Nordstrom Rack was once Nordstrom's greatest asset, now analysts say it's dragging the brand down. We visited three Rack stores to find out more.

·4 min read
Nordstrom Rack in Midtown
A Nordstrom Rack branch.Insider/Brittany Chang
  • Once considered the company's greatest asset, sales growth has slowed at Rack in recent years.

  • Analysts say Rack has an inventory problem and suffers by being connected to a full-price brand.

  • We visited three Racks to find out more.

Just two years ago, Nordstrom's discount chain, Nordstrom Rack, was considered to be the company's biggest asset, outperforming and outgrowing its full-price business in sales and store locations.

Nordstrom Rack in Madison, Wisconsin
A Nordstrom Rack store in Madison, Wisconsin.Insider/Dominick Reuter

But increasingly it has become a lag on the company's earnings, reporting an 8.1% drop in sales over 2019 in the most recent quarter, while its rivals TJ Maxx and Ross Stores continue to thrive.

Nordstrom Rack in Madison, Wisconsin
Rack sells discount goods.Insider/Dominick Reuter

Analysts say the store has become chaotic and overrun with inventory. Nordstrom didn't immediately respond to a request for comment.

Nordstrom Rack in Madison, Wisconsin
Chaotic shelves in the toy department.Insider/Dominick Reuter

We visited three Nordstrom Rack stores in two parts of the US to find out more about the shopping experience.

Nordstrom Rack in Madison, Wisconsin
Handbags galore.Insider/Dominick Reuter

Our first impressions of one of its stores in Madison, Wisconsin were good. Clothing racks were neatly organized and employees were actively keeping displays in check.

Nordstrom Rack in Madison, Wisconsin
The store was neat and tidy.Insider/Dominick Reuter

There seemed to be a good assortment of recognizable brands and the selection wasn't overwhelming.

Nordstrom Rack in Madison, Wisconsin
Kids shoes.Insider/Dominick Reuter

Still, some of the clothing seemed to be well out of season. Handy for those hitting hotter climates but less so for locals taking on the cruel midwestern winter.

Nordstrom Rack in Madison, Wisconsin
Clothing racks were brimming with summer clothes.Insider/Dominick Reuter

Next, we headed to a Nordstrom Rack in Manhattan's Midtown district.

Nordstrom Rack in Midtown
Nordstrom Rack in Midtown.Insider/Brittany Chang

The store is close to the busy Herald Square shopping area, key tourist attractions such as the Empire State Building, and a ton of offices, meaning that there are lots of different customers to appeal to.

Nordstrom Rack in Midtown
Handbags were neatly arranged.Insider/Brittany Chang

Our initial impressions were also positive. Commonly messy parts of the store were kept in good order.

Nordstrom Rack in Midtown
Shoes racks looked tidy.Insider/Brittany Chang

And there seemed to be an appropriate amount of inventory on sale, without racks being overstuffed.

Nordstrom Rack in Midtown
The denim section.Insider/Brittany Chang

Some of the signage in the store didn't match the clothing on offer, however, possibly indicating that the store is using different items to cover up inventory gaps.

Nordstrom Rack in Midtown
Nordstrom executives have been upfront about the challenge of securing inventory right now.Insider/Brittany Chang

A ton of winter clothing was on offer.

Nordstrom Rack in Midtown
Fleeces and jackets.Insider/Brittany Chang

And we spotted some well-known designer brands...

Nordstrom Rack midtown
Rack promises to offer discount prices on premium labels.Insider/Brittany Chang

...as well as more generic pieces...

Nordstrom Rack
A less exciting assortment.Insider/Brittany Chang

...and lesser-known labels.

Nordstrom Rack
We didn't recognize all the brands on offer.Insider/Brittany Chang

It didn't necessarily feel like you were getting the most exciting assortment of designer brands.

Nordstrom Rack in Midtown
Women's apparel.Insider/Brittany Chang

Next, we headed to Nordstrom Rack's Union Square location. This definitely felt more chaotic.

Nordstrom Rack in Union Square
Rammed racks.Insider/Brittany Chang

A mismatch of clearance items was jammed onto racks.

Nordstrom Rack in Union Square
These items looked to be leftover from last season.Insider/Brittany Chang

And the displays were more disheveled than in other stores.

Nordstrom Rack in Union Square
Designer handbags piled up.Insider/Brittany Chang

Still, it was fairly organized for an off-price store where customers are likely to be riffling through the racks to find the best deals.

Nordstrom Rack in Union Square
Off-price stores are often messy.Insider/Brittany Chang

We spotted some well-known brands...

Nordstrom Rack in Midtown
Nike shoes.Insider/Brittany Chang

...along with designer labels...

Nordstrom Rack in Union Square
Guess winter jackets.Insider/Brittany Chang

...and trendy millennial brands.

Nordstrom Rack in Union Square
Ganni is also stocked at Nordstrom.Insider/Brittany Chang

GlobalData Retail analyst Neil Saunders has blamed the store's current woes on the lack of discipline in its buying team. "It's almost as if Nordstrom just acquires lots of stuff, which it then shoves into stores," he told Insider.

Nordstrom Rack Union Square
A ton of coats.Insider/Brittany Chang

Source: Twitter and Insider.

BMO Capital Markets analyst Simeon Siegel told Insider that Nordstrom Rack is also at a disadvantage to its competitors, TJ Maxx and Ross, for example, because the company operates full-price stores too.

Nordstrom Rack in Union Square
Madewell basics made an appearance.Insider/Brittany Chang

This means that its Rack locations can be used to sell leftover inventory from full-price stores rather than inventory that's been bought at a discount, which is what TJ Maxx would do. That leads to weaker margins for Nordstrom.

Nordstrom Rack Union Square
Women's tops.Insider/Brittany Chang

Nordstrom's management team has addressed Rack's weakness in recent earnings calls and partly blamed this on difficulty securing inventory because of current supply chain issues.

Nordstrom Rack Union Square
Insider/Brittany Chang

But Siegel said it's also harder for Rack to attract brands because it has an online store. "Brands prefer the invisible sale done at TJ Maxx," he said. "If you are a brand looking to move product through off-price, seeing it online is a different proposition to believing you can drop boxes off at a TJ Maxx without anyone knowing."

Nordstrom Rack
Nike products for sale at nordstromrack.com.Nordstrom Rack

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