Nordstrom Rack turned in category leading comparable-sales increase of +8%. Nordstrom CEO Erik Nordstrom said on its efforts to demonstrate disruptive value on coveted brands--one of the key trends we identified for 2024--which they have done so far this year, “It's really hard to separate out value versus newness. It's really essential for us that both...it's the really coveted brands, brands that customers associate with our Nordstrom brand. As we've leaned into those brands more has been more purposeful in allocating more open to buy to those brands as well as [indiscernible] treatment them on our stores. Our stores showcase these brands more and we really do lead with brand first on there. Now the price is super important. But having that mix of brands that does separate us. Our mix is unique in off-price space having the depth of these coveted brands is a point of difference and having it in off-price environment is really our secret sauce, and that's where we've been focused on.” As such, it’s great to see Nordstrom Rack back in growth mode; however, as the industry comps to 2019 demonstrate, Rack had a much easier comp base to grow off from and the overall industry trend versus 2019 was stable at the upper end (T.J. Maxx and Marshalls).
Regarding the lower-end consumer, Burlington CEO Michael O’Sullivan was a bit more positive, “We think the external environment is very hard to read right now. But our assessment is that all income groups, not just lower-income consumers, all income groups are feeling economic pressure. I know this is not a very sophisticated framework, but we divide the world into two main segments: need-a-deal shoppers who tend to be lower income and have larger family sizes and want-a-deal shoppers who tend to have slightly higher incomes and more financial choices. And both of those segments shop off price. Now the need a deal shopper needs value, especially at opening price points and on moderate brands. And as we've said before that shopper is very important to us...I would say [that] investor concerns about those lower-income consumers...may be overblown. We think that at this point, those concerns are mostly in the rearview mirror. In 2022, and we certainly felt this, those lower-income shoppers were crushed by the combination of a higher cost of living and the end-of-pandemic era benefits. But our view is that since then, in other words, over the last five quarters, discretionary income for that demographic appears to have stabilized. Now the consumer is still fragile...but inflation has come down, and it looks like real incomes at the lower end are not shrinking in the way that they were in 2022. We're not saying that the situation for this customer is getting better yet. They're not bouncing back. But we assess that the situation doesn't seem to be getting any worse.”
And so, as TJX Company’s results and the current commentary demonstrated, there is less of an income dynamic (high-end good, low-end bad) going on in off-price. Recall that TJX noted strength for lower-income customers. (See our write-up of TJX's results and Macy's results, as well as in our comments about Nordstrom’s above.) Below we show a change in visitation to the three brands by income cohort. (We are focusing on California, to isolate geographic differences between the brands.) Of note, the -3% decline for Marshalls customers would be felt more acutely in sales given that these customers spend 2-3x more than the less affluent cohorts. (However, another layer of complexity is that Marshalls had a good increase in visits as loyalty and frequency also rose.) The decline at Nordstrom Rack is also interesting given that they added seven new locations over the year, representing new unit growth +14% year-over-year. One would have thought the 14% increase in locations would have added 10% or so more shoppers. Visits were up year-over-year for Rack in California, or roughly in line with footprint expansion. Management noted an improvement in conversion rate and average ticket. Thus, the sales growth would exceed visits; that’s good double-digit momentum for the brand.
On Burlington’s new store program, the company is on track to open 150-160 new locations for the year. On the acquired 64 Bed Bath & Beyond locations, management feels they can beat plan with the favorable results from the first 52. Burlington also looked at over 370 of the now-closed 99 Cents Only locations, but generally passed as they were not in “busy centers with strong national co-tenants” per their characterization (they will take a few of the locations). Ross Stores has reiterated its new store plan of 75 Ross Dress for Less and 15 dd’s Discount stores. Nordstrom plans to open 22 locations for the year. Neither Ross nor dd's Discount mentioned 99 Cents.
