While the e-commerce revolution is disrupting many traditional brick-and-mortar retailers, there are still some “physical” retailers that continue to show solid growth. Two particularly promising investment opportunities in this vein are Nordstrom (NYSE: JWN ) and TJX (NYSE: TJX ) . Both companies are well positioned within their sectors, and see the rise of e-commerce as an opportunity rather than a threat.
Nordstrom: Service wins
Nordstrom sits in a privileged place relative to many brick-and-mortar retailers, insofar as most of its business consists of selling apparel and shoes. Since customers usually want to try on clothing before making a purchase decision, online competitors cannot serve the market as well as brick-and-mortar stores.
Moreover, Nordstrom is known for its exceptional customer service. Employees try to make personal connections with customers and the company prides itself on a “customer is always right” mentality. This is critical, because as an upscale department store it caters to a wealthy clientele who expect superior service.
Nordstrom is a great investment opportunity because the company has plenty of room to grow and is pursuing expansion opportunities. The company is planning to enter the Canadian market with five new stores set to open between 2014 and 2016. It will also open several full-line stores in the U.S. in the next five years, most notably a Manhattan flagship location set to open in 2018.
However, the biggest opportunity for Nordstrom is the growth of its “Rack” off-price business. As of earlier this month, the company operated 127 Rack stores, but management plans to open another 14 this year and reach a total of more than 230 Nordstrom Rack stores by the end of 2016. Rack stores do not require nearly as much up-front investment as full-line stores, and therefore offer a very high return on invested capital, which is why Nordstrom is focusing on this growth opportunity.
Lastly, the company is not ignoring the growth of e-commerce. Its direct business (which primarily consists of online sales) grew by 37% last year, following a 30% increase in 2011. Nordstrom thus has great growth opportunities in both brick-and-mortar and e-commerce. With shares trading for just 16.5 times earnings, it’s a great investment opportunity.