Nordstrom 2014 Annual Report Download - page 16

Table of Contents
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Dollar, share and square footage amounts in millions except percentages, per share and per square foot amounts
OVERVIEW
Nordstrom is a leading fashion specialty retailer offering apparel, shoes, cosmetics and accessories for women, men and children. We offer
an extensive selection of high-quality brand-name and private label merchandise through our various channels: “Nordstrom” branded full-line
stores and online store at Nordstrom.com, Nordstrom Rack stores, Nordstromrack.com and HauteLook and other retail channels, including
Trunk Club showrooms and TrunkClub.com, our Jeffrey boutiques and our clearance store that operates under the name “Last Chance.” As
of January 31, 2015, our stores are located in 38 states throughout the United States and in one province in Canada. In addition, we offer our
customers a Nordstrom Rewards™ loyalty program along with a variety of payment products and services, including credit and debit cards.
We continue to see the ongoing evolution of retail, with increasing customer interaction between our stores and ecommerce. We are making
progress to meet customer expectations of a personalized experience that merges the richness of stores with the convenience of online.
Because the customer views us simply as Nordstrom, we believe there is tremendous value in strengthening our platform for the customer
experience that encompasses full-price, off-price, in-store and online. While each channel represents a substantial growth opportunity, there
are significant synergies across channels to create a unique customer experience to gain market share.
We considered 2014 a watershed year in our company history, with our successful entry into Canada, continued expansion of our Nordstrom
Rack business through store growth, the launch of Nordstromrack.com and the acquisition of Trunk Club. Our performance in 2014 reflected
continued progress in executing our customer strategy through investments to drive growth across channels. We achieved total net sales
growth of 7.8%, adding nearly $1 billion to our top-line and delivering record sales and earnings per diluted share. Our financial position
remains strong and this marked the sixth consecutive year we generated over $1 billion in cash flow from operations.
Our partnership with vendors and brands enhances our product offering. We offer Topshop merchandise at 53 full-line stores and online, with
plans to reach over 80 stores in 2015. Our new partnership with Madewell in 2015, initially available at 15 of our stores and online, is another
way to provide sought-after brands that appeal to new and existing customers.
In 2014, we opened our first full-line store in Canada in Calgary, Alberta, reflecting a multi-year effort from our team to address the unique
challenges of crossing the border. With our store outperforming our expectations, we are encouraged with our customers’ response in this
market. We are looking forward to opening stores in 2015 in Ottawa, Ontario and Vancouver, British Columbia. In the U.S. we increased our
presence with two full-line stores in The Woodlands, Texas and Jacksonville, Florida. In 2015, we plan to open three full-line stores in Puerto
Rico, Minneapolis, Minnesota and Milwaukee, Wisconsin.
At Nordstrom Rack, we offer customers great brands at great prices, with 48 of the top 50 full-line brands represented. We opened 27
Nordstrom Rack stores in 2014, a record number of openings, contributing to Nordstrom Rack’s total sales growth of 17%.
Our online businesses continue to be our fastest-growing channels. In the spring of 2014, we expanded our capabilities through the launch of
Nordstromrack.com, providing a seamless integration with HauteLook. We more than doubled our merchandise selection, which accelerated
growth in this channel in the second half of 2014. Demonstrating synergies across our businesses, we enabled customers to return
purchases from HauteLook and Nordstromrack.com to any of our Nordstrom Rack stores, which drove nearly one million incremental trips to
Nordstrom Rack stores.
Nordstrom.com finished its fifth consecutive year of approximately 20% or more comparable sales growth, with a key driver being increased
merchandise selection. In 2015, we plan to open our third fulfillment center, located in Pennsylvania, which will enhance the customer
experience through faster delivery. Furthermore, we have extended our full-price offering with our acquisition of Trunk Club, a high-growth
business offering a new approach to personalized service.
Our credit business, through our Nordstrom Rewards program, continues to play an important role in attracting new customers and
deepening our engagement with existing customers. The program contributes to our overall results, with members shopping more frequently
and spending more on average than non-members. For the third consecutive year, we opened over one million new accounts. With over four
million active members, 2014 sales from members represented approximately 40% of our sales.
We are confident in our ability to execute our customer strategy as we evolve with customers and continue to leverage capabilities across all
channels to serve customers on their terms. To enhance the customer experience, we continue to make investments in our stores in new
markets such as Canada, Puerto Rico and Manhattan, in our ecommerce and fulfillment capabilities and in technology to support growth
across all channels. We believe these investments in our customer strategy will help us achieve long-term top-quartile shareholder returns
through high single-digit total sales growth and mid-teens Return on Invested Capital.