Nordstrom Found a Surprising ‘Growth Engine’ for the Company Last Quarter

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Nordstrom announced its Q4 2023 results this week, and while sales growth at the premium brand dipped, sales numbers for the more affordable Nordstrom Rack soared.

“Rack stores continue to be a growth engine for our company as they are our largest source of new customer acquisition, accounting for over 40%,” Nordstrom stated to PYMNTS.

The Nordstrom flagship store in New York. Photographer: Bing Guan/Bloomberg via Getty Images

While new customers may first be attracted to Nordstrom’s Rack’s comparatively more affordable prices, “… roughly a quarter of retained Rack customers migrate to the Nordstrom banner within four years,” according to the company.

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Premium Nordstrom stores saw sales decline by 3% year over year in Q4 2023 but Nordstrom Rack sales rose by 14.6% in that same period. Net digital sales were down overall by 1.7%.

The company said its expectations for this fiscal year are to open new Rack stores and increase the premium brand’s online sales. Nordstrom has 53 new Rack stores set to open by 2025 in states across the U.S., including Arizona, California, Georgia, and Texas.

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Nordstrom isn’t the only company feeling a drop in luxury sales in the U.S. — last year, luxury giants like LVMH had a weaker sales performance than usual in the American market. According to Forbes, LVMH, Kering, and Richemont all stated that “aspirational consumers” or people who buy lower-priced luxury products, didn’t buy as much as expected.

A Deloitte report about retail trends in Q4 2023 shows an increase in bargain-hunting or an emphasis on value.

“Consumers have become more disciplined in their habits,” the report stated, “turning to off-price retailers to hunt for these high-quality products at a discount, thereby decreasing discretionary spend at higher-end and/or luxury stores.”

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