Why Nordstrom’s Off-Price Business Could Be Its Saving Grace Amid the Pandemic

Amid widespread store closures and less consumer spending on discretionary goods, many retailers are finding themselves stuck with a mounting surplus of unsold merchandise and nowhere to sell them. But for Nordstrom Inc., its off-price business could be its saving grace as the chain seeks to offload excess stock that has accumulated during the course of the coronavirus pandemic.

In its first-quarter conference call, the Seattle-based company unveiled its selling strategy for the next few months. As stores continue to reopen, it anticipates a heavy promotional environment through the summer but is betting on its off-price Nordstrom Rack banner, which it said “frees up” its ability to exhaust excess product out of its full-price channel.

“Our focus shifted during the pandemic to trying to lower our inventory,” said CEO Erik Nordstrom. “How best to do that [is] leverage not only clearance in our full-price channel, but getting some of that product into the off-price channel.”

CFO Anne Bramman added, “Our favorable inventory position enables us to bring in newness beginning in June for full price. We’re also able to leverage our off-price business to clear excess full-price merchandise while being opportunistic in the marketplace for fall closeouts.”

The company has also moved the date of its Anniversary Sale, typically held in July, into the third quarter. It expects that the event — now hosted on August 19 (while early access for Nordstrom card members will begin on August 4) — will see more markdowns and a lower average price point “be responsive to customers’ interest on value and price.”

Yesterday, in its first-quarter earnings report, Nordstrom noted a 36% drop in its full-price business, while off-price suffered a 45% decrease in sales. Both declines were attributed to the COVID-19 health crisis, which forced the temporary closures of its stores since mid-March.

Despite posting disappointing first-quarter financial results, the retailer expressed faith in its balance sheet: It announced that it has lowered inventory by more than 25% from the prior year and reduced its cash burn by more than 40% during March and April.

What’s more, the company has taken steps to combine its full-price and off-price teams in an effort to become a “leaner” and “more agile” business. It previously revealed plans to shutter 16 full-line stores and all three of its Jeffrey specialty boutiques.

“Our Rack business is outperforming expectations … In these uncertain times going forward, our off-price stores give us a lot of flexibility,” Nordstrom added. “We think there’s a real synergy [with full-price and off-price] going forward there. And, again, our off-price stores are just a huge, huge part of our future.”

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