Nordstrom Doubling Down on Rack Concept
Nordstrom has increased the number of Rack format stores it operates over the past four years. Between now and the end of 2016, it plans to double its current number.
Part of the reason for Nordstrom’s push of the Rack concept is that it has found a way to open the discount outlets without cannibalizing its flagship store business. As discussed on RetailWire in March, Nordstrom opened one of its Rack stores a "crosswalk" away from its flagship in downtown Seattle.
According to company executives, the full-priced and discount outlet share a large percentage of customers. Geevy Thomas, president of Nordstrom Rack, said around 60 percent of his chain’s business shop in the flagship, as well.
Rack customers tend to skew younger than Nordstrom’s flagship stores overall.
"Over the next five to seven years, baby boomers will hit their peak spending potential," Jennifer Black, a retail analyst, told The Seattle Times. "As that happens, retailers want to attract a younger customer without alienating their core customer."
Discussion Questions
Discussion Questions: What do you think are the greatest consumer and operational factors behind the exponential growth of Nordstrom Rack? Is there any other retailer balancing its full price and discount outlet formats as well or better than Nordstrom?
Consumers, in general, love the perception that they are getting low-ball prices on quality merchandise. Nordstrom has established itself as a high quality purveyor. With their Rack stores they’re cultivating younger customer into the Nordstrom relm, which translates into shopping at the “main” Nordstrom store when they have more money.
At the moment, but this is always subject to change, no other retailer but Nordstrom seems to be mastering this dual marketing approach.
The factors behind the success Nordstrom has with Rack are in large part a function of what makes its full-line stores successful: an enterprise-wide business and cultural commitment to customers, its brands, and to execution. In retail, execution is critical and when coupled with a strategy of not trying to be everything to everyone (like everyone else) and pricing discipline, it creates a formidable franchise.
Nordstrom carries a prestigous name and reputation. People enjoy being able to say they buy at Nordstrom. They can even enjoy sayng they save money doing it.
“Part of the reason for Nordstrom’s push of the Rack concept is that it has found a way to open the discount outlets without cannibalizing its flagship store.”
This comment leaves me baffled: if the Rack is like other off-price siblings — and I’m assuming it is — then it offers a mix of clearance items from the main store and lesser items (that the main store never would carry)…how would this ever cannibalize the flagship?
In answer to the question, the growth of all Racks, Off’s and other such variants, I would attribute to the same factor: people think they’re getting a great deal (upscale merchandise at low prices)…whether or not that’s really true is harder to say.
The offer just makes good retail sense. Why not set the perception that you’re not entirely high end, or that you offer options? The only caution is that it works so well, you take your eye off the flagship model like Ann Taylor did with Loft.
So far, so good though for Nordstrom IMO.
Jennifer is dead on. With 10,000 boomers/day hitting 65, it is inevitable that the average daily spend for this core customer will continue to contract. The Rack, which caters to the income of the next core customer for Nordstrom, is a perfect bridge to the full-line store. Very smart move.
I’d say it’s a sign of the times combined with Nordstrom’s strong brand and reputation for execution. On the consumer side, the economic uncertainty of the average consumer makes it a good time for Rack while the full ine stores remain for special purchases and for the segment of consumers that are unaffected by the downturn.
Ralph Lauren is another retailer that does a pretty good job of balancing the formats. For the outlet consumer, the blue label merchandise from RL is an affordable luxury while they reserve their purple label for the affluent shopper who frequents their expensive full price boutiques. Their core consumer understands and appreciates the difference.
The success of Nordstrom’s Rack format, over the many years of its existence, is good retail fundamentals — giving shoppers the right product, price, and place. I have been a Nordstrom customer for many years and additionally find myself consistently shopping and purchasing at Rack vs other similarly positioned stores based on consistently finding good products and service at great value.
Several others retailers have done good jobs of balancing full price and “discount” outlet formats. I think that The Gap, with Banana Republic, Gap, and Old Navy have done a good job of positioning value propositions that result in the same shopper taking advantage of all banners. Probably one of the most interesting cases in point are the Canadian Grocers who seem to have mastered the art of multi-format market positioning, from cash and carry warehouses to full line premium grocery.
I will continue to shop Nordstrom and Rack and will be on the lookout for others who learn to use the fundamentals of good retail to drive customer loyalty and success.
Price, price and price. The Rack is a simple concept…offer lower prices on select items only. Full selection and “first” quality and choices require full price, available from the full price Nordstrom. Discounts come daily at the Rack. Great concept, great implementation, and great retailing, just like we expect from Nordstrom.
The Rack pulls it off better than OFF Sak’s Fifth Ave. The Rack did have some growing pains in the beginning, including a store in the Washington DC area. They work better when off-price clothing competition is maybe only one other store. With Daffy’s gone and a very uncertain future for Loehmann’s, now may be the right time to expand this banner.