Image: Shoes for sale
CNBC.com
Nordstrom Rack may earn points with frugal shoppers, but it could hurt their main stores which target a decidedly upscale clientele.
By
updated 3/1/2012 7:24:24 AM ET 2012-03-01T12:24:24

It isn’t unusual to see retailers sell refurbished computers or televisions. But what about shoes?

High-end department store Nordstrom is funneling its returned and worn shoes to its Nordstrom Rack outlet stores. This practice is surprising since outlet stores are not known as second-hand stores. It’s a place for retailers to send their unsold merchandise each season.

The shoes are clearly labeled as “worn and refinished” — and it’s reflected in the markdown. Sometimes they are slipped side-by-side on the racks with new items. Other times, they’re put on display in a section of the shoe department.

“On a perception level, it turns you into a junk store, a second-hand clothing store. And, that is something that now calls into question Nordstrom’s reputation as a first-rate, quality high-end type of brand retailer,” said branding expert Robert Frankel.

He isn’t disputing the rationale of the strategy. Nordstrom gets to preserve margins and sell its returned merchandise in its outlet store instead of through a liquidator. But, Frankel, who wrote the book “The Revenge of Brand X: How to Build A Big Time Brand On The Web or Anywhere Else,” said it’s just very ill-conceived.

“From a stock analyst point of view, it suggests Nordstrom is really pinching pennies if they are selling their garbage. They were supposed to be first-class quality,” said Frankel. “Now they are expanding where they are almost a thrift-store status? There is something wrong here.”

So, how do they clean them? Do they get sprayed like bowling shoes?

Nordstrom Rack Spokesperson Kendall Ault said the shoes that are labeled as “worn and refinished” are gently worn (either tried on or accepted as returns) and then professionally cleaned, repaired and refinished as needed to return to a “near-pristine” condition.

“At Nordstrom Rack, we make every attempt to offer our consumers merchandise that is in the best possible condition. We will not knowingly sell damaged or broken items,” said Ault in a statement.

She adds that the refurbished items are never sold at the upscale Nordstrom stores. And, the retailer does not hold any “official” refurbished shoe events.

This suggests some Nordstrom Racks may be going rogue.

Earlier this month, the Nordstrom Rack in Fairfax, Va., held a refurbished shoe event. We confirmed it with a store representative after its manager tweeted out photographs of “worn and refinished” shoes “hot off the truck” on her Twitter page.

The Nordstrom Rack in Paramus, N.J., held one last year.

Branding expert Frankel said, “It raised my concerns that local stores may have loose-cannon types that may be undermining the overall brand without corporate's knowledge.”

Amy Shea, global director of brand development for Brand Keys, believes Nordstrom has a good idea, but it’s not executing it properly.

“Certainly, they do have an expectation attached to their brand expectation of quality, so there is a thin line between being a thrift store and being Nordstrom,” said Shea. “We know that the shopping experience is a very strong driver when it comes to the department store category. So, it is really cautionary for Nordstrom Rack if they’re putting out merchandise that is not shown properly or not really restored.”

There is a caveat. If Nordstrom Rack was selling refurbished, higher end shoes such as Gucci or Louis Vuitton versus used Sperry rain boots, she said there would be a positive impact on the retailer’s brand.

There is a robust market out there for pre-owned couture among the younger crowd. It’s something the flash sites, such as TheRealReal.com and BeyondtheRack.com, have been capitalizing on.

“From the data and findings on younger consumers who have the money to shop at Nordstrom, there is a real move away from conspicuous consumption…. They have been raised on various levels of couture. Low-end is Stuart Weitzman for them. There is an expectation,” said Shea.

Keybanc Capital Markets Research Analyst Edward Yruma does not think this practice compromises Nordstrom’s brand.

“If it is a high-end item being refurbished and it’s definitely not being sold at its full-line stores, then it’s fine if it’s sold at the Rack,” said Yruma. “It is within the scope when you buy at the off-price channel.”

(Keybanc Capital Markets, Yruma's employer, has received compensation for investment banking services from Nordstrom during the past 12 months. The firm has also received compensation for non-investment banking securities related services.)

But, it appears what Nordstrom Rack is doing is not the norm among its competitors.

Neiman Marcus spokeswoman Ginger Reeder said the retailer’s outlet, Last Call, does not sell worn items. However, it does have a section of "chips and dents," which are basically irregular items such as a shoe that had a missing buckle that was replaced.

Saks’ outlet, Off 5th, does not sell refurbished shoes either, according to Julia Bentley, its spokeswoman.

TJX Companies , which runs Marshalls and TJ Maxx, sent us an ambiguous statement about vender contacts and their goods being in accordance with “all applicable laws, regulations and industry standards.” Its spokesman Kenneth MacFadyen, acknowledged that the comment was “not specific.” But, he believes it “addresses” our question.

Century 21 and Bloomingdale's Outlet did not give us a comment.

© 2012 CNBC.com

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.32%
$30K home equity loan FICO 5.00%
$75K home equity loan FICO 4.36%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 11.09%
11.09%
Cash Back Cards 16.42%
16.42%
Rewards Cards 16.04%
16.04%
Source: Bankrate.com