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Nordstrom’s Big Department Store Bet

While its peers are struggling, the retail giant is doubling down on what it does best — and going beyond its American roots.

The new Nordstrom store at Toronto's Eaton Centre.
The new Nordstrom store at Toronto's Eaton Centre.

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Toronto Eaton Centre is unusually busy for a weekday morning. It's not even 8 a.m., hours before stores in the popular shopping mall will open on this Friday in September, and 1,500 people are waiting in its northeast corridor. Everyone is here to celebrate the grand opening of Nordstrom, the storied American department store.

"Are they giving away anything for free?"

This is the question asked by employees of other stores at the mall, who are slowly trickling into work, as they eye the size of the crowd. There are indeed plenty of freebies: Coffee and doughnuts are up for grabs, and beauty stations manned by makeup artists are offering up complimentary consultations. A live band is playing. But for the most part, shoppers have turned out to spend money.

"This is the biggest deal in Canadian retail right now," says Jaclyn Marsh, as she sips her coffee and waits with fellow shoppers for the doors to open. "It's really exciting when an important American brand comes to Canada."

"Honestly, it's about time," adds Sean McConnell, a 31-year-old marketing associate. "The main draws of Eaton Centre used to be stores like Champs, Sears, and Foot Locker, so it didn't really make sense for fashion folk to shop here. Nordstrom brings a certain level of prestige."

It's more than just prestige, though. Alyssa Nettleton, the manager of a nearby Lululemon store who's come to marvel at the spectacle, notes that when Saks Fifth Avenue opened up across the mall earlier this year, "it didn't have the same reception."

"I don't think a lot of people here have ever even been inside a Nordstrom before," she says. "I haven't! But from what I've heard, it's the best because there are affordable, everyday items, but then there's also all the luxury stuff."

Right before 10 o'clock, the crowd pushes its way toward the entrance and starts counting down with Nordstrom Eaton Centre's store manager: "Five! Four! Three! Two! One! Welcome to Nordstrom!"

The store's security gates slowly rise, and the cheering crowd is met with an army of 800 employees clapping just as enthusiastically. The shoppers flood into the store, disappearing into the sprawling space.

Nordstrom is beefing up its department store portfolio at a time when we are constantly being told the department store is dying. This summer, Macy's announced it was closing 15 percent of its American stores after six straight quarters of declining sales. Since 2014, J.C. Penney has closed 80 locations; Sears closed nearly 300. According to the US Department of Commerce, department store sales have declined 30 percent from $87.46 billion in 2005 to $60.65 billion in 2015.

Department stores face a grim future, and it gets even gloomier when Amazon, which is set to outpace them in apparel sales, is factored into the equation. Yet Nordstrom is envisioning eight stores in Canada and three more new stores in the US by 2019, including a flagship in New York City.

Nordstrom certainly hasn't been immune to the squeeze — in-store sales were down slightly from $7.9 billion in 2012 to $7.6 billion in 2015. But in 2015, Nordstrom's total sales actually reached an all-time high of $14.1 billion, up 35 percent since 2011.

It ranks as the nation's favorite fashion retailer pretty much every single year.

It ranks as the nation's favorite fashion retailer pretty much every single year, according to research firm Market Force; its anniversary sale is arguably one of the most anticipated annual shopping events, and it's been hailed as "one of the most innovative retailers around" by WWD. Shoe designer Steve Madden recalled to Bloomberg Businessweek a few years ago that when he was first invited to meet with Nordstrom buyers, "it was like an invite to the White House."

Its sales per square foot come in at $370, beating both Saks and Macy's. The 115-year-old retailer that's largely been run by one family since its humble beginnings is aiming for $20 billion in net sales by 2020.

How is Nordstrom succeeding in a space where everyone else is failing?

Craig Trounce was a 16-year-old sales associate at Nordstrom in the ‘70s, working at the company's Fairbanks location in Alaska. One day, a local came into the store with a pair of old tires he said he had bought at the location a few years earlier. He was told he could return the tires if he wasn't satisfied, and so there he was, ready to make the exchange.

Trounce was surrounded by typical Nordstrom merchandise — button-down shirts, ties, shoes — but the customer wasn't totally off. Nordstrom had bought a few Alaska store locations from Northern Commercial Company, which used to sell tires, and so the shopper had technically come to the right place. Trounce called a local tire dealer to consult what the value of the tires would be ($25) and handed the customer cold, hard cash from the register.

This is the story Nordstrom tells, again and again, to exemplify the customer service it prides itself on, but it's also just one of many. There's the story the New York Times reported in 1986, in which a manager in the men's suiting department at the Glendale, California location sent a tailor to a customer's office when he heard the customer was unhappy with his suit. There's the story published by the Jacksonville Business Journal about someone on the Nordstrom housekeeping staff finding a customer's bag and airline ticket in the parking lot of a Connecticut location in 2012 and driving to the airport to meet her. It's no surprise the company's most recent holiday campaign stars 34 customers.

"Nordstrom has seen consistent success throughout the years because they maintain a high level of focusing on consumers," says Abbey Doneger, CEO of retail analysis firm the Doneger Group. Adds Robert Spector, the co-author, with Patrick D. McCarthy, of the 2012 book The Nordstrom Way, "Every store talks about customer service, but very few actually get it, so it becomes a cliché to mention it. But Nordstrom actually believes in it. It isn't bullshit."

This focus on shoppers starts first and foremost with its generous return policy — or generous lack thereof.

"We actually don't have a return policy. What we have is a belief in empowering our salespeople to deliver the best service, where we tell our folks there are no rules," says Jamie Nordstrom, sitting in the café inside the Eaton Centre location the morning before the store opening. Jamie is Nordstrom's 43-year-old president of stores and a second cousin to Pete, Blake, and Erik, the three Nordstrom brothers who serve as co-presidents of the company. "The best person to make a decision on how to best serve that customer is the person standing right in front of them, and that includes taking returns."

Sally Issa, a Toronto resident who grew up in New Jersey, says the return policy is the reason she doesn't buy luxury items anywhere else: "I know Barneys or Saks sells a lot of the same product, but I feel more comfortable buying it here because if I blow $900 on a handbag and something happens to it, I know I'm safe."

"It also comes from standing behind what we sell," Jamie explains of the policy, "so that we can tell the customer, ‘I am so confident you are going to love this thing, I want you to buy it, wear it to work someday, and if you do not feel great about it, I want you to bring it back. I don't want you to have anything in your closet that you bought from me that you do not love.' We've got to follow through on our promise."

Nordstrom listens closely to its customers, responding to them even if no further action will be taken. After a woman wrote an open letter to the retailer asking it to stop carrying Ivanka Trump's fashion line in late October, Nordstrom replied on Twitter that it hoped "offering a vendor's products isn't misunderstood as us taking a political position; we're not. We recognize our customers can make choices about what they purchase based on personal views & we'll continue to give them options."

"When I walk into Bergdorf, I feel really self-conscious in there. I walk into Barneys, and I feel like a slob."

Now that there's an extensive call to boycott stores carrying Trump brands following the results of last week's election, Nordstrom confirmed to Racked it has no plans to stop carrying it; it is the only company to issue a public response to the #GrabYourWallet campaign.

In addition to transparent customer relations, Nordstrom stocks an impressive mix of higher- and lower-end brands, without managing to alienate anyone. Who else could get away with selling Christian Louboutin next to Crocs?

"We play into the sense of inclusiveness, as opposed to exclusiveness," says Jamie. "I'm a fortunate person, I can afford to buy most things at Bergdorf Goodman, and yet when I walk into Bergdorf, I feel really self-conscious in there. I walk into Barneys, and I feel like a slob."

"I have three kids," he continues, "so I spend a lot of time at soccer games and see the mom with her Hunter boots, yoga pants, and Moncler jacket over a $20 Topshop top with a Nike hat. We know the customers wants luxury and mass. We've always wanted to be that place where it's not about the price point, it's about fashion and buying it all at one place with your salesperson."

Excellent customer service and a balanced product assortment help, but analysts who follow Nordstrom closely all say the secret sauce is the brand's ability to think ahead. Take, for example, the fact that Nordstrom began developing its e-commerce business way back in 1998, when other retailers were contracting third-party companies to sell their goods online or totally separating their online and brick-and-mortar businesses, if not ignoring online shopping altogether.

"Nordstrom created its own website way ahead of time," says Spector. "It got that it would become an omnichannel world. The retailers who are now severely diminished did not make those adjustments." This also allowed the brand to offer free shipping and online returns back in 2011, before that became industry-standard.

Another example of Nordstrom's foresight is its emphasis on cool, contemporary brands you wouldn't otherwise find in department stores. It has exclusive wholesale deals with British fast-fashion favorite Topshop, menswear brand Bonobos, J.Crew's trendier sister brand Madewell, and even J.Crew itself, as of this past summer.

Nordstrom also strikes exclusive retail partnerships with celebrity designers like Khloe Kardashian, whose denim line Good American just launched. In its third-quarter earnings for this year, Nordstrom's top-performing categories were women's and men's apparel, with these sales coming from "younger departments, reflecting strength in denim and collaborations with new and emerging limited distribution brands," WWD reported.

"Bringing in Topshop, Charlotte Tilbury, Madewell — all of those brands are the on-trend names for younger shoppers," says Tiffany Hogan, a retail analyst with Kantar Retail. "These shoppers aren't wealthy, but they have growing market power. Gen Z might not have money now, but if Nordstrom can turn them into a loyal shopper with newer labels, they'll keep coming back to Nordstrom later in life."

To Spector, carrying these new brands demonstrates that Nordstrom can reinvent itself and preserve cross-generational appeal at the same time: "For a department store that's been around 115 years, one of the classic challenges is maintain your aging-but-existing customer base while attracting new ones at the same time. You don't want people to think you're stodgy and old, but you don't want to exclude those over 30 either."

As Cowen equity research analyst Oliver Chen puts it, "Nordstrom is ‘your mom's kind of store' cool but also ‘your kind of store' cool."

Like many American success stories, the Nordstrom legend begins with an immigrant arriving to the Land of Opportunity.

John Nordstrom came to the United States from Sweden in 1887 at the age of 16. According to family lore, he couldn't speak a word of English and had only $5 in his pocket. He worked as a drudge in logging and mining camps for the better part of a decade before getting word of the Klondike Gold Rush and heading to Alaska. Within two years, John had earned $13,000 in a gold mine stake and settled down in Seattle. In 1901, he teamed up with Carl Wallin, a local shoemaker he'd met in Alaska, to open a 20-foot-wide store called Wallin & Nordstrom.

"If we sell you well, tell others. If not, tell us."

John instantly took to serving customers. In The Nordstrom Way, Robert Spector and his co-author write how John was "in the store every day, listening to what customers liked and disliked about quality, fit, style, and so on. He'd write that down on a piece of paper, and put it into his suit pocket, to remind him of what to have in his store to satisfy his customers and keep them loyal." When Nordstrom's three sons, Everett, Elmer, and Lloyd, each turned 12, they started working in the shoe store too.

In 1905, Wallin & Nordstrom's annual sales totaled $47,000; the business continued to grow over the next two decades and eventually expanded to a second location. Everett and Elmer bought out their father in 1928, and one year later, Wallin as well. They renamed the company Nordstrom's, and together with Lloyd, managed to weather the Great Depression. At their stores, they hung signs that read, "If we sell you well, tell others. If not, tell us."

For the next three decades, John Nordstrom's sons turned the family business into an empire of shoes; the first downtown Seattle shop became the largest independent shoe store location in the country, one that carried products from every major American manufacturer.

"Nordstrom's secrets were actually pretty old-fashioned," says Spector. "They weren't just hardworking in stores, they established connections. They'd invite wholesalers, who were traveling salesmen, to their homes for dinner. There was nothing underhanded about it, they just had those kind of relationships."

And then they decided to go even further. In 1963, the Nordstrom family bought a Seattle women's clothing store called Best Apparel and changed the company name to Nordstrom's Best, selling both shoes and women's clothing at the eight stores they had since opened in Seattle and Portland, Oregon.

The Seattle Post-Intelligencer notes that "skeptics scoffed at the idea that Seattle's shoe kings were going to try to sell women's dresses," and according to Spector, there was pushback from merchants in New York, who didn't initially want to sell to Nordstrom: "They were shoe guys, so wholesalers thought, ‘what the heck do they know about apparel?'" But Nordstrom pushed forward, adding men's and children's clothes in 1966; within three years, annual sales ballooned to $60 million.

Nordstrom's profits from those sales, however, were being swallowed by the costs of inventory, leases, and employee salaries necessitated by the expanding business. As the Seattle Post-Intelligencer explained in a 2001 feature, when the third Nordstrom generation took over the family business in 1968, the second generation was left with no retirement funds, and so the family began to assess options, even looking at bids from giant department stores like Carter Hawley Hale.

"None stood out as an easy, clear-cut choice," the Seattle paper wrote. "Borrow money? No. Sell Nordstrom to another company? Never. The only option that seemed to make sense was to take the company public."

Nordstrom filed for an initial public offering in 1971 and sold nearly half a million shares; the family retained roughly 25 percent of the ownership of the company. One year later, when the company dropped "Best" and the possessive from its name and rebranded simply as "Nordstrom," it brought in over $100 million in sales.

Another turning point for the company came later that year, when Henry Segerstrom, the developer of the high-end South Coast Plaza in Orange County, California, convinced Nordstrom to open in his mall. California was a different league for the Nordstroms — the rent was higher, the competition fiercer. On opening day in 1978, the turnout was underwhelming; customers, the Orange County Register reported, thought Nordstrom sold refrigerators. But shoppers caught on, and only five years after it first opened a 127,000-square-foot store, the family announced it was doubling the space.

With Nordstrom a bona fide hit in California, the company upped its game in the high fashion and luxury goods arena, though it didn't abandon its more affordable offerings in the process. As James F. Nordstrom, then-president of Nordstrom and the son of Elmer, told the Los Angeles Times, the family wanted "to be all things to all people." In 1986, the New York Times called it a store with a "seemingly limitless selection of merchandise" that was "quickly attracting a large following for its higher-priced lines of men's, women's and children's fashions."

The company has been through it all: "two world wars, the Great Depression, several recessions and the shifting of the department store model."

That year Nordstrom sales hit $1.3 billion, having expanded into Utah, Alaska, and Montana. By 1995, Nordstrom had 64 stores. The fourth generation of Nordstroms entered the leadership ranks in 2001 and now run the company alongside an executive committee with 10 members. Today Nordstrom boasts 123 stores in the US, giving it far more volume and reach than competitors like Bloomingdale's and Neiman Marcus. As Spector puts it, the company has been through it all: "two world wars, the Great Depression, several recessions and the shifting of the department store model."

"Nordstrom is endlessly fascinating to me because there's nothing quite like it," Spector continues. "It's family-run, but it's a public company, and it also has an outside chairman. Dollar for dollar, it's one of the greatest American business stories in history."

And still, the Nordstrom family is surprisingly humble and press-shy. In 1986, the third generation of Nordstroms declined to be photographed for a feature in the New York Times, insisting that "all publicity does is give us a swelled head, and we can always do better. The salespeople are the real stars."

Doug Stephens, a Toronto-based retail analyst, attributes much of the company's success to its family ties.

"On the one hand, heritage can be a liability because family-run companies can be extra cautious and slow to adapting change," says Stephens. "But people like the Nordstroms are savvy and sophisticated enough to know what's going on in retail. They are open to change and the need to be willing to experiment. The vested family interest in the business has always remained."

The Eaton Centre location might not seem all that different to the average Nordstrom shopper; however, little touches here and there speak to the future of Nordstrom stores. It's neater, cleaner, sleeker. There are big windows on one side of the store that bathe midcentury-modern furniture and plush carpets in bright daylight — a welcome change from traditionally fluorescently lit department stores.

There is plenty of product — midrange brands like Sam Edelman, Missguided, and BCBG mix with luxury labels like Stella McCartney, Marc Jacobs, and Valentino — but the selection is extra curated and the aisles wider. The beauty department is stocked with high-end brands like Tom Ford and Dior and fancy candles from Nest and Diptyque and also has a section called "the Core." Taking a page from Sephora, the Core features trending products, as well as best-sellers in travel sizes.

There are also little surprises for customers throughout the three-floor store, including phone-charging stations and a "Men's Clubhouse," which features flat-screen TVs, locally brewed beer, and free one-on-one styling. You can get your leather handbag embossed at a personalization stand in the accessories area, and there's a cocktail bar and restaurant inside the store, in addition to a candy boutique from LA-based company Sugarfina.

Many of the upgrades seen at the Eaton Centre location have been rolled out in other new Nordstroms. They are also being included in existing store refreshes, like that of the downtown Seattle location and the store on Chicago's Michigan Avenue, which were recently renovated, and the South Coast Plaza location, which is currently in the middle of a remodel.

The changes are small and incremental, and yet they complete a larger picture for the Seattle-based brand. They don't just give the store a contemporary, boutique-y feel — they're clear indicators that Nordstrom has put a whole lot of thought into what a department store should look like in 2016 and beyond.

"I think everybody is interested in doing something new and different," says company co-president Pete Nordstrom.

Three years ago, the company tapped Olivia Kim, then Opening Ceremony's vice president of creative, as its own vice president of special projects. The Times quipped that they made an odd pair, writing that Kim "isn't business as usual for Nordstrom" and that the partnership seemed like a "megalith gone hip."

Kim figured out a way to infuse freshness into Nordstrom with a concept she launched last year called Space, a dedicated in-store area filled with cutting-edge brands like Simone Rocha, Yohji Yamamoto, Creatures of the Wind, and Christopher Kane. Toronto Eaton Centre's Space is currently filled with an eclectic mix of fur coats, novelty clutches, whimsical dresses, and fashion-y sweatshirts from Brother Vellies, Comme des Garçons, Vetements, and more.

"When we looked at our designer offering, we saw a lot of really great established brands — the Yves Saint Laurent, Valentino, Stella McCartney — and we had a really productive advanced contemporary section," says Kim at the Nordstrom Eaton Centre black-tie opening gala. "But our customers are super fashion-savvy; she live-streams fashion shows and reads instant runway reports. She was aware of these emerging brands, but they normally sit in boutiques, right?"

Dedicating a section — one that's visually differentiated from other parts of the store through special merchandising and splashy decor — to these brands instead of mixing them into the existing departments is a move Kim considers "educating and nurturing."

Wing Yau, the designer behind jewelry brand WWAKE, which Nordstrom started carrying in June, believes Kim and her team have turned Space "into one of the most creative retail projects existing right now."

"They're willing to take risks with our weirdest designs and also collaborate on pieces you've never seen or imagined before," says Yau. "They're doing their best to inspire a taste of the future. They keep fashion exciting."

Kim also brings new energy to Nordstrom via a brand-focused shop-within-a-shop program called Pop-In@Nordstrom in select stores. Kim has done Pop-Ins with Opening Ceremony, Rag & Bone, Aesop, Poketo, and Liberty London; she even executed an Hermès boutique at one of the Seattle locations.

The Toronto Eaton Centre store opened with Alexander Wang Pop-in and Nike boutique. The Nike shop features a wall of Nike shoes and curated looks from Kim: Items like Rag & Bone jeans, Red Valentino sweaters, DKNY pleated skirts, and Moschino backpacks are paired with Nike hats, track pants, and sneakers and shown alongside Diptyque Baies candles, hair accessories from Jane Tran, and Captain Blankenship beauty products.

"This is really modernized," says Cowen analyst Chen. "They're giving shoppers a storytelling element they find online. My general impression is that these shop-in-shops make Nordstrom seem more edited, with an integrated assortment, rather than just looking at clothes by brands."

It's unclear if these projects have any direct or immediate effect on the bottom line. Kim is the first to admit most older Nordstrom customers won't make a purchase from Space or a Pop-In, but she maintains they're still of value to that demographic: "Even the older, more conservative customers are still reading about fashion. She's not going to buy it, but she still wants to know that the store she shops in is on top of what's happening in trends, in fashion right now."

Kantar Retail's Hogan says that while Space is likely "generating a small amount of money for select stores, this is Nordstrom's way of investing in the future. In a time when people are making less trips to the mall, giving shoppers a reason to come back every few weeks to check out a new Pop-In boutique makes the store feel like there's something new to be experienced."

"There is clearly a chasm opening between the compelling shopping destinations and the uncompelling shopping destinations."

"There's been a big shift in customers, because information is everywhere and they are more knowledgeable," says Pete. "Years ago when I first started the business, most brands didn't have a store. Now every single brand of any kind of size has a store, so those lines got blurred. Customers have a lot of choices, and we know they don't have to come here, so we've got to be the best."

And now the company wants to be the best outside of the US too. Nordstrom began its international expansion by opening a store in Calgary in September 2014, and it's been slowly staking its claim in Canada ever since. It opened stores in Ottawa and Vancouver in 2015, and after the Eaton Centre Toronto opening in September, a second Toronto store opened in the city's Yorkdale mall in October. Nordstrom plans to open another Canadian location, in Toronto's Sherway Gardens, next fall.

"For us it's a pretty logical expansion, being from Seattle," Pete explains. "Canada is right there, so it never seemed like much of a bold endeavor. It's more complicated than I think we knew going in — just the logistics of doing business across borders — but in terms of the sensibility of the customers and the opportunity and the familiarity of the brand, it always seemed like a logical place for us to be. And we are really committed to doing this as well as we possibly can."

This Canadian expansion is in keeping with the Nordstrom strategy of rolling out stores in busier "destination locations." Whereas malls used to be built as an anchor that would bolster the community's shopping culture — if you build it, shoppers will come — Nordstrom is investing in neighborhoods that its executives know are already dynamic.

"There is clearly a chasm opening between the compelling shopping destinations and the uncompelling shopping destinations," Jamie says. "A lot of suburban malls were built in the ‘70s and ‘80s as a more convenient alternative to downtown shopping. The internet came along and trumps that convenience, and so these malls are dying slow deaths."

"But the Eaton Centre, Yorkdale, South Coast Plaza, Bellevue Square, Houston Galleria, Tysons Corner," he continues, "These are all places that have invested in food, drink, entertainment, and our business in those locations are better than ever. The best malls are getting better because they are invested in."

Jamie admits there are Nordstrom stores in some suburban malls "that made a lot of sense in 1975, but they don't make sense today." The brand has closed four stores over the last two years, and he says there will likely be a few more closing in the near future. Ultimately, he says, "we are going to invest in the best locations."

Nordstrom's forthcoming New York City location, which will open in the Central Park Tower on 57th Street in 2019, is getting plenty of buzz. Jamie says the location is something the brand has been talking about for decades.

"We're going to have a dedicated van that's going to go to people's houses, a full concierge experience, and we will effectively be open 24 hours," he says. "Now the doors may not be open 24 hours a day, but if you need a shirt at 4 o'clock in the morning, if you need something altered, if you just got in from a business trip from India and you've got a meeting at 7:30, we will take care of you. That's our goal, with scale, merchandise, and service."

"We don't want to just be the best store in New York," he explains. "We want to be the store that somebody who travels there from Istanbul goes, ‘God, if you go to New York, you have got to go see the Statue of Liberty, you've got to see a Broadway show, and you have got to go to Nordstrom.'"

But for all it's doing to upgrade the American department store, the most successful Nordstrom experiment so far may be its off-price Nordstrom Rack division, which saw a 75 percent increase in sales from 2011 to 2015.

The company has had the off-price concept since 1973, when the Nordstrom family opened a clearance section in the basement of the downtown Seattle store. It expanded to another in Clackamas, Oregon 10 years later and then opened dozens more in the decades after, but it wasn't until after the recession that Nordstrom got really aggressive about expanding its off-price business. The number of Rack stores has nearly tripled since 2010, from 86 to 215. Nordstrom expects to have 300 Nordstrom Racks by 2020.

To Simeon Siegel, a retail analyst with Nomura Securities, Nordstrom Rack's momentum is a sign the company can adapt to a changing retail landscape.

"You can't afford to shop at Nordstrom full-price at first, but eventually you move up."

"If a leader doesn't recognize that traffic is moving in one direction, they'll plow money into channels that will just get increasingly smaller," says Siegel. "If a leader says, ‘I understand where that trajectory is going,' they can evolve into the new normal. This is something Nordstrom's done — they know it's important to grow off-price, but they still talk about store growth. Nordstrom hasn't stuck its head in the sand."

While brands like Michael Kors, Coach, and Kate Spade have reacted to consumers' apparent addiction to off-price shopping by pulling back on promotions and sales over concerns they hurt brand equity, Nordstrom and other department stores have a more pragmatic approach. Bloomingdale's, Neiman Marcus, Barneys, and Saks all have off-price models similar to Rack. Even Macy's, which is constantly running sales and promotions, recently rolled out an off-price concept called Backstage in select stores.

All have yet to achieve the same level of success, though. Nordstrom Rack's sales per square foot come in at a whopping $523, and annual sales jumped from $2.4 billion in 2013 to $3.5 billion in 2015.

"We execute it better than those guys," Jamie states. "To them, it's an afterthought. It's the 5 percent of business that they never really pay much attention to. For us, it's a priority."

In 2015, the company reported it had acquired 5 million new customers thanks to its Rack stores, and customer acquisition patterns suggest that its robust bet on its Rack division will not dilute Nordstrom's image as a luxury retailer nor end up hurting the brand's reputation in the long run.

"We acquire a ton of customers through those Rack stores who migrate into full-price," Jamie explains. "They buy that Rag & Bone pair of jeans for 70 percent off, and six months later they are like, ‘This is the greatest pair of jeans I have ever bought, I want to go buy a new pair.' And now they are going to pay full price."

This is why the company strategically puts Nordstrom Rack stores near regular Nordstroms, often around the corner or even directly across the street, like in Seattle.

"This has helped them create aspirational customers, where outlet shoppers eventually graduate to full-price ones," says Stephens, the Toronto-based retail analyst. "You can't afford to shop at Nordstrom full-price at first, but eventually you move up."

Still, it's clear the overall department store landscape is not going to improve. Siegel believes "department stores exist in a very challenged box," and even if a brand like Nordstrom focuses on store offerings, design, and location, and offers up an off-price alternative that truly can convert customers, "the fears of what's to come have not been fully addressed."

In the meantime, Nordstrom has loyal customers like Fay Wu, a Toronto-based venture capitalist, convinced. Wu is more than happy to pledge her allegiance to the brand and insists the success of Nordstrom is here to stay.

"As a person who does a fair amount of shopping online, Nordstrom will always be the exception because when you're investing in clothing, you will be looking for the extra steps of customer service that Nordstrom gives," says Wu. "It's a totally different experience from typical department stores."

And to borrow a mantra that's guided the Nordstrom family for 115 years, the customer is always right.

Chavie Lieber is a senior reporter at Racked.

Editor: Julia Rubin
Copy editor: Heather Schwedel


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