Nordstrom to Expand in Michigan

In order to solidify its footprint in North America, leading fashion specialty retailer Nordstrom Inc. (JWN - Analyst Report) has recently decided to open a new Nordstrom Rack store at Baldwin Commons in Auburn Hills, Michigan. The store – scheduled to open in spring 2013 – will include a wide selection of apparel, accessories and shoes.

Nordstrom Rack store is an off-price retail format of Nordstrom. It sells the company's off-season and clearance goods from its mall stores and Nordstrom.com, at a discount of 50–60% from original Nordstrom prices. Rack also showcases apparel, accessories and shoes, which are specially purchased for Nordstrom Rack at a discount of 30–70% on original prices. The Rack concept is specifically designed to attract customers who appreciate the brand, but are unable to afford the price tag.

The new store, spanning 34,800 square feet, will replace the former Linens ’n Things space and share the building with tenants, such as DSW Inc. (DSW - Snapshot Report), Kohl’s Corporation (KSS - Analyst Report), Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA - Snapshot Report), Old Navy, etc.

Owned and managed by Lormax Stern, Kirco Development and Walbridge, the Baldwin Commons building is located at Interstate 75 on Baldwin Road, which is one of the busiest areas in the city. Nordstrom expects the location to help it attract customers residing in the greater Detroit area and the residents of North Oakland County.

The company already operates 3 full-line and 2 Nordstrom Rack stores in Michigan. Earlier, in September this year, the company announced that it will open a Nordstrom Rack store at Arborland Center in Ann Arbor, Michigan in spring 2013. The Arborland Center is situated in southeastern Ann Arbor between the University of Michigan and Eastern Michigan University.

Our Recommendation

Nordstrom’s latest store openings signify the company’s commitment to expand its stores to drive its top-line growth. As of October 16, 2012, Nordstrom operated 117 Nordstrom full-line stores, 116 Nordstrom Rack, 2 Jeffrey boutiques, 1 treasure&bond store and 1 clearance store, thus bringing the total store count to 237.

Moreover, the company remains on track to achieve its target of opening 16 new stores in fiscal 2012 consisting of 1 full-line store and 15 Nordstrom Rack Stores. Year-to-date, the company has already opened 1 full-line store and 11 rack stores and will open one more Rack store this month at Huntington Shopping Center in Huntington, New York.

Further, Nordstrom plans to add 24 new Rack stores in fiscal 2013 and intends to operate 230 of such stores by the end of 2016.

Currently, Nordstrom has a Zacks #2 Rank, which translates to a short-term Buy rating. However, we remain slightly cautious on the stock and uphold our long-term ‘Neutral’ recommendation, waiting to see further catalysts before becoming more positive on the stock.