What: After reportedly considering a spinoff of its off-price Rack business, Nordstrom is now pinning its growth ambitions on it.

Why it is important: Nordstrom took steps to enlarge its Rack fleet, then hit the brakes. After internal research showed that off-price shoppers aren’t likely to drive more than about 15 to 20 minutes to access a Rack store, the company decided to resume that effort. Nordstrom which runs about 250 Rack stores, will open four new Rack locations next year, with plans for more.

Rack sales grew 10.3% year over year but fell 3.6% compared to 2019. The company is banking on continued improvement at Rack and taking steps to integrate it more fully into what it calls its market strategy. Some analysts see risk in that approach, warning that as Rack gets bigger and better, the full-line business loses its appeal.

Maximizing profits for the entire company depends on optimal pricing, especially at Rack, where there is more flexibility because it’s not beholden to the MSRP limits seen at full-line Nordstrom. There’s been little resistance from customers since the company began testing price bumps “on certain items and key categories”. That’s in part because the company — both its full-line and off-price business — enjoys the attention of a wealthier customer base that appears to be less rattled by inflation.

Rack’s improvements are essential and Nordstrom’s overall results of late have been encouraging, but “visibility [is] still challenging against macro pressures in the space.”

Nordstrom leans on off-price Rack for growth and profit