The 'Rack' Tail Now Wagging the Nordstrom Dog

It's been quite a fall-off for Seattle's once-proud tradition of "premium" retail. First Starbucks--once the very emblem of an upscale, quality-conscious lifestyle--resorts to hawking instant-coffee packets and cheap breakfast sandwiches in an effort to fend off (of all people) McDonald's. Now Nordstrom, the Seattle-bred department-store giant synonymous with prestige brands and impeccable customer service, finds itself reliant on a Marshall's-style, off-price offshoot--the Nordstrom Rack--for revenue growth.

Nordstrom has been opening new Racks with the energy of a shopper poring through heaps of marked-down novelty leggings. This week the company announced plans for a new Rack at Pentagon Centre in the D.C. area, bringing to 16 the number of new Racks opening in the U.S. in the next year. Meanwhile just three "full-line" Nordstrom stores are planned. Five years ago the company had almost twice as many Nordys as Racks. At the current pace, they'll soon be evenly matched.

And no wonder: Sales at the full-line stores have been sinking (down 13% so far this year), while revenues at the Rack stores are up. True, the idea that Rack shoppers are getting discounted merchandise passed on from the "real" Nordstrom stores is largely an illusion. But in recessionary times, Seattle's mastery of brand cache doesn't seem to mean much anyway.