Nordstrom might finally be ready to take Manhattan — but in a discount way.

According to the talk Tuesday at the RECon convention in Las Vegas, the store won’t be the full-line unit long mooted, but instead a Rack unit on Union Square. Reports indicate the store will occupy the lower level of the former Virgin Megastore, with an entrance on grade level.

This story first appeared in the May 20, 2009 issue of WWD. Subscribe Today.

A spokeswoman for Nordstrom Inc. told WWD, “We looked at Union Square and would like to have a Rack in Manhattan. Nothing is signed yet. We are talking to them.”

Webber Hudson, executive vice president of Related Urban, which owns the Union Square property, said leases are “very, very close to being signed,” but would not discuss tenants.

Nordstrom was actively searching for a location for a full-line store several years ago, checking out everything from West 34th Street to sites in downtown Manhattan. Sources said the company eventually decided it didn’t want to pay the city’s then-high rents.

Rack is seen as a growth vehicle for Nordstrom, and the retailer continues to sign leases. One of the most recent openings was in March at the Bergen Towne Center, previously known as Bergen Mall, in Paramus, N.J.

During a first-quarter conference call with analysts, Blake Nordstrom, president of the Seattle-based retailer, noted the company opened four Rack stores, including the Paramus store, during the quarter as opposed to two full-line stores. Spanning 28 states, Nordstrom currently has 111 full-line stores and 61 Racks, in addition to two Jeffrey boutiques and two clearance stores.

Meanwhile, at the retailer’s annual meeting in Seattle, Blake Nordstrom outlined a recession strategy that includes trimming up to $200 million in expenses this year and reducing prices by an average of 10 percent as part of a top-to-bottom edit of merchandise to give cost-conscious consumers a sense of receiving quality at a good price.

The company also has reduced inventory by 12 percent per square foot from a year earlier, which is in-line with sales, Nordstrom said.

“If you visit our stores I think it’s fair to say they are a little quieter than in the past,” said Nordstrom, who contrasted the current slow retail environment to the previous five to six years when “we were chasing an aspirational customer that in some cases didn’t have much price resistance.”

Despite the downturn, Peter Nordstrom, president of merchandising, said the company isn’t carrying less luxury fashion, which has become a focus in recent years, although luxury “is not such a big percentage of our business.” But just like all vendors, luxury brands have had to lower prices and some underperforming brands have been discontinued, he said.

“One of the things we’ve learned is there’s a magic price point for every category, every brand,” said Nordstrom, after the meeting in an auditorium of Benaroya Hall, home to the Seattle Symphony and a 10-minute walk from the Nordstrom flagship. “We might say, gosh, this item might be $112, but how do we get it down to $99?”

Key to keeping tabs on what Nordstrom shoppers want is the company’s store credit card — the retailer is one of the few in the industry to still own one — as well as two Visa cards. The cards are tied to loyalty programs and allow Nordstrom to track customer spending habits, said Patty Edwards, retail analyst with Storehouse Partners of Bellevue, Wash.

“They know who their top 20 percent customers are and they cater to them,” Edwards said.

In the first quarter of this year, net earnings fell 31.9 percent against a year earlier. For 2009, same-store sales are expected to decline 10 to 15 percent after falling 9 percent in 2008.

It projected full-year earnings of $1.25 to $1.50 a share, up from the $1.10 to $1.25 forecast in February. In 2008, earnings were $1.83 per diluted share.