Full-price sales slid 6.5%, following last quarter’s 5.1% year-on-year decline, and the company lowered its full-year sales and earnings outlook. While it is hardly the only retailer weathering challenges in 2019, its disappointing results are all the more concerning given how much it seemed to setting itself up for success.
Often recognized as best-in-class for e-commerce, Nordstrom today generates nearly a third of its revenue through digital sales, putting it well ahead of most of its competitors. It’s been quick, too, to embrace a channel-agnostic mindset, investing in buy-online-pickup-in-store (BOPIS) and curbside pickup; opening small-format stores that don’t carry inventory at all, instead allowing customers to drop off returns, pick up online orders, and have alterations done; and editing its brick-and-mortar footprint to account for falling traffic in some locations and better opportunity in others.
“We really don’t care where the sale gets rung up,” said co-president Erik Nordstrom on Wednesday’s call with investors and analysts, adding that the company thinks of its “physical assets as points of engagement as much as they are points of sale.”
With all of these innovations, if Nordstrom isn’t winning, do any of its department store rivals stand a chance?
If there’s any major retailer who’s been similarly committed to modernizing its retail experience, it’s Target, which has invested billions in expanding its same-day fulfillment capabilities, synchronizing its inventory management so customers can shop seamlessly across channels, and rolling out curbside pickup at more than 1,000 stores nationwide (a channel that investment banking firm Cowen predicts drive $30 to $35 billion in sales by 2020). And yet the big-box chain’s sales are soaring, with revenue up 3.6% and earnings up 23.9% in the second quarter.
Until recently, it looked like Nordstrom was likewise on an upward trajectory, having made smart decisions to steel itself against Amazon and other threats. Now, though, it seems like the retailer is as vulnerable as many of its peers, with several investors cutting their price targets on the stock in recent months, citing “fading confidence in the outlook for the core department store business” and “erosion” of its position as a go-to destination for business and special occasion attire.
“Consumers decreasingly say they go to Nordstrom for these items and are increasingly likely to go to discount retailers for them instead,” UBS analyst Jay Sole wrote in a July note. “Plus, the data also shows no retailer, among the ones we surveyed, had a bigger year over year drop in price perception, other than Gap and JC Penney.”
Pricing seems to be one of Nordstrom’s problem areas, with Erik Nordstrom acknowledging “a gap between our opening and higher price points” and co-president Pete Nordstrom adding that it intends to be “more thoughtful and purposeful about how price impacts really our offering” going into the holiday season.
Despite the strong consumer environment, shoppers are increasingly flocking to discount chains and avoiding mid-priced retailers, a trend that also saw Macy’s slash its outlook and post earnings well below Wall Street’s expectations this month.
It also didn’t help that Nordstrom flubbed stock levels on some of the top-selling items in its Anniversary Sale, an important revenue driver in the second quarter and one that this year overlapped with the blockbuster Prime Day shopping holiday (whose halo effect also boosted Target’s Deal Days event). “While we increased depth in top brands, it has become even more concentrated around key items. We did not have enough depth in key items and we are actively addressing this in the second half, particularly with our top gift ideas for the holidays,” said Erik Nordstrom.
Nordstrom does have an important milestone coming up on its calendar: Its first Manhattan flagship opens October 24 (its men’s store across the street led the way in April 2018), along with two Nordstrom Local locations. But there are dark clouds hanging over New York City’s department stores: Barneys New York filed for bankruptcy earlier this month, Saks closed its Brookfield Place flagship after less than two years and Lord & Taylor’s iconic Fifth Avenue flagship is now WeWork’s headquarters.
The retailer, though, may take the longer view. As Jamie Nordstrom, president of stores, said in an interview with FN last year: “At any given time, we get a lot of questions about: Is this the right time to be opening here? And our answer is pretty consistent: We’re not opening the store for this year; we’re opening for the next 50 or 100 years.” But the seismic changes we’ve seen over just the past decade, can any retail business purport to plan that far ahead?