Why Online Retailers Are Flocking to Nordstrom
In the past few years, Nordstrom (JWN) has struck distribution deals for such hot, online-only brands like Bonobos, Shoes of Prey, and Baublebar, making the upscale brick-and-mortar department store a retail partner of choice for many hot up-and-coming e-commerce players.
Nordstrom now gets 21% of its revenue from digital sales, thanks to years of investing heavily in its e-commerce backbone, with everything from up-to-date distribution centers to shopping apps.
But its leading position among traditional retailers in e-commerce also has a lot to do with the company’s investments over the years in players like Trunk Club and how it has positioned itself as the department store most likely to house many hot brands’ first foray into physical retail. For all its recent wobbliness, Nordstrom is widely admired on Wall Street for how it has set itself up to benefit from the boom in digital companies branching out into physical retail.
And why is that? Nordstrom has a disproportionate percentage of its stores at the best malls, locations that many online brands are eyeing for their first shops.
According to a Credit Suisse research note last week, Nordstrom has the highest proportion of its stores at what the bank’s research arm calls “Most Valuable Properties,” 95 of the best U.S. malls in a universe of 2,101 centers. Some 62% of Nordstrom’s 120-plus stores are in those elite malls, which includes places like Roosevelt Field on Long Island and The Galleria in Houston.
That is well ahead of Bloomingdale’s (a unit of Macy’s Inc (M)), with 50% of its stores at such locations, according to Credit Suisse. (It’s worth noting, though, that Nordstrom has three times as many department stores as Bloomingdale’s.) Macy’s, an 800-store chain, comes in behind those two, with 11% of its stores in such high-end spots. Unsurprisingly, Dillard’s (DDS), a regional chain that’s based in the South, and J.C. Penney (JCP), a lower price point retailer, came in way behind the others.
“We think that Nordstrom’s high exposure to ‘MVP’ malls makes it the most attractive wholesale distribution partner for both emerging traditional and online-born brands that wish to expand their distribution to new markets,” Credit Suisse analyst Michael Exstein wrote in the note.
Shoes of Prey, an online footwear store that allows women to customize shoes; Sole Society; Bonobos (men’s fashion); and women’s plus-sized site Eloquii are just a few of the web-first brands that have chosen Nordstrom for their first physical shops. Madewell, which is owned by J.Crew, is doing gangbusters business and operates a few shops within Nordstrom in addition to having its own stores. Nordstrom also houses Topshop.
The relationship between Nordstrom and these web-first retail operations go beyond real estate. Last year, Nordstrom took a stake in Shoes of Prey. It bought Trunk Club in 2014, and three years before that acquired flash sale site Hautelook. It also owns a stake in Bonobos.
Bloomingdale’s is also in on the action, with spaces for intimates brand Third Love, as well as Baublebar and Rhone Apparel, both of which also have shops within Nordstrom locations.
There is plenty of room for physical growth among online-first retailers. Credit Suisse’s list of 33 key online brands include names such as Nasty Gal and Everlane.
But by being in the best malls and already offering a roster of top notch brands, as well as expertise with emerging online retailers, Nordstrom has made itself attractive to tomorrow’s retailers, something that will help it stick out from the crowded department store field.