Nordstrom JWN looks to Nordstrom Rack for growth

Shoppers are hungry for deals as they pay more for food and necessities. People are looking for clothes and accessories as they juggle parties, vacations and days at the office again.

But that has not helped Nordstrom‘s off-price chain, Nordstrom Rack. The brand remains a weak spot in the overall Nordstrom portfolio, with sales totaling $4.81 billion in the most recent fiscal year, below pre-pandemic levels. In the holiday quarter, Nordstrom Rack’s net sales dropped about 8%, underperforming the roughly 2% decline of the company’s namesake banner.

Despite Rack’s struggles, the Seattle-based department store operator is betting it can turn the lagging chain into a growth driver. It plans to open 20 stores this year — with more coming after that.

Nordstrom Rack has formed a dedicated leadership team, which includes some off-price veterans. And it sharpened its focus on the well-liked brands that sell well.

The success or failure of the Nordstrom Rack turnaround effort could shape the company’s future. Nordstrom’s overall sales were stagnant even before the Covid pandemic. Now, discretionary merchandise is under pressure because of inflation, and higher costs for essentials have nudged consumers more toward off-price names. Those chains like T.J.Maxx, Ross Stores and Burlington Stores, have opened more stores and wooed new customers, driving higher foot traffic than Nordstrom Rack has seen.

Nordstrom, meanwhile, is bracing for a sales decline. It said in March that it expects revenue to fall by 4% to 6% this fiscal year compared with the prior one. That includes the effect of its recent decision to shutter its stores and online business in Canada.

Company leaders pinned slowing sales on Nordstrom-specific issues, as well as a tougher economy.

In an interview with CNBC, Chief Stores Officer Jamie Nordstrom said Rack locations got hit by inventory troubles during the pandemic. Shelves swung between having too many items and too few. And he added, too many items came from brands that fashion-forward customers didn’t recognize.

“If you went into a Nordstrom Rack, you saw a brand you’ve never heard of. That’s probably not something our customers are looking for,” he said. “If I went into a Rack store — and I’ve been working in this industry my entire life — if there’s a brand that I’ve never heard of, [it’s] probably not a great brand. That’s what we fixed.”

CEO Erik Nordstrom said shoppers have become more hesitant to spend, too. On a call with investors in March, he said the retailer saw shoppers pull back on spending in late June and through the holiday season. The trend was more pronounced at Rack and among lower-income customers than at the chain’s flagship stores.

He said a little over half of Rack’s sales decrease in the fiscal fourth quarter was driven by company actions to boost profits. Those include moves to…