Thursday, June 19, 2014

Nordstrom's Growth Strategy

Investors in upscale retailer Nordstrom  have enjoyed a spectacular week with the stock rising nearly 15% after its recent results. The market took heart from Nordstrom's overall trading performance and the announcement that it is seeking a partner for its credit card receivables. It appears that all is going well for Nordstrom, but how do the results tie in with its long-term strategic plans? This is an important question, because Nordstrom will look like a different business in a few years' time.

Nordstrom's long-term plans
The retail sector has been bedeviled with some unusual conditions because of the protracted and moderate nature of the recovery. The bottom end has continued to struggle, while the high end has done relatively better. Meanwhile, the mid-range department stores have suffered as middle-class shoppers traded down with their lack of exposure to the higher-end shopper. Anyone who doubts these trends need only take a look at how J.C. Penney  has suffered in recent years. J.C. Penney's investment proposition now relies solely on the successful execution of its turnaround strategy. 

Nordstrom's full-line stores sit somewhat in between the mid and high range, and the environment has necessitated a significant restructuring of its growth priorities. The good news is that -- unlike J.C.Penney-- Nordstrom has been investing early and aggressively.

Indeed, a breakout of its same-store sales growth reveals how Nordstrom is evolving.