 years, the old Nordstrom Rack location in downtown Seattle closed for good last weekend as part of its move just one crosswalk over from Nordstrom's flagship.

By putting them side by side, Seattle-based Nordstrom is challenging the conventional wisdom that a retailer's full-price and off-price stores cannibalize each other.

President Blake Nordstrom recalls how retail experts questioned the company's decision in the 1970s to launch the Rack business inside its downtown store, but the company has since opened 105 stand-alone Racks nationwide.

"What we've learned," Nordstrom said, "is that our Racks do well when they're closest to our flagships. We think there's a great synergy."

The Seattle Rack's move is part of an aggressive growth strategy for the discount business. Nordstrom plans more than a dozen additional Racks this year, bringing the total to 119. By contrast, the company plans one additional full-price store, for 117.

That means Nordstrom is poised to operate more Racks than flagships for the first time in its 111-year history, a milestone not lost on retail-industry experts.

Consultant Jeff Green recalls that the Rack was a bright spot for Nordstrom during the darkest days of the recession. While sales plunged at Nordstrom's full-price stores, the Rack posted much-needed gains.

"The minute the economy turned south, Nordstrom said, 'No more full-line stores except for the ones already under construction, and let's focus on the Rack,'" Green said.

"They had a backup for the downturn, and it was the Rack."

But putting a discount store next to a flagship takes Nordstrom outside the industry's norm. Neither Neiman Marcus nor Bloomingdale's puts its outlet stores next to its flagships.

"The old theory was why, if you have a core consumer who loves you, would you erode her respect for you by showing her cheap stuff? Why would she ever go back to paying full price?" said New York retail consultant Kate Newlin.

"But the Rack is a well-enough presented experience that they're pretty confident the two can coexist without eating each other's lunch."

With nearly all of its merchandise on one floor, the new Seattle Rack is designed to make shopping faster and more convenient, reflecting a major corporate emphasis.

Gone is the "shoe mate" window, where customers waited in line for the other half of a pair to complete a purchase. Now boxes contain both halves, so shoppers can grab and go.

The new Rack also will put 16 mobile checkout devices into the hands of sales clerks to cut down on lines at the register. "It's all about customers being able to get in and find what they want quickly," Rack President Geevy Thomas said in an interview at the store.

Used Shoes at Nordstrom's Rack Outlet Stores?

Photo by Heather Staible

By: Stephanie Landsman -CNBC

It isn’t unusual to see retailers sell refurbished computers or televisions. But what about shoes? 

High-end department store Nordstrom is funneling its returned and worn shoes to its Nordstrom Rack outlet stores. This practice is surprising since outlet stores are not known as second-hand stores. It’s a place for retailers to send their unsold merchandise each season.

The shoes are clearly labeled as “worn and refinished” — and it’s reflected in the markdown. Sometimes they are slipped side-by-side on the racks with new items. Other times, they’re put on display in a section of the shoe department.

“On a perception level, it turns you into a junk store, a second-hand clothing store. And, that is something that now calls into question Nordstrom’s reputation as a first-rate, quality high-end type of brand retailer,” said branding expert Robert Frankel.

He isn’t disputing the rationale of the strategy. Nordstrom gets to preserve margins and sell its returned merchandise in its outlet store instead of through a liquidator. But, Frankel, who wrote the book “The Revenge of Brand X: How to Build A Big Time Brand On The Web or Anywhere Else,” said it’s just very ill-conceived.

“From a stock analyst point of view, it suggests Nordstrom is really pinching pennies if they are selling their garbage. They were supposed to be first-class quality,” said Frankel. “Now they are expanding where they are almost a thrift-store status? There is something wrong here.” 

So, how do they clean them? Do they get sprayed like bowling shoes?

Nordstrom Rack Spokesperson Kendall Ault said the shoes that are labeled as “worn and refinished” are gently worn (either tried on or accepted as returns) and then professionally cleaned, repaired and refinished as needed to return to a “near-pristine” condition.

“At Nordstrom Rack, we make every attempt to offer our consumers merchandise that is in the best possible condition. We will not knowingly sell damaged or broken items,” said Ault in a statement.

She adds that the refurbished items are never sold at the upscale Nordstrom stores. And, the retailer does not hold any “official” refurbished shoe events.

This suggests some Nordstrom Racks may be going rogue.

Going Rogue

Earlier this month, the Nordstrom Rack in Fairfax, Va., held a refurbished shoe event. We confirmed it with a store representative after its manager tweeted out photographs of “worn and refinished” shoes “hot off the truck” on her Twitter page.

The Nordstrom Rack in Paramus, N.J., held one last year.

Branding expert Frankel said, “It raised my concerns that local stores may have loose-cannon types that may be undermining the overall brand without corporate's knowledge.”

Amy Shea, global director of brand development for Brand Keys, believes Nordstrom has a good idea, but it’s not executing it properly.

“Certainly, they do have an expectation attached to their brand expectation of quality, so there is a thin line between being a thrift store and being Nordstrom,” said Shea. “We know that the shopping experience is a very strong driver when it comes to the department store category. So, it is really cautionary for Nordstrom Rack if they’re putting out merchandise that is not shown properly or not really restored.”

Demand for Pre-Owned Couture

There is a caveat. If Nordstrom Rack was selling refurbished, higher end shoes such as Gucci or Louis Vuitton versus used Sperry rain boots, she said there would be a positive impact on the retailer’s brand. 

There is a robust market out there for pre-owned couture among the younger crowd. It’s something the flash sites, such as TheRealReal.com and BeyondtheRack.com, have been capitalizing on.

“From the data and findings on younger consumers who have the money to shop at Nordstrom, there is a real move away from conspicuous consumption…. They have been raised on various levels of couture. Low-end is Stuart Weitzman for them. There is an expectation,” said Shea.

Keybanc Capital Markets Research Analyst Edward Yruma does not think this practice compromises Nordstrom’s brand.

“If it is a high-end item being refurbished and it’s definitely not being sold at its full-line stores, then it’s fine if it’s sold at the Rack,” said Yruma. “It is within the scope when you buy at the off-price channel.”

Breaking From the Pack

But, it appears what Nordstrom Rack is doing is not the norm among its competitors.

Neiman Marcus spokeswoman Ginger Reeder said the retailer’s outlet, Last Call, does not sell worn items. However, it does have a section of "chips and dents," which are basically irregular items such as a shoe that had a missing buckle that was replaced.

Saks’ outlet, Off 5th, does not sell refurbished shoes either, according to Julia Bentley, its spokeswoman.

TJX Companies which runs Marshalls and TJ Maxx, sent us an ambiguous statement about vender contacts and their goods being in accordance with “all applicable laws, regulations and industry standards.” Its spokesman Kenneth MacFadyen, acknowledged that the comment was “not specific.” But, he believes it “addresses” our question. 

 Century 21 and Bloomingdale's Outlet did not give us a comment. Keybanc Capital Markets, Yruma's employer, has received compensation for investment banking services from Nordstrom during the past 12 months. The firm has also received compensation for non-investment banking securities related services.

Nordstrom Rack launches ads in Words With Friends

February 21, 2012 -By Rachel Lamb - Luxury Daily

Nordstrom Rack banner ad on WWF

Department store chain Nordstrom is targeting aspirational consumers through mobile banner advertisements for its Nordstrom Rack locations in the popular gaming application, Words With Friends.

Nordstrom is promoting a sale in its discount chain that will serve to drive consumers in-store. It also provides a location-based map so that users can find the closest Rack.

“Gaming app inventory can bring value to a luxury brand, but a brand must chose the right game – one that matches the quality and audience of the luxury brand,” said Elena Perez, director of marketing at Medialets, New York.

“Likewise, it’s important that the ad placement is integrated in such a way that it complements rather than disrupts the game experience,” she said.

Words with Nordstrom
The Nordstrom Rack banner ad appears at the bottom of the Words With Friends screen.

Nordstrom Rack banner ad
The “clear the rack” sale offers up to 75 percent off of designer goods at Nordstrom Rack stores Feb. 14-20.

When it expands, the banner ad includes an option to find a Nordstrom Rack store using the mobile device’s GPS.

The content on the landing pages are optimized for mobile.
Since Words With Friends is a game, it is likely that Nordstrom is trying to attract younger consumers.

Younger consumers are less likely to be able to buy from Nordstrom. Therefore, drawing these types of consumers to Nordstrom’s outlet Rack locations may help the department store establish relationships with younger consumers who may grow up to shop at full-price Nordstrom locations.

Expanded banner ad
Racking up points
Nordstrom is not the first luxury department store to use banner ads on Words With Friends.

In fact, New York-based department store Bergdorf Goodman used Words With Friends to drive foot traffic to its store with a location-based banner ad promoting an in-house event.

Bergdorf’s banner ad at the bottom of the screen endorsed a meet-and-greet with designer Nancy Gonzalez at the brand’s store that consumers could RSVP to on Facebook (see story).

However, Bergdorf’s content post-banner ad was not optimized for mobile, which could have made it difficult for consumers to RSVP to an event or even spend time with the brand.

Meanwhile, Nordstrom helped consumers further by offering to scout out the nearest Rack location for them and optimizing the content.

Nordstrom Rack map
“Mobile-optimized landing pages are important to any brand that wants to drive mobile audiences to their Web site [and] luxury brands are no exception,” Ms. Perez said. “For a consumer, a non-optimized mobile landing page will be difficult to navigate and easy to abandon.

“A non-optimized landing page appears broken and will undermine the experience and value of the campaign,” she said. “That said, brands that don’t have a mobile-optimized Web site or landing page are not out of luck.

“Mobile rich-media ads allow them to integrate the same type of content and interaction within the creative, sparing the time and cost of development on the Web site.”

Luxury Retailers continue expansion into Outlets

By Phil Wahba and Dhanya Skariachan -NEW YORK (Reuters) Thu May 26, 2011 4:20pm EDT

NEW YORK (Reuters) - U.S. luxury department stores plan to keep opening more lower-price outlets without fear of hurting their high-end prestige, retail executives said this week.

Saks Inc (SKS.N) is planning to open another three to five Off Fifth outlets annually in the coming years but will not open any new Saks Fifth Avenue department stores.

Neiman Marcus NMRCUS.UL and Nordstrom Inc (JWN.N) are also focusing on low-price outlets in their new store openings.

"I don't think we are close to the point where you have too many," Saks Chief Executive Steve Sadove said at the Reuters Global Luxury and Fashion Summit.

Saks operates 57 outlets, compared to 46 department stores. On Thursday, Nordstrom said it was closing a full service store in Indianapolis but will open a Rack outlet nearby.

Outlets, where luxury chains sell more affordable merchandise and items left over from earlier seasons, have lifted retailers' sales during and since the recession, reaching so-called "aspirational" shoppers with limited budgets who covet top name brands.

Neiman Marcus CEO Karen Katz said at the Summit that the retailer's Last Call chain of 28 outlets is a way "to reach that price-sensitive fashion customer that is out there and in most cases not ready yet to shop Neiman Marcus."

Neiman operates 41 department stores, and will open one next year, but otherwise, the number of stores has remained steady in recent years.

Department Stores Continue To Expand Into Outlet Centers

Chief executives of high-end department stores are betting on off-price outlets to generate growth, even as they curb discounts at their main stores.

Luxury CEOs dislike heavily discounting their regular merchandise—it erodes profit margins and hurts cachet. But tony retailers can't rely solely on full-price shoppers for growth now because luxury spending remains muted.

So more executives are expanding their outlets, which let them sell to a wider range of customers without having to offer big discounts at regular stores. And they're stocking more outlet-only products, not just marked-down leftovers.

Bloomingdale's will open its first outlet store, in Woodbridge, Va., on Aug. 20 and three more by year end. Lord & Taylor opened its first outlet in February, in Elizabeth, N.J., and will open two more this year. In April, Neiman Marcus Group Inc. began testing a new outlet concept called Last Call Studio in Dallas that doesn't sell overstocked merchandise, just outlet-only products.

Saks Inc. has opened one new Off 5th outlet this year and plans three more by year end. It is remodeling two existing outlets as well. Saks isn't opening any full-price stores this year.

Nordstrom Inc. opened its first New York City Nordstrom Rack outlet in April, one of 17 that the retailer plans to open this year, up from 13 last year. It will open only three full-price stores this year.

Nordstroms consumers tiptoe back into luxury

While sales have been strengthening at Nordstrom, executives from the Seattle-based retailer told a group of investors that one of the best lessons it learned in the recession was a savvier balance between its full-line Nordstrom stores and the Rack, its rapidly growing off-price division.

The company says it plans to keep opening between 10 and 15 Rack stores per year -- but, as growth picks up at Nordstrom, there is less inventory. "We've had Racks for 35 years, and it's a very profitable concept," Rob Campbell, head of investor relations, told those attending the 30th Piper Jaffray Consumer Conference on Wednesday. "It's worked well in both in tough times and good times."

As consumers tiptoe back into luxury spending, he said, "the Rack's performance has moderated in recent months. That's good news for Nordstrom, because it means we've become a lot more adept at clearing full-line merchandise in our main stores. And it's an opportunity for the Rack, which is going to have to tweak its offerings. That's the beauty of having a portfolio."

"We think this is an opportunity for us to learn how to use inventory more efficiently," added Michael G. Koppel, EVP/CFO, at the event, which was also webcast. "We're excited about figuring that out."

Koppel says the recession forced Nordstrom executives "to navigate some of the most difficult waters any of us have ever seen. The big lesson we learned is that everything we do is about how to better serve our customer. During the times when business was frothy, we made some changes. And during times when it got more difficult, our broad mix and assortment helped us get through that."

"We continue to be very thoughtful," he says. "We're still in a period of unemployment." Koppel adds that it isn't entirely clear whether its gains are a reaction to negative business last year or real growth, but that it should know within six months. The chain is seeing solid gains in women's and men's apparel, as well as accessories. "We believe we've got the right strategy and assortment, and the right approach to customer service."

In its first-quarter results released last month, Nordstrom's sales gained 16.7% to $1.99 billion, while same-store sales climbed 12%.

SOURCE: Media Post News

Retailers rush for outlets

This month's opening of a Nordstrom Rack store in the heart of Manhattan shows just how far outlet stores have come, from being distant outposts for liquidating unsold inventory to taking center-stage in retailers' growth strategies.

Nordstrom Inc and other U.S. retailers from Coach Inc and Nike Inc to Chico's FAS Inc and Saks Inc are expanding their outlet stores, with more and more merchandise made exclusively for those stores. So far, Wall Street has cheered the approach, but analysts say the the strategy is not without risk.

If retailers are careless about how many outlets they open and where, they can harm the very traits that give high-end brands their luster: exclusivity and high prices. "Brands have to be very careful. The death of a brand is over distribution," said Todd Slater, retail analyst at Lazard Capital Markets. "One would intuitively expect some dilution to brand cachet," though it hasn't happened yet. 

So far, outlet stores have avoided eating significantly into sales at full-priced stores because retailers have been disciplined about keeping their clienteles separate through product differentiation and geographic distance, said Needham & Co analyst Christine Chen. Traditionally outlets, or factory stores, have carried unsold merchandise left over from full-priced stores, so their size and color assortments were often incomplete, or their fashions less current. They are also generally located in shopping centers away from big cities, making them good choices for occasional all-day trips, rather than impulse or everyday shopping. But now they are in more convenient locations such as the Nordstrom Rack in Manhattan's Union Square. In San Francisco, Nordstrom has both an outlet and a full department store, and that could present a problem, Chen said. "That's where I wonder if there's  cannibalization, even though the merchandise is outlet-specific ... and priced accordingly," she said. There is no full-priced Nordstrom in New York City. The company has cited the difficulty of finding a large enough space in Manhattan. But Chen wondered if opening an outlet first will train the city's legions of shoppers to go there first, even if a full department store eventually opens. "Is it a sign of the times or does it teach Manhattanites that that becomes their preferred destination?" Chen said. Nathaniel Bisson, who was shopping at the Rack in New York on Wednesday, said he went there looking for brand name items. "I can see that they're competing in both high and low categories," he said. A shopper at the Rack could find men's shirts by John Varvatos for about $40, a fraction of the regular price. But, as if to remind people of the cachet of the department stores, one Hugo Boss suit had a tag saying it came from a Nordstrom.

FULL STEAM AHEAD
Nordstrom plans to open 17 Rack stores this year, bringing the total to 89, versus only three new department stores. Rival Saks Inc, which already has more Saks Off 5th stores than full-priced Saks Fifth Avenue stores, plans to close three Fifth Avenue stores in July, but open about five Off 5th stores per year for the next few years.
Even Neiman Marcus Group Inc is getting in on the action, expanding its Last Call off-price chain. Karen Katz, chief executive of Neiman Marcus Stores, recently told Reuters that Last Call could be "a much bigger business than it is today." At a recent meeting in New York, the head of Nike's direct-to-consumer business, Jeanne Jackson, explained why Nike is "elevating its game" in outlet malls around the world where it already has 472 factory stores. Industry wide, she said sales at outlet malls open at least a year outpaced comparable sales at traditional malls by 4 percentage points over the last year. She said outlet malls also gained more than 6 percentage points of market share in the athletic shoe and clothing market over the past two years. Outlets have been crucial to keep growth going and shares rising. Since March 2009, Saks' shares have risen 270 percent, Nordstrom 105 percent, and Coach 125 percent.

MARGIN OPPORTUNITY
When outlet stores were purely clearance destinations, they often resulted in lower profit margins. But that is no longer the case, said Wedbush Securities analyst Betty Chen. They now offer similar or even better margins because real estate costs are often lower, and with more of their product made to be sold at lower prices, there are fewer unplanned, profit-eating markdowns. "It's a combination of scale and the fact that it's product made specifically for the outlet," Chen said. "You've sourced it and priced it knowing that your cost is lower."
When Coach reported earnings for its fiscal third quarter in April, it cited "significantly higher profitability" in its factory segment because about 80 percent of the goods sold there was made for them, up from 60 percent a year earlier.

Chico's this week also cited the benefit of more outlet exclusives. The clothing retailer, which plans to open 20 more outlets this year, has a "very promising" opportunity to increase its profit margins, said Wedbush's Chen, noting that its White House/Black Market brand sells very few outlet-specific goods. For Nordstrom Rack and Saks Off 5th, the proportion of outlet-exclusive merchandise to leftover merchandise is roughly similar to that for Coach. A crucial benefit is that outlet-specific merchandise lets high-end brands reach shoppers who might not be able to afford full price product yet but may trade up when their finances allow it. "Customers who shop in the off-price arena are different customers -- but they aspire to the brand," said Neiman Marcus' Katz, who will become the group's CEO in the autumn. With so much potential upside, the enthusiasm from Main Street to Wall Street is unlikely to wane any time soon. "It's a proven, profitable channel," said Lazard's Slater. "And until such time as this off-price strategy causes a significant brand dilution, Wall Street will probably continue to applaud."


Source: News Center  

Nordstrom Rack Opens in Manhattan

While years of site searches have yet to yield a suitable full-priced location in New York for Nordstrom Inc., the upscale retailer is going ahead to enter the coveted market with its smaller -- and more profitable -- Rack chain.

The 32,000 square-foot basement store, scheduled to open today, is expected to become one of the company's top-selling stores, said Geevy Thomas, president of Nordstrom Rack. It'll be the company's 76th Rack, compared to 114 for the full-priced chain.

Nordstrom plans to open 10 to 15 Racks, which average about 35,000 square feet apiece, each year, compared to its goal of two to three for the full-priced store, each averaging 140,000 to 160,000 square feet.


The discount units have been one of the industry's growth areas as shoppers become even more budget conscious in the recession. They help high-end retailers garner additional sales and profits by attracting different shoppers, acting as a channel to clear out merchandise from their full-priced locations and creating opportunities for stores to introduce pieces just for discount shoppers.

They also are often more profitable, because the stores don't have to pay for the same kind of intensive service and labor costs as well as the higher lease rates that often go with full-priced stores.

The Union Square opening also comes at a time when Nordstrom is outperforming its industry counterparts: The company last week reported a better-than-expected 7.5% increase in April same-store sales, while a majority of retailers came in short of forecasts for the month.

For the full store see MarketWatch.http://shop.nordstrom.com/c/6016611/0~2377475~6016611