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Nordstrom Couldn't Pick a Better Time to Expand Rack

The recession is strangely working out for one facet of high-end retailer Nordstrom Inc.'s business. A glut of cheap, well-located real estate locations and deal-hungry consumers is opening up a great opportunity for the company to aggressively expand its off-price Nordstrom Rack apparel chain, even as its namesake department stores suffer.

Late last month, Nordstrom announced its first Manhattan Rack store, in a Union Square space that formerly housed a high-profile Virgin Megastore. Tampa, Fla.; is also getting its first Rack. In all, Nordstrom is planning to open 13 new Rack stores this year, and there are 12 in the works for 2010, increasing its current total of 61units.

An unfriendly economy to many retailers is, ironically, opening up a lot of real estate possibilities for the Seattle-based outfit. "With this difficult retail landscape we've been able to take advantage of some key locations with closures from other retailers like Linens 'n Things and Circuit City," said Blake Nordstrom, the company's president, during its second-quarter earnings call.

The chain also makes sense for consumers in this economy. The leaders in off-price apparel, TJX Cos. and Ross Stores, are both outperforming the rest of the retail sector. Both chains are posting same-store sales gains in an environment where that is not the norm, with TJX reporting a four percent year-over year rise in July and Ross increasing the same amount that month.

It also doesn't hurt that Rack locations are outperforming the company's namesake Nordstrom luxury department stores. Like other high-end chains, Nordstrom's flagship stores are caught in a sales slump, with comparable-store sales plunging 12.3 percent in the second quarter. Rack units, meanwhile, posted a 0.8 percent gain.

Don't expect Nordstrom Rack to ever overtake its iconic parent store's stature and reputation, but as the department-store segment continues to suffer, at least Nordstrom has one vehicle that allows it to grow and help improve sales.