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Nordstrom Inc. (NYSE:JWN)

2013 Consumer & Retail Conference

March 13, 2013 11:20 am ET

Executives

Michael G. Koppel - Chief Financial Officer and Executive Vice President

Analysts

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

We have Nordstrom here for this presentation. I'm very happy to have Mike Koppel presenting today. He is going to give you a brief overview of the company and then we'll have plenty of time to open it up for questions. Mike?

Michael G. Koppel

I'm on? Okay. Thank you, Lorraine. And joining me today is Rob Campbell and Trina Schurman. I think you all know both Rob and Trina. Well, we appreciate everybody coming out today, and we're going to open by sharing some slides that give a little bit of a background and sense of where our company is today and our story as we continue to move forward.

So forward-looking statements, you guys are all used to this. Okay, so let's start with -- we're in a very unique position right now. We are 112-year-old company. We've got some great past values and practices, and a great heritage in terms of how we serve the customer, but we believe we do have a terrific opportunity to grow this company. And everything starts with delivering a great customer experience. Our value proposition is about delivering a great customer experience. It's not single dimensional just on price, it's multidimensional on the entire experience. So we continue to believe everything that we are doing is to assure that we continue to deliver a relevant customer experience.

Second is we believe we have a very sustainable growth strategy. There's been a lot of discussion in terms of our space, it's a mature space, we're a 112-year-old growth company, but we've identified a number of channels and we're investing our capital, which we'll talk about in a few minutes, into those channels, and we believe it's going to allow us to grow this company to new levels and to serve more customers.

And lastly, we built a very strong financial model. For those of you who have followed us for a number of years, back in the, I would call it, the last decade, we worked very hard to build up our financial model to a point where we have very, very high operating cash flow, we have very high returns on capital. We have high operating margins. We have a lot of things going for us that give us the flexibility to continue to grow this business but do it in a very prudent way that assures that we can weather any storms, and at the same time, take advantage of any opportunities.

Okay, what I'd like to do is share a little video that I think does a much better job than anybody speaking could do in articulating our company and the culture of the company.

[Presentation]

Michael G. Koppel

I don't know if you noticed, but the very first images on that video had a bunch of people running into a store. That is very standard for us whenever we open a store. Usually, when we open full-line stores, there's anybody from 1,000 to 2,000 people behind those doors waiting to get in. So clearly, there's a lot of excitement for the Nordstrom experience.

This slide kind of articulates where we see our 4 channels of growth opportunity. Clearly, the top 2, Direct and Rack, is where we see the most growth. In the last several years, our Direct or online business has grown over 30% in subsequent years. We continue to see some very healthy growth there and opportunities to continue to deliver great experience, as that's what our customers are telling us. They're telling us that they want to have the choice of experiencing our brand online, whether it's online through a desktop, through a mobile, through an iPad. But clearly, that is an area that more and more customers are looking to experience our brand with.

Second is the Rack. It's taken us a lot of years to really understand and learn that the Rack is a great growth opportunity for us. That business does over $550 a square foot. It has very high returns, very, very strong 4-wall margins, and the ability for us to get great real estate and put great product in that real estate just seems to get better as we scale that business up. Our plan here is we're going to have over 230 Racks by 2016. And I think we're on track this year to open somewhere around 24 or 25 Rack stores. So great growth channel for us.

Canada. We're going to open our first store in Canada in fall of 2014. We've currently announced 4 stores in Canada. We believe we can have 8 to 10 full-line, and roughly 10 to 15 Rack stores. We believe that's a market that's going to be significant for us, and clearly, another way of expanding our brand beyond the 4 walls of the U.S.

And lastly but certainly not least is our full-line store. Most of you know that we've announced a store here in Manhattan, in Columbus Circle, which we're very excited about. But in addition, over the last year or so, we've announced 4 new full-line stores. We still have an opportunity to grow that offering. Its sales per square foot is just shy of its previous high in 2007, and we continue to see more and more productivity as that improves.

And I think the interesting story here is it's not about an individual channel. It's about the aggregate of the offering of those channels that creates the entire brand experience. So a lot of folks will focus on what silo or channel that we're investing our capital. If you think about it, last year, our sales per square foot, in the aggregate, on the stores was the highest it's ever been. So the investments in e-commerce, the investments in our stores, in aggregate, deliver the kind of productivity that we continue to see going forward.

Let's talk a little bit about capital. A lot of folks have, when we shared this capital slide, said, "Wow, you guys are spending a lot of capital," and there seems to be a little bit of nervousness about that. And I'd like to just frame this a little bit.

So our capital plan did double from the previous 5 years to the current 5 years, it's at $3.7 billion. And I just want to talk about the components of that capital. The first is what we're investing in stores and reinvesting in stores, which is the area that's the dark gray. That represents all new full-line stores, it represents remodeled and it represents our Rack growth. So very, very consistent investment level. It's roughly 55% of our total capital. At the top is Canada and Manhattan. That's about 20%. We do need to invest to build a store in Manhattan, and we need to invest to build an infrastructure and stores in Canada. And we believe those are going to deliver some great growth.

The third piece is technology. So that 25% represents roughly $900 million. And I think it's here that we owe a little bit more clarity as to what that $900 million represents. Roughly 1/3 of that $900 million, or roughly $300 million, represents fulfillment. Fulfillment build-out. This -- our business right now is $1.3 billion. We expect it to scale multiple times to that. In order to scale that business and have speed of delivery and a great customer experience, we need to build more fulfillment centers. What that $300 million represents is our current thinking of what we believe we're going to need to scale our fulfillment infrastructure to serve the size of the business that we believe we're going to have. The other $600 million in technology is parsed out in 3 components. About 40% of that $600 million is related to, what I would call, digital investment. Whether it's online, whether it's in-store, it's the technology that's going to create a better online experience, a better mobile experience and a better in-store mobile POS experience. That's 40% of that. Another 40% represents just infrastructure, technology infrastructure. In order for us to deliver a great experience and to support the scale of our business, we need to invest in the best tools that are going to allow us to aggregate the data and to utilize it effectively, that's 40%. And the remaining 20% are investments in merchandising and marketing. And an example in the marketing would be a lot of the things we're doing with loyalty. And the reason I wanted to break that out is because I think there's been a little bit of a perception that, that $900 million is all about online. It's not. There's a number of things in there, but they are -- but they're all related in one way or another to what we believe is technology as a great enabler to deliver a terrific experience.

Sales growth. For those of you who followed us on the call, we put this slide up, and I think basically, the story is in the next 5 years, we believe our Direct and Rack business is going to be close to 50% of our business. That's where that capital is going, that capital to invest in the Rack and the capital to invest in our Direct business. We believe that's a great area of growth for us. And by the way, the full-line is going to continue to grow, but certainly, the Rack and Direct business at a much faster pace.

How are we looking at this? We believe that the ultimate endpoint here is not only to deliver a great customer experience, but to deliver superior shareholder returns. And if you look at this chart, you can see that back -- last decade, again, earlier, as I said, we learned a lot and invested a lot in really driving up our returns. We had significant margin expansion, we had significant expansion, return on capital. And, oh, by the way, let's see, we had a stock price that followed that, okay? Going forward, we believe using the basis of that financial model, which is very strong, and continuing to invest capital at a mid teens return on capital is going to generate significant shareholder value. And we hope that if you can see how that capital is growing, that the effect that it's having on our sales, because we see those sales growing significantly, and the fact that we can do all that at a mid teens return on capital, we believe is going to deliver some pretty significant shareholder returns.

So in summary, we are a 112-year-old growth company. Our values haven't changed. We still stand behind serving our customers one at a time. We believe it's important to be relevant with our customers. The things that were defined as great service 5, 10, 20 years ago are different today. What customers define as great service today, so much of it is about speed and convenience and choice of where and when and how people want to interact with us. And thirdly, we're committed to superior shareholder returns. We understand the responsibility we have with shareholder capital, and we continue to look for opportunities to invest it in a very disciplined way, and we believe this plan represents that.

So with that, I thank you and then I'm open to questions.

Question-and-Answer Session

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

Thanks, Mike. Just wanted to start out with a question about the macro environment. What have you seen from your customers in terms of habits and change, and what do you expect for 2013?

Michael G. Koppel

We have not seen any significant change in our customers' behavior relative to anything that's been, I think, published or discussed in the press, whether it's sequestration, whether it's payroll taxes, whether it's general economic trends. Our customer behavior has been pretty consistent. And for 2013, we don't see -- I would say, with the exception of any unknown event, we don't see any material change in our customers' behavior.

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

And you've been comp-ing well in excess of the rest of the industry for a number of years now, and your guidance implies that, that will continue. Where do you see the best opportunities for same store sales growth in 2013 and beyond?

Michael G. Koppel

That's a good question. Well, we continue to see opportunities, I'll start with full-line stores. We see some pretty significant opportunities in our women's apparel area. And we finally, after some period of time of really adjusting our strategy, are making some great progress with women's apparel. We brought in the Topshop brand to be more relevant with that younger customer. Our Savvy department has been, I would say, remolded with a product that's more acceptable, and more modern and trendy, and we've had some great early reads on that. And so we think women's apparel is a great opportunity for us. And we also think the continuous work to attract a younger customer and to keep the pipeline of Nordstrom customers fresh is going to allow us to continue to build our comps. The other thing I would say is we've had some great success with our loyalty program. As most of you know, while we're one of the few companies left that own and operate our own credit card, we believe we deliver a great customer experience with that card, but it also allows us to attach what's been a very successful loyalty program. Last year, we acquired over 1 million new members, half of those members chose to use our debit card. And the debit card tends to associate with the younger customer. And so we believe by keeping that pipeline fresh, constantly having more relevant products, we will continue to drive comps.

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

And just a follow-up on the Topshop arrangement. Have you found that you've attracted new customers to the stores? And what kind of store roll-out potential do you see for that relationship?

Michael G. Koppel

Sure. Well, Topshop, we tested last year with 14 stores. I don't think we have come to a definitive number in terms of how many stores, but the plan is, for 2013, is that we're going to roll out a significant amount of more stores with Topshop. And that definitely is a younger, more trendy customer that's looking for accessible fashion. One of the things that we heard from our customers for a number of years is, "Boy, the stuff we love, we can't afford and the stuff we can afford, we don't like too much." And so we felt that we had an opportunity to have better product that was more accessible, and that's where we see Topshop helping us.

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

I know you were testing a Free People shop in the Seattle store. Are there other opportunities like that with existing brands to try to increase the reach?

Michael G. Koppel

There's always opportunities for us to try to come up with a more relevant offer, and we're constantly looking at that. As you know, we have historically not been a store that's about a lot of different shops. We try to maintain flexibility, but where we see great opportunities, we're certainly going to test it.

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

And then do you see your customer coming in with a budget, and has maybe been indexing toward footwear and accessories in the past and will move to apparel? Or do you think you have incremental opportunity on the apparel side?

Michael G. Koppel

Yes, that's a great question. A lot of folks have been asking, "Well, now that women's apparel is coming back, how's your Shoe business and accessory business?" I mean those businesses continue to be strong. I mean we've had a little bit of a drop-off in Shoes, but it's mostly dependent on, I would say, a couple of major brands that have likely hit a little bit more the top of the curve, rather than the overall demand for shoes. So we're hoping that there is some incremental business to be done there.

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

Maybe we'll open up to the audience to see if anyone has any questions.

Unknown Analyst

I had a question about one of your conclusions. I think the investments, no one questions that you need to make these investments and you've seen fantastic sales growth, way beyond anybody's expectations who was maybe involved in you a while ago. But one of the conclusions that you have is the return on invested capital continuing to grow. But you and all of your competitors, whether it's Macy's or Nieman's or your online competitors, Zappos, they're all putting those dollars into the e-commerce and the omni channel as well. But consumers aren't necessarily going to spend that much more because you invested in e-commerce, that is shifting where they're spending. So where does this all come out of it? Does it just come out of Banmar [ph] or where are you getting the market shares that your return on invested capitals will actually be enhanced from this and for your competitors?

Michael G. Koppel

Yes. Well, I think that's a great question. And I think at this point in time, we are still in the early learning phase of what's going on. I mean, keep in mind, the last great channel of distribution to consumers were the malls, and that's been about a -- and that's about a 50-year-old channel, and it took a number of years to really understand how that was going to play out and where the end point with that is. I think we're in the very, very early stage with e-commerce. Clearly, if you look at what's happening out there and who the winners are and who are not, I think those that are offering, we call it a multichannel offer, where we give the customer a choice, are the ones that, long-term, will have the best outcomes. And that's what we have seen to date. So I don't know if that means that perhaps some of that share might come from those that haven't invested in e-commerce or those that are e-commerce only. But right now, the outcomes we have seen is the investments to create a, what I would call, a frictionless transparent experience with the consumer across all channels are clearly resonating.

Unknown Analyst

On a related topic, do you expect the investment to be self financing? Or would you expect to tap the debt markets and would you expect to see any change in your credit profile?

Michael G. Koppel

Are you a fixed income guy? Yes. How did I know? You know what, we -- right now, our investments are pretty much self-funded through our operating cash flow. I mean we have been operating with free cash flow. Last year, it was over $400 million. This year, it will be a little less than that. Free cash flow is defined, it includes everything but share repurchase. So our approach to the debt markets has been more around our overall capital allocation strategy. We like to maintain an adjusted debt to EBITDAR between 1.5 and 2.5. Anytime we've gone to the markets, it's more been to maintain that relationship than it's been to fund any new business. So that capital plan that you see is entirely funded out of the operating cash flow of the company. Yes?

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

Can you wait for a mic? I think...

Michael G. Koppel

Oh, we have another question over here? Okay. We'll take you next. Yes?

Unknown Analyst

Can you talk a little bit about HauteLook and maybe what you've learned thus far, and where you think it fits into the whole online piece of the business?

Michael G. Koppel

Yes, great question. So what we've learned about HauteLook? Last year, HauteLook had over 40% increase in sales. The business is still roughly a breakeven business, and I think there's a couple of things we've learned. One is we still have a big opportunity to leverage our vendor relationships in the market to get the best products for HauteLook. And if you look at the supply chain in Nordstrom, roughly 48 to 49 of the top brands from full-line we sell in the Rack. So we have great vendor relationships in those 2 channels where we get a lot of product. We are still working to get those vendors, more of those vendors to supply us with product for flash. And we're making great progress, but we have a ways to go. So the first thing is we need to continue to work to leverage our supply chain, so we can almost be a one-stop shop for a lot of our suppliers and to give us the opportunity to sell product across all channels. The second thing is HauteLook now has over 12 million members. I mean HauteLook's marketing and customer acquisition is by far faster, and frankly, a little bit more creative than what we've done through the Rack or full-line. We have done some cross marketing efforts with the Rack because HauteLook does generate interest with the younger customer, and we need to do more of that. We need to do more where we can get those younger customers more interested not only in HauteLook, but in the other bands that we offer. And then I think the third thing is we can certainly do a better job of integrating the strengths of both businesses to create, I think, a more valuable outcome with that business. And these are all things we're working on. So we're very, very happy with the acquisition, happy with the growth, but we believe there's an opportunity to create more value from a financial standpoint with that business. And then right here.

Unknown Analyst

I have two unrelated questions. First, with all the initiatives you have going on in online, do you think differently about how you build new stores in terms of layout, assortments, depths of products, where they're located? That's the first question. And second question is, in New York City, a very expensive real estate market. Give me some sense of how you're looking at it from a return perspective?

Michael G. Koppel

Sure. In terms of the layouts of stores, I'll give you a kind of early small example of how some of this technology has helped. So we started about a year or so ago, we developed our own mobile POS solution. It was originally designed for the full-line stores. And it's taken us longer to really get the right experience in full-line because full-line is so much more complex, there's lots of categories, lots of products. And our Rack team said, "Geez, we'd really like to have that." Well, now, Rack, by this year, is going to be fully rolled out with mobile. And what we've been able to do with the Rack is we've been able to recapture a lot of that register space and put more product out there. So the Rack is a great example where the technology has allowed us to create more selling space. Now in terms of the full-line stores, we are still working to develop the best solution. But what you're going to see in the full-line stores is you're going to see over time, an elimination of the permanent rack stand. You're going to see some more flexible devices in order to carry the kind of selling collateral that you need. And then ultimately, there could be different presentations in terms of how we assort certain product, because certain product that you have to have deep inventory to sell, it may look a little different. But that's down the road. We're still learning that. And then as far as Manhattan, we looked at Manhattan, the reason it took us 10 years to get there is because we were pretty disciplined about the economics. We believe Manhattan is going to deliver returns that are going to exceed our cost of capital. And that is -- that was a goal for us going into it.

Unknown Analyst

In terms of lining up brands and vendors for the Manhattan store, have you already kind of had the discussions in mind with those brands? Because I guess then, in Manhattan, it seems like between Bergdorf, Saks and some other players, you have some brands that even Saks can't get, that's only in Bergdorf's and whatnot. So have you already had those discussions with the brands to kind of line them up?

Michael G. Koppel

Yes. I know that Pete, Pete Nordstrom who's our Chief Merchant, has had some preliminary discussions. I mean it's very early because we're 2018 opening, so we got a little ways to go. But clearly, one of the reasons we liked Columbus Circle was because it was a little bit out of the Midtown and it gave us a chance to have better distribution. But in terms of specifics, it's really too early to tell right now.

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

Mike, how do you think about the competitive landscape in Canada, and how did you come up with your store targets for both full-line and Rack stores?

Michael G. Koppel

Sure. Well, Canada, certainly, it has become a much more, I would say, robust retail environment in the last, let's say, 5 or 6 years. More and more U.S. companies have gone up there. But clearly, clearly, what we learned is there was a really large white space for an offer like ours, which is a full-line, multi-department, upscale, high service offer. There are some great specialty retailers in Canada that we know we're going to have to compete against. The department stores tend to be a little bit more moderate, which gives us an opportunity to compete. And in terms of the locations, our strategy, and it always has been when it comes to full-line stores, to get the best locations. I mean, if you look at the U.S., there's 400 A malls in the U.S. and we have 117 full-line stores. So we try to be in the best of the best, because that's where we -- that's where the demographics work best for us. So the stores we got, we believe, fit that model. And that's why we're saying maybe 8% to 10%, roughly 10% of the store build-out is the U.S.

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

And then as you look at multi channel, obviously an area of significant investment, what are the next things to come? Are you looking at same-day shipping? Are you looking at -- where will we see the next iterations of the strategy?

Michael G. Koppel

Sure. Well, we have been testing same-day shipping in a couple of markets. It's too soon to understand -- there's other brands out there, I think Amazon is doing it, just read Google's trying something. There's a lot of other folks looking at it. It's tough to understand today how wide, how big same-day shipping can be based on what we see today. It's likely in specific markets where you have capacity to fulfill in a densely populated market. But yes, we continue to test that. We see that as an opportunity. We think long term, the ultimate is to continue to create a more personalized experience for the customer. Personalization, we believe, and it's not just in our industry, it's in a lot of industries, with the economics of data management and the technology that's out there, we're reaching a point where you can create a very personalized experience for a customer, and it doesn't have to be just at a desktop. It can be through their mobile. It could be walking in a store and the mobile recognizing the customer's there and creating a personalized experience by also telling the salesperson that their customer is there. I mean there's all kinds of options out there. That, ultimately, is where we need to go. And the good news is, because of all of our touch points, we have, over the years, been able to gather a lot of data, whether it's our credit card, whether it's the Rack, whether it's online, whether it's full-line. We've got a lot of touch points that we can better understand our customer, and I think long-term, we're going to continue to look for ways that create that personalized experience. Because if you think about it, that is what created that customer experience with Nordstrom in the more traditional way, it's that personalized experience. But the older way was just a one-on-one in the store with your favorite salesperson. I think the new way is going to be a little different.

Unknown Analyst

You acquired HauteLook and you're looking to expand your Rack business pretty dramatically. But it seems like your Rack business is completely under-penetrated online versus your online build-out of your regular full-line stores. Is that something you're going to look at penetrating a little bit deeper in the future? And how does that fit into your online strategy when you're looking at your full-line store versus your Rack stores?

Michael G. Koppel

The answer is yes, we are. We've kind of looked at how we're delivering our offer in 4 quadrants. And if you look at one access, it would be regular price, off price. If you look at another access, it's online, off-line. So we have a regular price online offer. We have an off price in-store offer. We don't have a fully vetted off price online offer. And yes, between what we're doing in HauteLook and some other things that we're looking at, we believe that's an opportunity for us.

Unknown Analyst

How should we be thinking about your capital deployment over the next couple of years, just given the elevated investment behind your stores and e-commerce and marketing? Where do you think the share buyback's kind of all-out, and could you use the room that you have under your leverage target to kind of help fund additional share buybacks?

Michael G. Koppel

We have been in the market repurchasing shares, what we believe is a strategy that's built around a couple of things. It's built around, first, allocating capital back into the business where we get the highest returns, and then repurchasing shares based on what we believe are reasonable values. We do it using a predetermined matrix. We do it through a 10b5-1 plan, we don't try to outsmart. Over the last 3 or 4 years, it's shown to be a very prudent thing to do. In terms of any kind of levering up in order to do share buyback, that is not part of our current strategy. As I said before, we like our leverage to fit within an adjusted debt to EBITDAR of roughly 1.5 to 2.5. That does a number of things for us. It gives us flexibility, maintains a single A rating, keeps our borrowing cost down. And oh, by the way, we think it's a good place in terms of where our cost of capital falls out. So all those things is kind of a balanced look. And then the share repurchase, we will do -- we just authorized -- the board just authorized another $800 million in share repurchase on top of, I think, we have a little bit less than $400 million remaining from the last one. So we're going to continue to do that. But likely, borrowing a chunk of money just for the sake of doing that is not in the current plans.

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

Mike, you mentioned you've changed your loyalty program. Can you talk a little bit about the learnings from that and growth opportunities that you see with your loyal customer?

Michael G. Koppel

Yes. So last year, we made some enhancements to our Fashion Rewards program. We made it more accessible for customers. We gave additional benefits. We gave customers more choice in terms of how they use the benefits. We had just a terrific response to that. We've got a lot of new customers on that. A couple of things that we're looking at, last fall, we did test a loyalty program in our cosmetic business. It was a nontender-based loyalty program. We learned a lot from that. We think there's other opportunities to look at nontender-based loyalty because we have a lot of customers -- right now, we have roughly 2.5 million customers in Fashion Rewards, where we do business with a lot more customers. And we see a tremendous amount of lift that we get from our customers who earn Notes and then come back and spend. So we think there's an opportunity to test other avenues of loyalty to see if we get that same kind of engagement going forward. So we're going to continue to look at that. Clearly, one of the things we do know, as long as we continue to deliver a great experience and our Fashion Rewards program shows true value to our customers, it builds -- it really builds a lot of loyalty and spend. There's a question back there.

Unknown Analyst

If you isolate on a single category online, so say footwear, which tends to be a competitive online category, I'm just wondering what your observations are in terms of your market share online in a category like that. And just to set a baseline, I'm curious what impact Zappos had, had on the business since Amazon acquired it?

Michael G. Koppel

Sure. Well, you know what, we monitor our market share, and in fact, our total market share in Shoes has continued to climb. So we are -- we haven't lost share. That being said, I think Zappos caused us to up our game. Competition's a great thing as long as you are humble enough to learn from it. And I think when it came to Zappos, we had followed Zappos for a number of years and didn't quite see how it was going to grow to what it was, and by the way, it did. And so we were very humbled by that, and I think we learned something from that, that there's different ways to sell shoes. We thought we knew how to sell shoes because we were in the business for over 100 years. There's different ways you can sell shoes and be very successful. And so we -- our online business continues to be a terrific avenue of growth for our Shoe business, and by the way, complemented very well with our stores. I mean, the fact is by having both physical and digital, a lot of our customers may buy online, they come into a store because there was a wrong fit or something different, and they exchange and buy another shoe. So that's been a real advantage for us. So bottom line, I think we've learned from folks that have kind of pushed the envelope further than maybe we had seen.

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

The last question, credit card trends. Obviously, it's been a very healthy piece of the business for you. Any -- and I know you've given guidance for some of the metrics, but just broader, are you seeing any real change in your consumers? Seems as though she's getting much healthier over the years.

Michael G. Koppel

Yes. Well, yes, we -- our credit card trends are now representative of what they were prior to the recession. I mean, our delinquencies are less than 2%, our write-offs are less than 4%. We continue to maintain very high underwriting standards. Our new accounts are all opened with FICO scores measurably above 700. The thing that's really helped our tender business and Fashion Rewards is because we own a bank we can issue a private label debit card. And we don't charge for the use of that debit card, but we get a lot of new customers who link in to Fashion Rewards and maybe customers who couldn't qualify for a credit card or maybe who just didn't want another credit card. So we continue to see strength in that business. And well over half of our customers, we call transactors, which means, they pay their bill off every month. They use the card because they like the experience with us. They like the benefit that the card offers and they're not looking to revolve that to do business with us. So we're very happy with it and we continue to monitor it, and we're going to continue to look for ways to make it a more valuable part of our offering.

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

Great. Well, I think we're about out of time. Thanks, Mike.

Michael G. Koppel

Thank you.

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Source: Nordstrom's Management Presents at 2013 Consumer & Retail Conference (Transcript)
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