Nordstrom Earmarks 30 Percent of $3.9 Billion CapEx for IT

Jessica Binns
Senior Editor
Nordstrom Inc. plans $3.9 billion in capital expenditure from 2014 to 2018, a sharp increase from its $2.2 billion CapEx spending for the prior five years as it looks toward a period of growth and expansion. The retailer also is boosting technology spending to 30 percent of CapEx, from its historical average of about 20 percent.

Nordstrom Rack, the company's off-price business, is one of the top growth drivers for the retailer. The 140 Rack stores — on track to expand to 230 by 2016 — drive an average of $550 in sales per square foot. In 2013, Rack stores contributed 12 percent of Nordstrom Inc.'s total sales as 22 new locations opened, says Blake Nordstrom, president of Nordstrom. Going forward, half of the company business is expected to come from e-commerce and Rack, up from about 38 percent today.

Nordstrom's pack-and-hold inventory strategy has been critical to getting new Rack stores up and running with the right mix of products. The retailer has been able to "enhance the partnership with our top vendors and get first call and get better access, and pack-and-hold is a way to leverage that partnership," explains Blake Nordstrom. "And so it enables us to provide the best product and improve flow for the customer."

With investments in fulfillment facilities coming to fruition next year, Nordstrom will have three times as much fulfillment capacity in 2015 as it did in 2012.

Like many other retailers, Nordstrom is seeing strong demand for women's activewear and not only plans to increase inventory in this area but expand its men's offerings as well, according to Peter Nordstrom, president of merchandising.

Sales of versatile fashions that can work for a variety of occasions have been strong, with an "updated kind of classic-type look, not just pure contemporary" resonating well with customers, he adds. "Our studio department had a really, really good year and that is bridged-price-point-type clothes but more leaning towards classic.

"I think the customer places a lot of value on versatile clothes and being able to have things work for multiple occasions," Peter Nordstrom explains. "When we can bring things in that have some flexibility for someone's job or lifestyle or whatever they're doing, that's when we seem to do best."

Nordstrom's investments in mobile applications are paying off as traffic via smartphone and tablet increases and drives a rising share of sales, notes Jamie Nordstrom, president of Nordstrom direct. Many customers, especially those who are just experiencing the brand for the first time or are part of a younger demographic, are interacting with Nordstrom exclusively with their mobile device, he explains.

"We've got to make sure that the experience they have with us through their phone is a good one," Jamie Nordstrom says. "We've been learning a lot through our … off-price business in terms of how customers want to use their phones to shop."

With the Seattle Seahawks' post-season run and stunning Super Bowl victory, the Seattle-based retailer benefitted as any team-related merchandise — from hats to gloves to t-shirts — sold well. "The flip side to that: when the game itself was on, it was tough on the business, and there was a huge parade that following week — that was a little tough, too," notes Blake Nordstrom.

During the challenging holiday season, sales were strong in November and into early December but slowed down right around Christmas and continued through the new year, although the company's clearance inventory levels are the lowest of the past five years. "One of the things they taught us during the holiday season was we needed a better defense," says Michael Koppel, CFO, of the Seahawks' league-leading achievement.
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