We believe Nordstrom (JWN) continues to be a top operator in the competitive U.S. apparel market. It has cultivated a loyal customer base through its reputation for differentiated products and service and has built a narrow economic moat based on an intangible brand asset, in our view. While no-moat Macy’s (M) and other department store competitors have suffered declining sales, Nordstrom increased revenue from about $10 billion to $16 billion between 2010 and 2018. Nordstrom’s full-price and Rack (off-price) stores consistently reported positive same-store sales growth over this period. We forecast same-store sales growth of 1% and 3% for Nordstrom’s full- and off-price segments, respectively, over the next 10 years.
We believe Nordstrom is responding well to changes in its market. The company has about 140 full-price stores, nearly all of them in desirable Class A malls (sales per square foot above $500). Still, Nordstrom’s full-price business is vulnerable to weakening physical retail. Online apparel sales as a percentage of total U.S. apparel sales have more than doubled since 2010 to more than 20%, while discount retailers have continued to open stores (for example, narrow-moat Ross (ROST) has opened more than 500 stores since 2010). NPD estimated off-price sales represented 75% of apparel transactions in 2016. Rack has been part of this trend, as sales for this segment have nearly doubled since 2012 to $5 billion.
David Swartz does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.