If you are a recent reader you might think I've never invested in high end retail before; nah - we've owned Nordstrom (JWN), Coach (COH), and Ralph Polo Lauren (RL) at various times. While I was early on the "die consumer die call" [Nov 7, 2007: Are Department Stores Signaling a Recession in 2008?] by the time the Great Recession is over, the retailers that remain should have far fewer competitors.
While the recent "consumer is back" rally flies in the face of my theories, I will always be open to the idea I am wrong (0.2% chance) or that the market can remain irrational longer than I can remain solvent (99.8% chance) ;) [sarcasm folks.. sarcasm] And with the all powerful Federal Reserve letting many of us lucky souls once again serial refinance as they drop rates lower and lower - I do realize that $140 sweaters and $70 wallets will once again reign supreme for a select group of "striving to show up my neighors even in a Great Recession". As for myself, I don't frequent such haughty palaces of consumerism, so I must rely on news articles to see how people on the good sides of the railroad tracks shop. ;)
An interesting article below via Bloomberg describing the differences between the "big 3" of high end department stores - Nordstrom (JWN) v Macy's (M) v Saks (SKS). Macy's been struggling with debt, but cutting heads like Jason from Friday the 13th [Feb 2, 2009: Macy's Cuts Another 7000] [Feb 6, 2008: Macy's Cutting 2300 Jobs - White Collar; Out You Go], while Saks is... just in trouble. The charts bear out the conclusions from the story - frankly it is quite nice to see relative performance among stocks begin to make sense to some degree. Nordstrom is up 60% in just the past month alone [Apr 5: The Meek Shall Inherit the Earth: 92 Stocks Over $10 Returning 60%+] While all 3 have rocketed off their lows, JWN has made it all the way back to the 200 day moving average - while Macy's is still a mile away... and Saks? Well, let's enjoy Macys and Nordstrom shall we?
Nordstrom Inc. is outperforming other department-store chains during the U.S. recession in part by moving fashions off the racks at about twice the pace of its rivals. (that is actually very impressive) The chain holds inventory for 62 days on average, while Macy’s Inc. keeps its goods for 119 days and Saks Inc. for 140, according to data compiled by Bloomberg. With less cash tied up in inventory, Seattle-based Nordstrom can devote resources to projects that otherwise would have required borrowing. - The efficiency has helped Nordstrom shares post a 40 percent gain this year, compared with declines for Saks and Macy’s. Fast-turning inventories are a sign a retailer is well- managed, making it more attractive to investors, especially in an uncertain economy, said Patricia Edwards, a retail analyst.
- “If Nordstrom were a car, it would be a hybrid Cadillac Escalade that gets 20 miles per gallon instead of the normal 12,” said Edwards, founder of the research firm Storehouse Partners LLC in Bellevue, Washington.
- Nordstrom’s gain this year outpaced the 13 percent advance of the Standard & Poor’s 500 Retailing Index. Saks had dropped 50 percent in 2009, and Macy’s, the second-biggest U.S. department-store chain, has lost 0.3 percent. Nordstrom sank 64 percent last year.
- Nordstrom limits new orders based on past sales, targets specific merchandise for markdowns instead of entire lines and ships non-selling items to outlet stores. Macy’s relies on general one-day sales and coupons to clear stock, Edwards said. Saks had been boosting orders, only to get caught when consumer spending plunged in September. “If I am going to put my money behind a retailer in this rocky economic environment, I want it to be one of the best-run companies out there,” Edwards said. “Nordstrom is one of those.”
- The brisk inventory turnover means “Nordstrom’s investment to drive sales is lower,” said Liz Dunn, an analyst with Thomas Weisel Partners LLC in New York. “They are doing more with less,” said Dunn, who rates the shares “overweight.”
- Improving inventory management has been the biggest focus of the generation of the Nordstrom family that took over in 2000. The company, which runs 110 namesake stores, won’t say how much it has spent upgrading systems. The chain ended fiscal 2008 with inventory totaling $900 million, compared with $945.6 million in 2000, even though it added more than 30 stores.
- Nordstrom shrank its 2008 year-end inventory per square foot 12 percent from a year earlier, compared with a 12.5 percent decline in fourth-quarter same-store sales, reducing supplies in line with shrinking demand. (again, impressive - that's "just in time" adjustment. "Walmartish" in fact)
- Nordstrom has combined its in-store and online inventory systems, creating a single view of goods. Four years ago, it installed “markdown optimization” software to help it discount merchandise more profitably. Before that, it introduced a system that gives sales staff more information at their cash registers. These investments help the chain determine, for example, what will move at a 25 percent discount versus 35 percent, and identify which single jacket style needs to be marked down, instead of discounting a collection, Edwards said.
- Removing unsold items from the store is also key, Nordstrom said. The chain sends leftover merchandise to its Nordstrom Rack outlets. “If we can identify what is not performing and move it out to bring in fresh merchandise, that’s a decision we want to make,” he said.
- Nordstrom is now focused on getting more of the right goods to the right stores in the first place, he said. The benefits of that should be felt in two years, he said.
- The chain’s operating margin -- operating income as a fraction of sales -- was 8.98 percent in the most recent year, compared with 5.63 percent at Macy’s, according to Bloomberg data. Saks was in the negative. (Oh Saks!) Nordstrom’s net income dropped 68 percent to $68 million, or 31 cents a share, in the quarter that ended Jan. 31. Macy’s reported a loss after writing down of the value of its assets. Saks also posted a loss.
