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Nordstrom Reveals Designer Strategy

Nordstrom wants to put a comprehensive designer offering in at least one store in each of its major markets, said Mike Koppel, executive vice president and chief financial officer.

NEW YORK — Nordstrom wants to put a comprehensive designer offering in at least one store in each of its major markets, said Mike Koppel, executive vice president and chief financial officer.

The $7.7 billion Seattle-based chain’s emerging designer strategy includes beefing up offerings across apparel, accessories and shoes to generate a “halo effect” that elevates the image of other departments, Koppel said at a Bank of America consumer conference here last week.

The plan will put Nordstrom in more direct competition with luxury rivals Nei­man Marcus, Bloomingdale’s and Saks Fifth Avenue.

“While we are not going to create an overly large designer presence, we believe in improving designer and insuring that in every major market we are in, we have at least one store with a very relevant offering,” Koppel said.

Last year, Nordstrom bought Jeffrey, a retailer with two designer stores, in the Chelsea section of Manhattan and in Atlanta, that was owned by Jeffrey Kalinsky. He now works on designer strategy and unearthing new design talent for Nordstrom.

“The acquisition of Jeffrey has been a terrific help in allowing us to open doors,” Koppel said.

More recently, Nordstrom opened a few units featuring a more sophisticated designer presentation with greater demarcation between brands. The store at NorthPark Center in Dallas, with boutique areas that will be replicated elsewhere in the 99-unit chain, offers clothing by Christian Lacroix, Monique Lhuillier and Oscar de la Renta. The adjacent Collectors sportswear area has shops-in-shops for Roberto Cavalli, Blumarine, Chloé and Donna Karan, among others. The Via C boutique carries younger collections such as Tracy Reese, Sass & Bide and See by Chloé.

Last year, women’s was streamlined so that all women’s apparel offerings were put under the supervision of a single general merchandise manager, Loretta Soffe, instead of four. “We think this structure [will lead to] a more coordinated execution and strategy, rather than having separate silos looking at it in their own way….The improved structure will allow us to take a much more strategic approach to how we execute in women’s,” Koppel said.

Lately, the firm has been on a roll, with strong sales results, though they are credited more to cosmetics, accessories, shoes and contemporary apparel offerings displayed in the Brass Plum, Savvy and t.b.d. departments than other women’s areas.

Sales were up 6 percent on a comp basis last year and net earnings rose 40 percent. Nordstrom’s women’s business has had a mixed performance over the last couple of years; contemporary and young women’s have been strong, and better and bridge have been relatively weaker, Koppel said. “We have an opportunity to build on the strength in our contemporary businesses….Our wear-to-work has not been as robust as it should, and we see that as an opportunity in a variety of price points.”

Koppel said shoes, cosmetics and accessories were “well developed businesses.” He added, “If you looked at that share relative to women’s apparel, there are some distinct differences.

“In terms of what we are doing in women’s apparel, I think the key here is, we should start to see in a more meaningful way the direction with merchandise sometime in the back half of August or early September,” Koppel said. “We are learning and identifying the opportunities. The buy cycle is roughly six months. We will probably see some small things over the spring, but I think the more meaningful stuff will be toward early fall.”

The company’s merchandising has been on “a great path,” ­with better discipline over inventory, fresher content and constantly trying new things, he said.

Private label accounts for 14 to 15 percent of Nordstrom’s total sales, Koppel said, but there is no specific growth target. “We are not out saying we are going to hit 18 or 20 percent.” Men’s furnishings, dress shirts and certain areas of kids are “very highly penetrated areas,” he said. “We continue to use [private label] as a tool to offer something we are not offering through branded merchandise.”

He also discussed denim, which “continues to be strong” at premium and more moderate price points. “Today, denim is still very, very relevant for us. We have a terrific growth cycle with denim. There are a lot of new brands, prices are higher and we are still doing good, solid volume. We are seeing growth, but certainly not at the pace we might have seen a year or two ago.”

Overall, comp-store sales are planned conservatively, built around low-single-digit objectives.

Koppel said there has been curiosity about how Nordstrom will grow to the next level. “Are we going to do new formats or [add] new categories? We firmly believe we have an opportunity to increase share of wallet with existing target customers.”

He sees women’s apparel as a “primary component” in the strategy, contributing to higher gross margins, a higher average price of unit sold and increased productivity. He characterized Nordstrom’s target customer as primarily female, age 25 to 54, in the $100,000-plus income bracket.

Koppel cited some “really great strides in terms of selling productivity,” and said further improvements were possible. Last year, Nordstrom generated $369 per square foot, which is below the company’s all-time high of $394 in 1994. He also cited improvements in gross margin through a reduction in markdowns, higher sell-throughs and leveraging in occupancy costs.

The company has focused on back-office efficiencies and technology improvements for better inventory control and markdown optimization.

“We still believe that over time it will help us make better decisions over the timing and depth of markdowns,” he said. “We are still learning. We have a variety of different businesses with their own economics. In some areas, we are making more progress than others.”

However, most margin improvement will come from leveraging occupancy costs, and to some extent through beefed-up women’s apparel and markdown optimization.