Bargain Hunting: Luxury Retailers Find an Outlet

With sales at their main locations sagging, Saks, Nordstrom, and others are tapping budget-conscious shoppers by expanding their outlet stores

On a recent morning at the Woodbury Commons Outlet mall an hour north of New York City, Carissa Nava is looking over a red wraparound dress by Diane Von Furstenberg at the Saks Fifth Avenue Off Fifth store. The dress retails for $365 at Saks' main store on in New York, but here it is selling for $126.99.

Nava, a pharmaceutical sales rep who lives in Manhattan, makes regular trips to Saks' flagship store on Fifth Avenue—sometimes to buy, but often just to check out the selection of big-name apparel. Then, at the earliest chance, she drives up to the Saks outlet to pick those items up at a significant discount. "I only wear Seven or True Religion jeans, and I get them here for $149," she says. "Why would I pay $216 for the same exact ones at the main store?"

There's a certain snob appeal that attaches to luxury retailers like Neiman Marcus, Saks (SKS), or Nordstrom (JWN). Which is why, even though almost all of them have operated discount outlet stores for years, they never talked much about them. Saks went to the extent of keeping its name off the outlets, calling them "Off Fifth."

Out of the Shadows

But today, with the economy stalled and consumer spending in free fall, snobbery is a bit harder to pull off. Even the most upscale shoppers are hunting for bargains. So luxury retail executives are taking their off-price operations out of the shadows and launching their most aggressive expansion plans in years. Increasingly, the outlets also are offering not just discontinued or leftover inventory from a previous season, but many items currently available at the mainline stores.

"Only stores that scream value are getting consumers in," says Erin Armendinger, managing director of the Jay H. Baker Retailing Initiative at the Wharton School at the University of Pennsylvania. . . . more

Nordstrom to open stores, roll out new products

NEW YORK - Nordstrom Inc. expects to weather a sagging U.S. economy by enticing customers with fresh products and new store openings, the luxury retailer's chief financial officer said Wednesday.

CFO Michael Koppel, whose comments were webcast from a Piper Jaffray (nyse: PJC - news - people ) consumer conference in New York, acknowledged that many Americans are facing tough times, given record high gas prices, a soft labor market and tighter credit.

"Obviously, I don't have to tell many of you what's going on in the current environment," Koppel said. "It's pretty tough out there."

Still, Koppel remained confident that Nordstrom (nyse: JWN - news - people ) will gain market share with an improved product line and opening new stores. Specifically, the company will open eight stores this year and five next year.

"New stores are our best investment," said Koppel, adding that they generate long-term growth and excitement among shoppers in the community.

Also, Nordstrom has been revamping current locations. Koppel said the company has spent over $120 million per year to remodel stores.

Another factor that will help Nordstrom, Koppel said, is that the company's core demographic, typically between the ages of 25 and 54 and making over $100,000 in income, is growing faster than the broader market.

Also, demand for Nordstrom's core consumable items, like cosmetics, has remained healthy, Koppel said. Consumers may be less likely to skimp on purchasing items like these, since they're viewed as somewhat less discretionary.

In the first quarter, Nordstrom's profit came in better than expected, but earnings still declined 24 percent as high gas prices and tighter credit had consumers holding the line on spending.
Same-store sales, which measures sales at stores open for at least a year, dropped 6.5 percent for the quarter, below the 3 to 5 percent decline expected by analysts.

Currently, Seattle-based Nordstrom has 159 stores in 28 states.

Nordstrom's stock declined 64 cents to $33.17 in afternoon trading.

Source: Forbes.com

Luxury Retailers Pin Hopes on Outlets

Bracing for a prolonged economic downturn, luxury retailers are lavishing new attention on their lower-end factory-outlet stores.

The efforts reflect a new reality for retailers that are being squeezed by one of the worst consumer spending slumps in years. Sales at outlet stores are growing faster than those at full-priced stores at many chains.

Saks Inc. is renaming its Off Fifth outlets "Saks Fifth Avenue Off Fifth" -- in hopes that a closer association with the luxury department store will be a bigger draw. The 48 outlets also began using the Saks label and selling more merchandise that is tailored for them, as opposed to goods that aren't selling at higher-end stores.

Nike Inc.'s Cole Haan unit is renovating and opening 40 total outlet stores resembling beach houses in the next two years, in a bid to capture luxury customers who might be shopping for bargains. And Liz Claiborne Inc. is changing the format of its outlets, devoting less space to its flagship Liz Claiborne brand and carving out off-price standalone stores for its Juicy Couture, Lucky Brand Jeans and Kate Spade labels.

The trend is evident at Simon Property Group Inc., the nation's largest mall operator. The company reported Tuesday that comparable sales per square foot at its Chelsea Premium Outlets division rose 5.4% to $511 as of March 31, compared with a year ago. That's far better than the anemic 0.8% increase to $491 per square foot at its regional malls.

The pattern is far more pronounced for some retailers. At Coach Inc., same-store sales at factory outlets rose a healthy 17.7% in the quarter ended Dec. 29, while sales at full-priced stores fell 1.1%; Coach no longer breaks out retail and factory-store results. Nordstrom Inc.'s sales at its high-end department stores, meanwhile, have fallen four consecutive months, most recently by 11.4% in March, while sales at its Nordstrom Rack clearance stores have continued to grow, rising 1.7% last month.

Howard Weinberg, a retiree in Framingham, Mass., who says he generally has been spending less, noticed that several stores at one local outlet mall he shopped at recently were "packed with people," although "some of the stuff there looks like it's a castoff."

The resurgence of outlets entails new risks for retailers. For one thing, shifting sales to what is by definition a discount format can put pressure on profit margins. Coach, for instance, says it sweetened its discounts of handbags at its 101 outlet stores last quarter by 10% to 12%, contributing to a decline in gross margin for the company. "We've had to be more promotional" to take advantage of the higher traffic at outlet malls, says Coach CEO Lew Frankfort.

What's more, outlets are facing greater competition from the so-called off-price retailers, such as Ross Stores Inc. and T.J. Maxx, a unit of TJX Cos., which can buy more discount designer merchandise than before -- a typical byproduct of the economic slowdown that is hurting sales at full-price stores. "The current environment is favorable in terms of availability of product," says Katie Loughnot, a Ross Stores vice president for investor relations.

There's also a chance that outlet operators might cannibalize sales at their own full-priced stores, particularly as new outlets open closer to suburban and urban malls. "The key is to not proliferate the outlets too much, and to be choosy about location," says William McComb, chief executive officer of Liz Claiborne. So far, it has closed or renovated a third of its old Liz Claiborne outlets, which he describes as "relics."

That's one reason jeans maker VF Corp., which plans to open 75 to 100 stores in the next few years, isn't planning a push into outlet malls. "We wouldn't want to drag our brands down with too many outlet stores," says Michael T. Gannaway, vice president of the VF Direct division. The company's brands include Wrangler, Lee and 7 for All Mankind jeans, Vans and John Varvatos.

To avoid hurting full-priced sales, most of the outlet divisions of retailers intentionally don't sell online. One exception is Neiman Marcus Group Inc., which has a Last Call clearance feature on its Web site.

Many retailers, including Neiman Marcus, don't break out the performance of their outlet stores. Saks Chief Executive Officer Steve Sadove said at a conference Tuesday that its Off Fifth business has the potential to deliver "outsized growth" in monthly same-store sales. Saks expects its overall same-store sales, including outlets, to grow by the low- to mid-single digits in the first half of this year.

At Simon's Chelsea outlet malls, "we are still on a positive track" with "no meaningful weakness in tenant demand or in the shopper," says Leslie T. Chao, chief executive officer of Chelsea Property Group.

Outlet centers in New York, Las Vegas, Texas and Seattle have seen "sizable gains" in sales, thanks to the weaker U.S. dollar and an influx of foreign tourists, he notes. But even in other markets "we are holding our own" -- with outlet malls sales flat or slightly up so far, he says.

Even Talbots Inc., which plans to close its 78 children's and men's apparel stores by September, said this month it will open as many as 40 upscale factory stores in premium outlet malls in the next three years. Talbots currently has 25 clearance centers -- locations that Linda Humphers, editor-in-chief of Value Retail News, an outlet-industry magazine, describes as "totally dismal." The new upscale outlet stores will carry merchandise specifically made for them, Talbots says.

Source: Wall Street Journal

Nordstrom Rack to Open in White Plains

Nordstrom Inc., which has a store in downtown White Plains at The Westchester, plans to open a 35,000-square-foot Nordstrom Rack at the City Center Shopping Center this fall.

Nordstrom Rack is the company's discount division. The company touts its Nordstrom Rack stores as offering savings of 30 to 75 percent on clothing and accessories.

The City Center store will be the second Nordstrom Rack in New York. There's also one in Hempstead on Long Island.

The City Center complex, owned by developer Louis R. Cappelli, features a Target, a Barnes & Noble bookstore and a Circuit City.

Cappelli said he believes Nordstrom Rack will fit nicely with the stores already in City Center.

"City Center plays an important role in the overall retail success of downtown White Plains," he said in a statement released by Seattle-based Nordstrom. "Having Nordstrom Rack join our tenant roster brings even greater strength to our center and the city as a whole."

Source: LoHud.com

Nordstrom Opens Second Bay State Store at Burlington Mall

SEATTLE, March 28, 2008 /PRNewswire-FirstCall via COMTEX/ -- Leading fashion specialty retailer Nordstrom (NYSE: JWN: 32.62, -1.97, -5.69%) opened the doors to its second Boston-area store today at Burlington Mall. The 138,000-square-foot, two-level store offers a well-edited selection of luxury and quality fashion apparel, footwear and accessories for women, men and children to Burlington Mall shoppers.

"We are thrilled to welcome customers into the store and show them all that Nordstrom has to offer, right here in Burlington," said Cindy Gelb, store manager. "We are still new in the Boston area and can't wait to introduce ourselves to more customers."

In addition to a great selection of fashion merchandise, the store offers a number of services to enhance the shopping experience. These amenities include an in-store alterations and tailor shop, bra and prosthesis fitters, complimentary gift boxes, a shoe shine stand and two family restrooms. Nordstrom at Burlington Mall will also feature two food offerings, including an espresso bar and the company's newest restaurant concept, Blue Stove.

Opening day started at 8:30 a.m. with Nordstrom hosting a beauty bash outside its mall entrance. Shoppers enjoyed complimentary beauty and skincare consultations and learned about the latest trends in makeup and fragrance. When the store opened at 10:00 a.m., 380 excited employees lined the aisles by each entrance and cheered enthusiastically to welcome the first customers through the doors.

Earlier in the week, Nordstrom held an opening gala that raised over $160,000 for partnering charities Dana-Farber Cancer Institute, The Junior League of Boston, and The Links, Incorporated (Boston and Middlesex Chapters).

Nordstrom, Inc. is one of the nation's leading fashion specialty retailers, with 158 stores located in 28 states. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 104 full-line stores, 50 Nordstrom Racks, two Jeffrey boutiques and two clearance stores. Nordstrom also serves customers through its online presence at http://www.nordstrom.com and through its catalogs. Nordstrom, Inc. is publicly traded on the NYSE under the symbol JWN.

Source: PRNewswire