20 Years in the Making, Nordstrom Hopes to Take Manhattan

After 118 years in business, Nordstrom is finally going to open a full-fledged luxury department store in New York City, the U.S. mecca of high-end shopping.

On Thursday the Seattle-based retailer opens the doors to the public on a seven-level, 320,000-square-foot women’s store in the heart of Manhattan, at Broadway and 57th Street. The new Nordstrom will be a major test of whether the luxury category can shake off the department store doldrums.

It’s immediately clear upon walking into the new space that Nordstrom understands the importance of this store, which is opening 18 months after delivering a 47,000-square-foot Nordstrom Men’s Store NYC across the street. The company first started planning the store 20 years ago but held off on moving ahead until 2012 when they found the right spot.

The street-level floor boasts grand 19-foot-high ceilings, with lots of long sight lines and plenty of outdoor light to complement the store’s space lighting. At the center of the first floor will be a large exhibition space that serves as part-gallery, part shop, with shoe brand Christian Louboutin taking the spot on opening day. New brands and concepts will rotate through the space every six weeks. The store also features a sophisticated air filtration system to keep the store feeling fresh and shoppers breathing easy no matter how many hours they stay inside.

“It’s the most important market in our industry,” Erik Nordstrom, co-president and great grandson of the retailer’s founder tells Fortune. “It’s the center of the industry, our vendors are here, the world comes here. We have to be at a level beyond our best.”

Nordstrom’s New York store will have the largest beauty department of any of its 113 U.S. department stores. (Nordstrom also operates the Rack discount chain and six full-service stores in Canada.) The two-level department will feature traditional beauty counter service where customers can find Estée Lauder’s La Mer and other high-end lines, as well as future-forward features such as an augmented reality (AR) assisted mirror called “Lip Try On” that shows a customer how her lips will look in any of 400 colors.

The beauty area of Nordstrom’s New York flagship opening on October 24, 2019.

And in a bid to drum up store visits, the beauty department’s Beauty Haven will also offer 110 services such as facials, hair blow outs, brow shaping, and even Botox injections.

The store will have seven places to eat, including four restaurants, and sell unique products such as children’s clothing from Dolce & Gabbana and Fendi.

The opening of the store comes at a critical juncture for Nordstrom.

The company, while regarded as well run and proactive in its tech investments, has not escaped the turmoil buffeting high-end department stores: sales in Nordstrom’s full-price business were down 5.9% in the first half of the year, prompting Nordstrom to lower its full-year sales forecast. (The Rack business, only recently booming, is also struggling.)

Shares have fallen 28% so far in 2019, with many investors wondering whether Nordstrom’s massive investments in recent years, including the New York City flagship, will yield better sales performances.

However enticing the store, New York City is hardly in need of another luxury department. The market is already crowded, as Nordstrom executives readily concede: Neiman Marcus opened its first New York City store in March, Hudson’s Bay’s Saks Fifth Avenue flagship is booming following a massive renovation, and countless luxury brands have been opening their own stand-alone stores.

The crowded market hasn’t been kind to all companies: Saks, a New York-based retailer, this year closed its downtown store, while Barneys New York is in bankruptcy protection.

But Nordstrom is betting that a strategy of complementing flagship stores in major markets with small Nordstrom Local stores will be a winner.

The Nordstrom Local store on Manhattan’s Upper East Side.

The Local stores, at 2,000 square feet, are a fraction the size of a regular Nordstrom, and aren’t really as much stores as they are service hub outposts where customers can get alterations done, and pick up or return online orders.

At Nordstrom Local, customers can also work with stylists who can tap the inventory of the Manhattan flagship, up to 30 pieces, thereby extending the reach of the department stores.

That interaction between flagship and Local stores will be key to reaching the $700 million in sales Nordstrom is projecting for the New York City department store. (Nordstrom has five more stores in the NYC area, its top market for online sales. Some 30% of Nordstrom’s full-line revenue comes from online sales.) The brand is under pressure to deliver: last year, Nordstrom told investors it could get to $18 billion in sales by 2020—in 2018 the brand pulled in $15.5 billion—and the soft sales trends of late aren’t helping.

“I’m not sure we need yet another massive piece of real estate for a department store in New York City,” says Stacey Widlitz, founder of consulting firm SW Retail Advisors. At the same time, she says, Nordstrom Local, which the company has started off with two New York locations, could be the secret ingredient that makes the new store hum. “The differentiating factor will be customer service and convenience and that builds loyalty,” she adds, noting Nordstrom’s long reputation for both.

In Los Angeles, where Nordstrom tested the first Local store in 2017, the company operates 16 regular department stores and three Locals. That mini-ecosystem is connected by Nordstrom trucks that are constantly moving merchandise around town. That setup, the company says, has allowed Nordstrom to better serve its 4 million customers in Los Angeles. Customers who use the Locals spend 2.5 times more money than others, Nordstrom says. Another benefit for the company: returned items are put back into sales circulation more quickly. The company that the NYC flagship-local eco-system will see the same benefits.

While the company won’t say when it will expand the Local concept to markets beyond New York and Los Angeles, it’s worth noting that Nordstrom gets 60% of its revenue in its top 10 markets, and it is doubling down in those areas.

“We’re concentrating in terms of where our customers and sales are,” says Ken Worzel, Nordstrom’s operations chief.

What’s more, he notes, eventually the Nordstrom stores in the rest of the New York area, in addition to the Local stores, the Rack locations, and the Trunk Club store, can become part of that mini-hub centered on the new store. That will create a critical mass of merchandise any other store or Local can tap into for quicker service and delivery to a potential audience of 15 million people.

Still, beyond operational and supply chain prowess, Nordstrom’s store has to give shoppers a reason to choose it over the panoply of other options, especially when those shoppers have been catered to throughout their shopping lives. That means the Nordstroms, just like the Saks and the Neimans of the luxury world, have to offer state-of-the-art luxury retail.

“This is a massive investment for us, we can’t have multiples of these,” says Erik Nordstrom of the flagship. That’s why they need to get the new NYC store right.