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Nordstrom Rack: Current Status

Product Overview

Nordstrom Inc. was founded in 1901 as a shoe store in Seattle, Washington. It has since grown to become one of the industry leaders in retail. Nordstrom has about 72,500 employees, operates over one hundred full-line department stores, numerous e-commerce websites, and over 200 Nordstrom Racks (Cohen, 2018).

Nordstrom Rack is high-quality, off-price, retail division of Nordstrom Inc. With physical stores, ecommerce, and mobile commerce all offering 30-70 percent off the original price, they have become their own leader in discounted women's fashion (About Our Brand, 2018).

The parent company, Nordstrom, relies heavily on it's off-price concept store, Nordstrom Rack to stimulate growth. In fact, as of 2018, the discount stores outnumber the full-price locations 239 to 122 in US and Canada.

Although 20% of what is sold at Nordstrom Rack is clearance from the main store, 80% of their merchandise is bought specifically for them.

Nordstrom Rack gets a lot of foot traffic into their stores and onto their websites due solely to the fact that everything is discounted; however their high-quality products, organized store, and exclusive designers keep people coming back for the items offered, and not just for a good deal. In other words, shopping at Nordstrom Rack does not feel like bargain shopping. The brick-and-mortar stores are well organized by brand, have expensive jewelry locked in displays, cater easily recognizable brands such as Nike and Calvin Klein, but also have exclusive designers hard to find in competing retailing shops including Rag and Bone, Theory, and 7 For All Mankind.

 Nordstrom Rack has a large growth potential based on current retail industry trends. It should not be viewed simply as a place to bargain shop. Instead, it should be positioned in people's mind as trendy, convenient, and the place to look first to satisfy fashion needs (Hanbury, 2018).

It is headquartered in Seattle, WA. However, the closet one to Oxford, MS is in Memphis, TN (Google Maps).

Industry Overview

The retail industry is on the rise in North America. In the last year, wages have gotten higher and unemployment lower, so people naturally have more of a desire to shop and spend their money on discretionary goods.

In just the first four months of 2018, US retail sales had grown by 10.7% from the previous year. E-commerce is the leading market disruptor and is changing the way a lot of companies do “traditional retailing.” Younger generations are the main influencers behind this digital push, and it is causing many brick-and-mortar stores to close their doors (FTSE Russell).

According to Forbes, two major trends in the retail industry are manpower and multi-channel shopping. Retail workers make up 10% of nationwide employment. Companies like Macy's and Walmart are investing money in better training for their employees in customer-facing scenarios. What does this mean? It means even though the online shopping era is on the rise, people still crave personal touch from knowledgeable salespeople.

The second 2018, pushing 2019, trend is multichannel shopping. E-commerce is changing the way people shop and how much they spend. Ulta, a popular beauty chain, did a study and their multichannel shoppers spent 3x as much as those who only shopped at the physical location. Target is beginning to implement “click-and-collect” shopping which is genius. People usually want what they order online as soon as possible. If it is faster to order online and then go pick it up at the physical store, most people would choose that option (McGee 2018). Mobile commerce is growing exponentially as well, many stores have easy to use apps where you can order anywhere from your smartphone and have it shipped the next day (Hartjen, 2017).

Furthermore, off-price retailing is a trend. This is obviously good news for Nordstrom Rack, who already boasts more shops than its parent company, Nordstrom Inc (Hanbury, 2018). The majority of consumers are price sensitive and are more apt to buy trendy, clearance goods rather than full-price.

Market Share History

(2013-Present)

From 2013 to 2018, Nordstrom Inc.'s revenue has increased at a yearly rate of 1.5%. In 2017 alone, the company reported $15.1 billion in total company revenue. IBISWorld predicted that Nordstrom's industry-relevant profit will represent 6.1% of the retail industry revenue in 2018. According to their figure on the same website, Nordstrom already holds 7.1% of the “major companies” market share. (See Figure 1).

 Whereas Nordstrom is among Wal-Mart, Target, and Sears, as far as major companies go, within the company, Nordstrom Rack is to thank for the continued growth and market share.

 “The majority of revenue growth is attributable to the company's expansion of Nordstrom Rack, which targets price-conscious consumers” (Cohen, 2018).

Competition aside, Nordstrom itself has increased its operating income in the last two years after watching it decrease from 2014-2016. It's revenue has also increased each year 2017-2019. (See Figure 2.) (Cohen, 2018).

Nordstrom has a bright future with much credit due to the fact that Nordstrom Rack is attracting people who feel they can afford luxury fashion. There is 117 more Nordstrom Racks, then Nordstroms, and more Nordstrom Racks are expected to open in 2018/2019. This is a huge indicator that Nordstrom Rack is making great money for the company and almost outshining it's parent.

Current Advertising and Communications Campaign

Nordstrom Inc.'s top ad agencies include Camelot Strategic Marketing and Media, OMG Chicago, and Partners and Spade. However, the agency Mekanism and Kinetic are the only agencies that work specifically with Nordstrom Rack.

Mekanism is based out of San Francisco, California and Kinetic is out of New York City, New York. Both of their industry focuses include fashion apparel, leisure, cosmetics, and other consumer goods. Their key target markets are urban/city type people, women, and college students. Kinetic specializes in out-of-home-media for Nordstrom Rack whereas Mekanism has more of variety in media focuses such as: alternative advertising, brand entertainments, and broadcasting. Mekanism is also credited with developing Nordstrom Rack's “Youphoria” campaign, which was launched in 2013 (Annual Measured U.S. Media Spend, 2018).

The concept behind “Youphoria,” according to an executive at Mekanism, is that “great style from Nordstrom can help you build a character that is uniquely your own. Under one roof you'll find incredible brands and style that are attainable for everybody.” Videos were launched that showed young adults doing thrilling activities (i.e. chopping wood, riding a motorcycle, building a bonfire) while fashionably dressed (See Appendix 1). The budget was less than $5 million but an exact price was not given.

Michael Crotty, Nordstrom vice president of marketing, said younger customers responded well to the digital messages (Levere, 2013).

Youphoria was the most recent campaign we found, however Nordstrom Rack does do a ‘Clear the Rack' sale almost once a month where items are marked down an additional 25% from the already discounted price. With the unique name and awesome sales promotion this is definitely something Nordstrom Rack should further invest in. (See Appendix 1)

Nordstrom may not spend a lot on specific campaigns, but their advertising budget in general is quite hefty. The media spending is broken down in a chart by each advertising medium (see Appendix 1). According to this chart, 39.4% of their advertising budget is spent on magazines, the highest ranking category. Close behind at 31.7% is Internet advertising, which also has the highest gross rate. The most recent quarter reported, quarter 4 of 2017, the total amount spent on advertising was $19,119,642 (Annual Measure U.S. Media Spend, 2018).

SWOT Analysis

**There was not a SWOT analysis specifically dedicated to Nordstrom Rack, however based on Nordstroms Inc.'s SWOT analysis and further research from Business Source Complete and Mergent Online, this is what we gathered:

Strengths:

Nordstrom Rack stores provide high quality fashion to the increasing base of price sensitive consumers.

Nordstrom Rack shares a platform with Hautelook, the parent company's flash sale website.

Hautelook items purchased online can only be returned (in-store) at Nordstrom Rack store's, which increases foot traffic in the company's physical locations.

A main industry trend is the growing base of price-sensitive customers. Nordstrom Rack offers 30 to 70 percent off everything in their stores and online.

Nordstrom Rack provide multi-channel retailing with brick and mortar locations, e-commerce, and mobile commerce.

Currently operates 197 stores nationwide, their aggressive store expansion hopes to see 300 stores by 2020. In 2016, net sales increased by 9.9%, the main reason the opening of new stores.  

Weaknesses:

Nordstrom Rack lacks national coverage because the majority of their stores are on the east and west coasts.

Their strong dependence on California stores is a problem for 2 reasons:

Restricts the market it serves

California's unemployment rate is higher than the national average, so naturally people have less to spend on discretionary items.

Opportunities:

The growing Hispanic population in the US has the potential to increase consumer spending.

US Hispanic purchasing power is predicted to reach $2 trillion by 2020.

It would be smart to begin to cater to the tastes and preferences of the Hispanic community.

The growing millennial population are key drivers of Nordstrom Rack's online business.  

Millennials are the largest living generation. Nordstrom Rack caters to them by making their digital channels more advanced as well as offering top name brands such as Topshop, Calvin Klein, Nike, etc.

Focusing more on ecommerce and mcommerce (mobile) will increase revenue.  

According to the US Department of Commerce, mcommerce is expected to pass $125 billion by 2020.

There was a 15% increase in online sales from 2014 to 2015.

 Overall, there is a positive outlook for the apparel market in the US.

The economy is doing well, the unemployment rate is low overall, and people have more money to spend on voluntary purchases.

Threats:

Fierce competition always poses a threat, especially those with similar discount shopping layouts including: TJX Companies (TJ Maxx, Marshalls, and Stein Mart).

Rising labor costs in the US are forcing some companies to reorganize their spending budgets. This would cause less to go toward media spending and promotions and more toward employee salaries. (Nordstrom, Inc. (n.d.)).

The store lacks advertising geared toward men; they primarily promote women's clothing and lose a large portion of the men's retail market.

Nordstrom Rack: Competitive Analysis

Competitors

The largest competitors to Nordstrom Rack are stores that are pretty similar in principle. Four of the biggest competitors are T.J.Maxx, Saks Off Fifth, Neiman Marcus Last Call, and Urban Outfitters. All of these stores mainly sell clothing and accessories similar to their department store counterparts. Off Fifth and Last Call are both very similar to Nordstrom Rack. They are partner stores to Saks Fifth Avenue and Neiman Marcus, selling clothes and accessories to consumers at a discounted rate. Many people enjoy these stores because they want the designer department store products at a more attainable price. These stores, while not all of them are discount stores, seem to be targeting working class adults with practical budgets.

Current Campaigns

T.J.Maxx

According to AdAge, TJX, the “parent of off-price brands Marshall's, TJ Maxx and Home Goods” (AdAge) has had more effective campaigns and a larger budget, causing them to do better as a retailer. The T.J.Maxx marketing team has discovered that customers would rather spend their money on a bargain, which seems pretty obvious, but they found the tactic that would help get them more customers. “Executives noted last week that the chain will spend more on advertising in the second half of the year than originally planned since the current marketing has been so successful.” The TJX Companies spend the most money on cable TV advertising, about $48,521,000 according to Redbooks (See Appendix 2). By advertising on cable television, T.J.Maxx is appealing to middle class consumers who typically would be more drawn to designer brands at a discounted price.

Off Fifth

Off Fifth is a discount department store similar to Nordstrom Rack, however it carries the brands that Saks Fifth Avenue carries, but at a discounted rate. People usually shop here in order to get designer wares for less than the price at the actual department store. In a 2017 video campaign, Saks Off Fifth shows men and women wearing their clothes and accessories. It seems like they are telling “normal” people (working class adults) that they can look as good as high income adults. The video semed luxurious, like the department store, but knowing that it is an ad for Saks Off Fifth makes the luxury people want seem more realistic and attainable.

Last Call

Neiman Marcus does not struggle to bring in revenue, but they bring in even more revenue by expanding their target market to lower income consumers by offering discounted on-brand clothing and accessories.

Urban Outfitters

Based on the Urban Outfitters social media presence, we noticed a shift in the style being promoted by the company. It seems to have shifted from younger teens to older, more mature women who would be in a sophisticated working environment. There are clothes for men at Urban Outfitters, too, and they seem to be more “put together” looks; things that would be appropriate in the office. It's almost as if the Urban Outfitters target market has grown up, and the brand wants to stay loyal to their original consumers by growing with them and providing the maturing consumers with sophisticated clothing options that suit their age. By doing this, Urban Outfitters secures their original demographic, teens in the early 2010s, and proceeds to grow with them as they age, making sure their customers remain loyal to the brand throughout the years.

Website Grader Analysis

Website Grader uses categories to determine how efficient a website is. The overall score comes from how well the website functions in four categories: performance, mobile, SEO, and security.

Nordstrom and Nordstrom Rack

We graded both the Nordstrom website and the Nordstrom Rack website in order to compare the two. The Nordstrom department store website got a perfect score in the mobile section, which includes what the website looks like on the phone itself and how responsive the website is. Nordstrom Rack received a 77/100 on website grader.

While both the Nordstrom and the Nordstrom Rack websites are easy to navigate they both have a lot of inventory that makes it overwhelming for the customer to look at while shopping online.

T.J.Maxx

T.J.Maxx website got a 82/100. We visited the website and it was easy to navigate, customers can shop by size, price, and color. While the T.J.Maxx website is convenient, there is so much inventory, it's hard for the consumer to get a look at all of the items.

Off Fifth

The Saks Off Fifth website received a 50/100 on website grader. An average score was given, but the score was deserved. The performance was above average, but website grader stated that the Off Fifth website would run much faster if the software was more compressed. So the website is considerably slow, and the mobile website is not efficient at all.

Last Call

This website received a 55/100. The score was mainly deducted because of a 0/30 score in the mobile section, which we thought was odd considering the website can be reached on a mobile device. The mobile website, however is not aesthetically pleasing in the way that the words on the site are set up. They look unorganized, and it does not look like much was spent in the creation of this website. It looks low quality.

Urban Outfitters

The Urban Outfitters website received the best score with a 95/100 based on overall performance, mobile, SEO and security. The website got a perfect score in all categories except SEO. According to Nursel Yalç and Utku Köseb (2010), SEO, or search engine optimization, is “is enabling a web site to appear in top result lists of a search engine for some certain keywords”. They were deducted points in the “Meta Description” section, where the descriptions should be less than 300 characters and should be relevant to what is being advertised.

Going to the website both on the computer and on the mobile site shows the reason that the Urban Outfitters website received the score that it did. The site was easy to navigate, organized, and aesthetically pleasing. The website is easy on the eyes, it looks like the people that put it together really worked to make it a simple and enjoyable online shopping experience. Based on the information presented on Website Grader (see Appendix 2), we can see that the Urban Outfitters website has fast performance and page speed, the mobile website is easy to read, one can see everything necessary all at once, and the headings and security are impeccable.

Nordstrom Rack: Current Agency of Record Analysis

Kinetic Worldwide is a global out-of-home advertising agency with the location of interest in New York City that focuses on reaching and connecting to audiences while they are on the go (Advertising Red Books, 2018). Their goal is to reach consumers and potential customers in a way that will create a better-established relevance, connection and personalization not only in the real world but also in the virtual world. At kinetic, their team researches consumer information to make for a more interactive experience for customers. Some of the clients that Kinetic has recently created campaigns for are Chanel, General Mills (Totino's), and Universal Pictures.

     With Chanel, Kinetic was given the task of launching a campaign for the designer's fourth fragrance named Chance Eau Vive. Their main goal was to create awareness of this new perfume in a new and exciting way while still making sure that they were building up brand loyalty with both repeat and new potential customers. The agency decided to use an interactive approach by placing a digital display on a bus stop cover that would allow women to interact while they were waiting for their bus or simply walking by (Kinetic Worldwide, n.d.)(Appendix 3). The screen first displayed a commercial for the fragrance. Quickly after, an interactive screen would encourage consumers to show their “moves” while it snapped a picture of them that they could receive via email. The people that participated could then choose to share the picture on social media and if they chose to do so, they received a free sample of the perfume. The campaign was seen as a huge success. 88% of people passing by would choose to interact with the content on the screen (Kinetic Worldwide, n.d.). By handing out free samples, the interactive displays greatly helped Chanel raise awareness for their new fragrance.

  Totino's pizza rolls are a frozen food that is sold by the company General Mills.

They were interested in driving up sales for this product and building up brand love towards their company. Totino's chose to position their marketing strategies to a very specific target market that they like to call “serious couch-surfers” (Kinetic Worldwide, n.d.).  In the city of Denver, Colorado, they did research to find the neighborhoods and areas where their product is most purchased and would be best appreciated. Seeing as recreational marijuana is legal in Colorado, they were hoping to reach the people who used marijuana recreational. In the weeks leading up to April 20th (National Marijuana Day), various forms of media were put up around the city with slogans saying things such as “Stock up B4/20” and “Better When Baked.” (Kinetic Worldwide, n.d.) (Appendix 3). As to really ensure that their target market would be sure to make Totino's a part of their lifestyle, they offered speedy delivery of their pizza roll products and even offered free rides on 4/20 to the people who couldn't drive after they celebrated. Consumers greatly enjoyed Totino's approach and the campaign was a huge success. Sales of Totino's products went up by 18% in Denver in the weeks leading up to the holiday. Not only did they benefit in sales in Denver, however there was a huge positive response on social media to their campaign across the country.

Before the release of the movie: The Girl on the Train, Kinetic worked with Universal Pictures to help promote the major motion picture. Kinetic placed posters around the underground subway tunnels in the major cities New York, Washington D.C., and Los Angeles. These posters featured a message in quotes that said, “What happened that night?” and a snapcode, which is a code that you can scan with your Snapchat app on your phone (Kinetic Worldwide, n.d.) (Appendix 3). When scanned, the app would unlock filters that were only available to the users that scanned the code. The movie released as number one at the box office, earning $24.5 million in its first weekend (Kinetic Worldwide, n.d.). The use of Snapchat in marketing was celebrated in publications such as Advertising Age and Media Post.

  Aside from the praise Kinetic has received from their inventive marketing for Universal Pictures, they have received their fair share of awards for their work on other projects. Kinetic brought home the gold for the “Best Collaboration” in an Out of Home campaign for their work with HB ice cream (Kinetic Worldwide, n.d.).

DNA is a independent full-service advertising agency that is located in Seattle, Washington. DNA focuses on out of home media, which involves brand strategy, digital strategy, advertising creative and production, and media planning and buying. As of September of 2018, the agencies current billing are $10 to $50 million (Advertising Red Books, 2018). DNA claims that “change is the only constant in life, so we embrace it. Everyday we evolve brands, categories and ourselves for the better. Our product is a transformed experience” (Seattle, D, n.d.). Some of the company's recent most successful campaigns have come from BECU Credit Union, Avon 39, and Executive Travel Magazine.

  BECU is a credit union that is owned by its members. DNA wanted to help consumers to better understand that BECU had a member-first philosophy that was unlike other banks. They also wanted to put a focus on the variety of different members that make up the credit union. BECU released a series of posters with members ranging in age, gender and ethnicity with slogans such as “BECU Own It” and “Customer? Nah. Owner” to show to consumers just how important they are to the company (Seattle, D, n.d.) (Appendix 3). They also released a video highlighting and celebrating the individualistic approach to banking that they take (Appendix 3). The campaign proved to be a success among consumers with a “year over year of 6% new members and 71% account opening consideration” (Seattle, D, n.d.).

DNA has worked with the Avon Walk for Breast Cancer since 2002, when they helped start up the event. Although donations have exceeded $40 million every year since the launch of the event, there seems to be a noticeable decrease in the amount of donations over the past few years (Seattle, D, n.d.). Kinetic looked into why the numbers seemed to be dropping and they found that shear number of events had become very taxing on its participants. DNA decided to shift the focus of the event and showcase the 39.3-mile walk as the physically grueling event that it was (Seattle, D, n.d.). Posters were put up around the city where the event takes places with pictures of strong women and survivors with slogans such as “Blisters are temporary. Fierce is Forever” and “All you've got is all it takes” (Appendix 3). Instead of focusing on the friendships made on the walk, this new campaign was made to commemorate hard work and physical endurance that went into the event. According to DNA's website, with the switch to this new campaign and way of portraying the walk, “donations raised by 30%, there was a 94% increase in website traffic, and from one year to the next there was a $4 million net donation increase” (DNA website).

  Executive Travel Magazine was created when American Express was looking for a way to create better relationships with their customers who tend to travel more and spend more money than Amex's other customers. Instead of publishing a magazine that was designed for the working men and women who were consistently traveling, making it seem almost like a task, DNA worked with publishers at every level of production to make sure this new magazines positioning strategy focused on another target. American Express wanted to reach out to those specific cardholders that are most likely in senior management positions, that spend the most money as compared to other customers and who travel for work and also for enjoyment (Seattle, D, n.d.). The final product was a magazine that not only went over basic information about the location to where the client is headed, but also delves deeper into the culture. Executive Travel Magazine was met with great success and according to DNA's website was “the most successful new product launch in the divisions history” (Seattle, D, n.d.).

Nordstrom Rack: Target Market's

Example segments from Claritas that Nordstrom Rack is targeting

“Pickup Patriarchs” Described as a group of upscale older people mostly without kids. See Appendix 2 for more details.

“Pools and Patios” Described as a group of upper midscale younger adults mostly with kids. See Appendix 2 for more details.

“Connected Bohemians” Described as midscale younger adults mostly without kids. See Appendix 2 for more details.

Nordstrom Rack targets many different types of people that come from many different cultural backgrounds, areas, financial status, and age. But, generally, we believe they target middle to upper-class people who are conscious of their spending. Nordstrom Rack carries products for babies and adults alike. Their products are typically designer products that have not sold as well in main stores or are out of season. When these products do not sell, they are sent to the Nordstrom Rack stores. Because these products are designer, high-quality products they are not extremely cheap by any means. But, they do make these types of products more easily accessible to those who might not be able to afford them at full price. Nordstrom Rack pays attention to their Marketing Mix to fill their stores. They fill their stores with the product according to where they are located, what type of shopper lives in the area, and the climate of the area. For example, Nordstrom would stock a store in a suburban area of Florida with more swimsuits versus a store in New York that would be stocked with winter coats and boots (Claritas).

     Considering these factors, one group I believe Nordstrom rack is targeting are young adults around ages 15-23 that are working and may still be in high school or college. Young adults have more available spending money because they most likely are still financially assisted by their parents. They are on trend and like finding products that are in style and are nice quality but most of these young adults cannot afford these items at full price. Nordstrom Rack stores tend to be located in suburban areas near local malls or outlet areas. Easily accessible to these young adults to get to. Most of these young adults that Nordstrom Rack targets may be employed part time or full time. Nordstrom Rack carries everything from makeup products, to workout gear, to business attire. Because of this, it attracts these young shoppers who need a wide variety of different products and like their shopping to be efficient and quick. At our age, we are a part of this group that is targeted by Nordstrom Rack. For my own personal use, I need multiple different types of clothing. I need workout gear for exercising, winter clothes during the cold months, swimsuits during the Summer, clothing that is appropriate for work, clothing that I wear every day and clothing that I would wear to go out. Because I need multiple different types and styles of clothing I like to go to a store like Nordstrom Rack since I cannot afford full priced clothing and shoes from Nordstrom as easily (Claritas).

     Not only does Nordstrom Rack target young adults but they target more established adults as well. Age ranging in this group anywhere from 23-55. These people could be single, married, in a couple, with kids, without kids, etc. The family mix is widely varied among this group of people. Nordstrom Rack targets these people because more than likely they are money conscious shoppers. This age group was raised by baby boomers who like to save, passing on that value of the dollar to their children. They appreciate a deal but they also want high-quality products, which Nordstrom Rack provides. Nordstrom Rack carries products for babies, children, and everyone else in the family. Children grow out of their clothes so quickly that many parents prefer to shop at places like Nordstrom Rack because the products are still very nice but they are not as expensive. Nordstrom Rack also carries products for the home such as linens and accessories. One-stop shopping for a busy mom or dad is very important in this day and age (Claritas).

     Nordstrom Rack targets older people as well as young and established adults. The age range for this group is around 55+. A lot of older people these days grew up during the Great Depression and they are very particular about where they spend their money and how much they spend. Older people value the dollar differently than younger people do. Because Nordstrom rack provides high-quality products for a better price it is a popular store among retired adults. Many of these older adults may also have children and grandchildren that they still like to buy things for. Being that it provides products for every age, products for the home, and sometimes even products for your pet, it is the perfect place for these older adults to shop. Nordstrom rack workers are very friendly and helpful and will check you out in any part of the store if you're using a credit card, which older adults might enjoy. It is a very efficient store and they keep the lines small so that customers do not have to wait long (Claritas).

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