Nordstrom Site Selection Proposal

Nordstrom Site Selection Proposal

Michael Lewis

Table of Contents:

Introduction                                                                                                                                    3

Background                                                                                                                                      4

Target Market & Market Saturation                                                                                            5

Geography of the Study Area                                                                                                       6

Methods                                                                                                                                          8

Results                                                                                                                                           12

Introduction:

In a struggling retail market, few companies are weathering the storm as well as Nordstrom is. Nordstrom and its outlet store, Nordstrom Rack, have consistently put up positive numbers and they continue to expand all over the county. In recent years, retail powerhouses like JC Penny and Macy’s have been forced to consolidate and fight to keep the majority of their stores open. JCP and Macy’s have each closed hundreds of stores.  During that same period, Nordstrom has expanded including 3 full-line store and 24 Nordstrom Rack stores. This promising outlook makes it a perfect candidate for a future store, and a site location to go along with it.

Bringing in a Nordstrom in the Northern Milwaukee/Ozaukee area brings in a new type of retail that the region has been lacking. With its large population and dense upper class area’s, it fits with Nordstrom’s audience and would continue to build up local business in the area. With traditional anchor stores like Target and Walmart, Nordstrom’s has the possibility to be a new anchor store, one that other businesses can feed off of. If the anchor store is attracting a higher end clientele, it will attract higher end businesses that fit that demographic.

Background:

                Founded in 1901 as a small shoe store in Washington, it quickly grew and made a name for itself in the retail market. As it spread across the United States and later Canada, it’s up-scale merchandise attracted much attention and popularity. Today, Nordstrom has 354 stores in North America. With 122 of those stores being full-line locations, Nordstrom gained even more popularity with the introduction of “Nordstrom Rack”. Rack is considered an outlet type of store and sells last season’s merchandise at a lower price. Of the 354 Nordstrom store, over half of them are Nordstrom Rack stores. Nordstrom is now an international store including a booming online business. Nordstrom executives expect Rack stores and online business will account for greater than 50% of total revenue in the future. Becoming the mega brand it is, it is traded on the New York Stock Exchange, and among elite retail stores like Neiman Marcus, Saks Fifth Avenue, and Bloomingdales.

                As stated previously, Nordstrom is coming off a mixed year. Fiscally it was strong, bringing in just under $15 billion in revenue. This is up more than $400 million from 2015 alone. In addition to its increase in revenue, Nordstrom opened 27 stores in a retail market that has been making headlines for store closings.

                Interestingly, this strong year did not translate over to its stock holdings. Currently trading around $40 as of May 16, 2017, it is far from last year’s high just above $80 price per share. Even during this research in the last week it has dropped by $10 price per share.

Target Market:

                From its early days on the West coast, Nordstrom has focused on high end retail and over time made a name for themselves for the quality of their products and their elegance. With that reputation in place, Nordstrom’s target audience is the upper-middle class to the upper class. This demographic would include people who make over $80,000 annually, or households at the same threshold. This demographic is specifically receptive to Nordstrom’s as the style and price points match that of their expectations. Households at that $80,000 or more average annually often are corporate types. Due to these occupations, the need for high end or even business clothing brings them to Nordstrom’s.

                Interestingly, with their expansion and introduction of the Nordstrom Rack stores, their target market is different. With the outlet style operation, they are able to offer the same quality merchandise but at a lower, more affordable pricing. This quickly grew in popularity and now makes up the majority of their stores. It also makes their current full line Nordstrom stores more elite.

Market Saturation:

                The current market for Nordstrom’s and other high end retail in Southeast Wisconsin is wide open. Nordstrom currently operates three stores in the state of Wisconsin. Two Nordstrom Rack stores and a full line Nordstrom in Wauwatosa, just west of Milwaukee in the Mayfair Mall. Those 3 stores are the most Nordstrom has invested in the state, leaving much room for future grow in the region.

                In regards to competitors, the region is nearly empty. Competitors like Niemen Marcus and Bloomingdales have their closest stores in the Chicago area, far out of the way of Milwaukee. Additionally, often compared to Saks Fifth Avenue, it does not compete with them anywhere but the North Eastern coast of the United States. This information bodes well for the company and the future expansion in the Milwaukee area.

Geography of the Study Area:

                The study area that is established in this proposal is the counties of Milwaukee and Ozaukee. These two counties were selected for their boundaries and the type of economic presence within them. Outside of these two counties, urban areas lessen and quickly transition into the rural agricultural parks of south eastern Wisconsin. As stated previously, those parts are not a part of Nordstrom’s target market, so they were not considered for the study. Additionally, both counties have high population concentrations which is in line with successful Nordstrom locations already in existence.

                The study area is primarily urban. It has a large variance of racial and socioeconomic diversity, especially with in Milwaukee. Along these lines, it is important to acknowledge the stark contrast in racial neighborhoods and their locations too seemingly opposite neighbor hoods. Notably, the City of Milwaukee’s north side is primarily African American and annually maintains a lower average household income. This is located directly next to Nordstrom’s target audience of areas like Whitefish Bay, Shorewood, and Mequon. There are areas with in the study area that do not pertain to the site selection process, but were included for geographical reference and minor consideration.

                Lastly, looking at the study area in relation to the surrounding cities, a gravity model was created to find points of indifference and analyze the potential for a new store. The model is shown in figure 1 with the equations presented in the table in figure 2.

Figure 1: Gravity Model of Milwaukee

Figure 2: Gravity Model Table

Methods:

                To go about the site selection and ranking of these sites, I used ESRI’s Business Analyst and ArcMap to come up with suitable location. By using the tools provided in Business Analyst, I was able to narrow the sites down to 3 prospective locations based on a set of criteria. For a site to be suitable it must:

-          Be located in an area meeting Nordstrom’s target market

-          Be located on or near a major transit artery

-          Be located in an area when business is conducted (i.e. a mall, shopping center, or business park)

Other considerations when looking at sites included distance from previously existing stores, drive times from the study area, and the type of area they are located in.  

To examine the target market, I created a graduated color map showing the 2016 average household income by block group. Block groups were chosen to give a better overall representation of the study area instead of over generalize areas like zip codes. The darker areas represent the wealthier areas of the region and thus the areas fitting for the location of a new Nordstrom’s.

Secondly, I examined the major roads and highways in the study area and chose Interstate 43 as its direct route to the heart of downtown Milwaukee and its intersecting of the target demographic areas. Additionally, it spans nearly the entire length of the study area, giving it the most possibilities for suitable locations.  After selecting locations, I further examined them by creating individual drive time trade areas to see which one could span the greatest distance. In figures 3, 4, & 5, the drive time maps are presented. The yellow area is 5 minutes, the red 10 minutes and the outer blue corresponding to a 20 minute drive.

                                 Figure 3: Location 1 Drive Time Trade Area

                                Figure 4: Location 2 Drive Time Trade Area

                                   Figure 5: Location 3 Drive Time Trade Area

                By using these trade areas, I could better assess the locations and rank them based on the criteria.

Results:

            After completing the analysis of the locations and determining proper criteria for the locations, I chose three that would be most suitable. They rank as:

1.      5900 N. Port Washington Road Glendale, WI 53217

2.      11482 N. Port Washington Road Mequon, WI 53092

3.      1310 N. Port Washington Road Grafton, WI 53024

Interestingly, each location ended up on the same road, but space out considerably. Location 1 was best suitable for its location in relation to the target demographic. On the border of the target market, it provided the best access to multiple areas. Additionally, it is located in a successful mall with a reputation of quality and high end product matching that of Nordstrom. It also provides both easy access from Interstate 43, and also exposure with a store front in sight of the interstate.

This location also provides closer service for the majority of the study area in relations to the market that would go there. As it is more north, those in Ozaukee County don’t have to travel all the way down to Wauwatosa. Next, it avoids cannibalizing the stores as the Wauwatosa already pulls the heavily from the demographic west of the study area.

            Figure 6 shows the compilation of the data and displays it to offer a better representation of the proposal.

Figure 6: Map of Proposed Nordstrom Locations