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Nordstrom’s Big Plans for Expansion of Rack

Retailer plans on having over 230 Nordstrom Racks in operation by 2016, a number it could reach even earlier than that.

A Nordstrom Rack store.

Nordstrom Rack is looking to expand north, south, east and west.

The openings are part of parent Nordstrom Inc.’s goal of having over 230 Racks in operation by 2016, a number it could reach even earlier than that. There currently are 127 Racks, with plans to open 24 this year and another 30 in 2014.

Among this year’s openings is likely to be a 42,000-square-foot unit in Brooklyn, N.Y., the company’s first store in the borough of 2.8 million people, which retailers from across the price spectrum have been flocking to of late. Nordstrom is expected to sign the lease this week.

Rack is also expanding in California, Texas and South Florida and in cities such as Chicago; tailoring assortments to local tastes; opening Rack units in areas where demographics couldn’t support a full-line store, and targeting university towns such as Eugene, Ore., near the University of Oregon.

With a single unit in Union Square that bowed in 2010, there’s room for Rack to grow in Manhattan, where Nordstrom is planning to open a 285,000-square-foot full-line store in 2018. “We’ve shown an ability to pursue both full-line and Rack growth” at the same time, said Colin Johnson, a Nordstrom spokesman. “We’re growing both sides of the business. We’re open to looking anywhere throughout the Northeast, in New York City, but also a number of other communities throughout the region.” Nordstrom will unveil a Rack in the spring of 2014 in Manhasset, N.Y., Johnson revealed. “We have a lot of opportunity to take care of a lot more customers,” he said of the New York-metro region.

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The expansion of Rack is part of Nordstrom’s aggressive growth plan over the next five years. In that time period, the Seattle-based upscale chain will almost double its capital expenditures to $3.7 billion, compared to the $1.9 billion spent over the last five years. This year, $750 million to $790 million for capex has been allocated, mainly for Rack and full-line store growth, the Manhattan store development, and increasing e-commerce fulfillment capacity, versus the $455 million spent in 2012.

“The more [Racks we open] the more we’ve been impressed by their impact on our ability to serve more customers and also grow the business. We’ll look at further growth based on how customers continue to respond. Sure, it’s possible to revise [our goal of over 230 units] before 2016,” said Johnson.

The retailer is elevating the off-price shopping experience by bringing technology to Rack stores, where service has always been a cut above its competitors, as it is in Nordstrom’s full-line stores. For example, on-site tailoring has been a fixture at Rack since the beginning.

“One of the newer things we’ve done is introduced more technology to Rack,” Johnson said. The company late last year equipped Rack stores with modified iPod Touch mobile point-of-sale devices. “We started to learn and add functionality,” he said. “Service is defined by wait time. It’s helped us get rid of wait time in the line. Now shoppers don’t have to line up” because sales associates with POS devices go to them. “What we started to do is remove some of the registers we had in our stores. It freed up space so we can merchandise the store with more products.”

Besides wait time, breadth and quality of assortments define service. With Nordstrom full-line stores’ “regular price selling at historically high levels,” Johnson said the company has been able to acquire “the best product from vendors of the full-line stores. Forty-seven of the top 50 brands are sold at Rack,” he said.

Nordrom also tailors Rack assortments to local communities. For now, the company is tweaking assortments. In downtown Seattle, shoppers want an expanded women’s selection but no children’s, while a Rack in Bellevue, Wash., has a strong kids’ offering. Meanwhile, the Rack on Newbury Street in Boston that opened in March started off without a kids’ department. It began in May selling kids’ apparel and shoes.

Nordstrom wants to carry the Rack service experience to e-commerce. “We’re focused on defining what the off-price experience could be online,” Johnson said.

“It’s been helpful to work with Hautelook.com [which Nordstrom acquired in 2011]. We see a lot of potential to create a more robust experience. We’re very focused on that right now. We realize we have a way to go to make our online shopping capability a lot better.”

While Johnson declined to give numbers, he said Rack is more productive in terms of sales per square foot than rivals such as Saks Fifth Avenue’s Off 5th and Neiman Marcus’ Last Call formats. “It does over two times our competitors’ average in aggregate, based on our findings,” he said.

Rack units are moving in on full-line stores, which is all part of the strategy. Unlike competitors, Nordstrom has no aversion to opening Racks near a full-line store, or even in the same mall. In downtown San Francisco, a Rack will bow in spring 2014 on Fifth Street and Market Street in a space adjoining the Westfield San Francisco Shopping Centre, where a Nordstrom full-line store exists. “We don’t have a lot of Racks in outlet centers,” Johnson said. “We’re really thinking about retail environments. We look for terrific shopping centers with a lot of traffic. It helps us raise our game.”

Nordstrom has long known that Rack and full-line stores are compatible. During the recession, it took advantage of the drop in real estate prices. It’s all in service to shoppers. “It’s more convenient and gives the customer more choices,” Johnson said. The retailer’s comfort level with the proximity of different formats may be due to the fact that the off-price concept started in the basement of the downtown Seattle flagship in 1973. The format, which was used to clear merchandise, in 1987 moved to a freestanding location a few blocks away. It moved again last year, across the street from Westlake Center, where it’s connected by an indoor walkway to a full-line Nordstrom unit.