August 31, 2023
Photo: iStock
Is Nordstrom Righting Its Trajectory Quickly Enough?
Nordstrom’s efforts to turn its business around, including an emphasis on better inventory control and growing Nordstrom Rack, paid off somewhat as the retailer’s Q2 2023 beat Wall Street investor expectations, according to CNBC. However, Nordstrom still reported an 8.3% year-over-year sales decline for the period and warned that slow sales will likely continue into the second half of the year.
The company partially attributed its sluggish results to two one-time events: the shuttering of its Canadian business and the shift of its anniversary sale by a week, moving it out of the quarter. Without these impairments, the quarterly decline would have been 4% instead of more than 8%, CFO Cathy Smith said on a call with investors. Notably, even the higher number represents an improvement over the 11.6% decline reported for Q1 2023.
While Nordstrom’s namesake banner saw a 10.1% net sales decrease, Nordstrom Rack sales only fell 4.1%. The decline was partially attributed to sales lost due to Nordstrom Rack’s BOPIS services ending in Q3 2022, and it’s an improvement from Q1 2023’s 11.9% sales decline, but the retailer still has work to do if it wants its off-price banner to carry the company.
One of the targets for improvement is getting its product selection right. Activewear and beauty sales grew in the low-digits during the quarter, while kids’ and men’s apparel performed better than average. Nordstrom previously noted that a revamped assortment will be part of its strategy to return to growth, and while it may be taking time, the move is starting to pay off for Nordstrom Rack.
“We’re really pleased with the trend of our Rack performance,” said CEO Erik Nordstrom during the call with investors. “It’s been on a steady upward trajectory throughout this year. And as you know, the foundation of our focus has been great brands at great prices. We know the reason most customers come to Nordstrom Rack is to find the great brands they love at terrific prices, and so we’ve been very intentional in devoting more of our inventory to these strategic brands.”
Nordstrom isn’t the only department store focusing on a different model in a bid for growth. Macy’s is expanding its smaller, off-mall Market at Macy’s concept — now rebranded as simply Macy’s — to fuel its own turnaround effort. While the retailer has declined to provide exact results, the smaller locations reported comparable sales growth in the latest quarter even as Macy’s as a whole saw sales drop.
Nordstrom’s path to growth will also need to improve upon poor digital sales, which fell 12.9% in Q2 2023. This was an improvement from the 17.4% drop in Q1 2023, but online sales accounted for 36% of Nordstrom’s overall sales. A more robust off-price banner and on-trend products will help, but Nordstrom will need to repair its e-commerce program as well to succeed in today’s omnichannel world.
BrainTrust
Neil Saunders
Managing Director, GlobalData
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Mark Price
Adjunct Professor of AI and Analytics, University of St. Thomas
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Discussion Questions
DISCUSSION QUESTIONS: Will Nordstrom Rack be able to carry Nordstrom as a whole to sales growth? Can Nordstrom survive without first managing to make its e-commerce platform grow?
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Nordstrom is now a smaller business than before the pandemic, even though retail sales and spend have risen rapidly. The performance at Nordstrom Rack has been particularly abysmal – sales down by 10.6% compared to pre-pandemic when most other retailers in off-price have seen sales grow by double digits. But there is also something beyond the numbers. Nordstrom, which used to be a pioneer in retail, is on the back foot. Stores look messy, assortments are very off, and customer service is reasonable but not spectacular. The business has lost its mojo and its sparkle. There are some very early signs that things are getting back on track, such as modest improvements in the assortment, but it is way, way too early to call victory. The one thing that is positive is that management have finally admitted there are issues after a long period of sticking their heads in the sand.
“…getting its product selection right.” Product selection. Retail 101. Except it was Nordstrom who took product selection to a level matched by few. If memory serves, Nordstrom was the last major department store to practice unit buying. Individual unit buyers who knew their customer and their market way better than any spreadsheet or data file would ever know them. And even though that practice ended decades ago, that culture stayed with them for a very long time. Until time apparently took its toll. Can today’s data mining produce the same kind of results as another era’s unit buying? If anybody can pull this off, it’s Nordstrom.
The department store business continues to be in steady decline. Younger shoppers do not seem interested in the format, regardless of brand or prestige. In the luxury categories, enough consumers are doing business directly with the brands they love through any number of channels that traditional department stores continue to take a hit. This isn’t just Nordstrom; we see plenty of articles in this space about Macy’s and their continuing struggles. Mid-tier department stores have a very similar story.
Until someone cracks the code on attracting new, younger shoppers, this sector will continue to struggle.
Nordstrom seems to believe that book written decades ago is still true today. I’ve had two exceptional salespeople in the past 5 years out of dozens of visits to their stores. If you don’t play in the exceptional lane, you’re just another vendor with garments for sale. Excitement and hustle are two ingredients I used to see sadly missing from most. Right those stores and keep your customers. Focus on more discounting with dirty stores it’s a slow slide to become Macys.
Given the economic concerns that consumers have today, due to inflation, and the last remaining supply chain issues, consumers are pulling back on premium and ultra-premium purchases and trying to make more thoughtful, economic decisions. Combining a premium brand such as Nordstrom’s, and the sense of discovering a bargain, is an impactful combination in today’s market. On the other hand, it is critical that Nordstrum invests in creating Omni channel relationships with customers, especially the best customers. I was unaware that Nordstrom had discontinued its BOPIS program in Nordstrom Rack. I would suggest that revisiting that decision might turn out to be a profitable one if the organization can handle it from an operational standpoint.
CEO Erik Nordstrom says The Rack has “been on a steady upward trajectory throughout this year. And as you know, the foundation of our focus has been great brands at great prices. If they have great brands at great prices, then why go to Nordstrom?
If The Rack is the savior for the department store, spin it off and don’t make it subsidize traditional Nordstrom. Nordstrom must determine what they are. Are they the best department store in a declining business, and will they be the last soldier standing, or will they be a price retailer?
Sales and profits for Nordstrom’s fiscal second quarter continue to decline, and it is below pre-pandemic levels.Part of the reason for decline would be attributed to consumers, who are reducing their spending on premium items to make more financially responsible decisions considering the current economic worries.
Nordstrom focus on customer service, right assortment and operational excellence along with reinventing e-commerce, along with reinstating the BOPIS program in Nordstrom Rack.
It’s a small sample size (and I’ll visit more stores on the West Coast next month), but the focus and depth of assortment in the Mall of America last week was visibly improved over my most recent visit to the Nordstrom store in Milwaukee. Granted, the Minnesota store is much bigger and more heavily trafficked, but I commented a few months ago that I never saw Nordstrom’s assortments looking worse. It’s not a simple task to recover sales momentum but it must start with the inventory content.
I think there is some market confusion between Nordstrom and Nordstrom Rack. My wife found the same pair of shoes at Nordstrom and at the Rack with two very different prices. I wonder with the number of Rack stores growing and Nordstrom stores slowly contracting, if we are seeing folks finally trade down from the full line stores to the Rack?
Nordstrom’s biggest competition seems to be its suppliers. I used to buy my Cole Haan’s at Nordstrom but now I buy them online at Cole Haan’s website. Could we finally be seeing the day where vendors are killing their retail channel?
“Activewear and beauty sales grew in the low-digits during the quarter” – of course they did. They were pandemic darlings, but times have shifted. Buyers need to look ahead to what’s coming, and be mindful of how historical data based on anomalies can impact demand forecasts.
In the current market, they will need to continue to protect their core loyal Nordstrom customers. But the biggest growth will definitely come from Nordstrom Rack and ecommerce.
Nordstrom has a problem: their namesake stores are great…at selling merchandise -specifically business attire – that isn’t much in demand any more; the ‘Rack’ operation has less of a problem there, but it a lot has less of an advantage (doing something lots of stores do….and not very well at that).
Still I would opt for emphasizing the main stores, and hope looking nice comes back into fashion at some point. Of course (merely) emphasizing one of the divisions isn’t the same as getting rid of the other altogether. I wouldn’t recommend that.
A department store, even one as venerable and respected as Nordstrom, has to earn it’s success my offer products, services or a customer experience that others can’t match. It also has to place stores where it’s target consumer will shop.
If one of your formats has to financially “carry” the other, I think you’re doing something wrong.
Nordstrom leadership years ago bristled at people calling them a department store, places which have all sorts of goods with fragmented displays, like Macy’s. Today still operating as the specialty or apparel retailer they are, they may be facing similar brand challenges on the other side of retail, against new clothing brands who have positioned themselves well in a hyper marketplace steeped in the latest trends.
Nordstrom is wise to look at its buying and merchandising from the inside to sort this out, as well in giving energy to the Nordstrom Rack. The economy is feeling queasy right now for many shoppers who simply want a deal. Signs of performance at The Rack sounds promising, so let’s see how traction looks after the holiday season.
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Nordstrom is now a smaller business than before the pandemic, even though retail sales and spend have risen rapidly. The performance at Nordstrom Rack has been particularly abysmal – sales down by 10.6% compared to pre-pandemic when most other retailers in off-price have seen sales grow by double digits. But there is also something beyond the numbers. Nordstrom, which used to be a pioneer in retail, is on the back foot. Stores look messy, assortments are very off, and customer service is reasonable but not spectacular. The business has lost its mojo and its sparkle. There are some very early signs that things are getting back on track, such as modest improvements in the assortment, but it is way, way too early to call victory. The one thing that is positive is that management have finally admitted there are issues after a long period of sticking their heads in the sand.
“…getting its product selection right.” Product selection. Retail 101. Except it was Nordstrom who took product selection to a level matched by few. If memory serves, Nordstrom was the last major department store to practice unit buying. Individual unit buyers who knew their customer and their market way better than any spreadsheet or data file would ever know them. And even though that practice ended decades ago, that culture stayed with them for a very long time. Until time apparently took its toll. Can today’s data mining produce the same kind of results as another era’s unit buying? If anybody can pull this off, it’s Nordstrom.
The department store business continues to be in steady decline. Younger shoppers do not seem interested in the format, regardless of brand or prestige. In the luxury categories, enough consumers are doing business directly with the brands they love through any number of channels that traditional department stores continue to take a hit. This isn’t just Nordstrom; we see plenty of articles in this space about Macy’s and their continuing struggles. Mid-tier department stores have a very similar story.
Until someone cracks the code on attracting new, younger shoppers, this sector will continue to struggle.
Nordstrom seems to believe that book written decades ago is still true today. I’ve had two exceptional salespeople in the past 5 years out of dozens of visits to their stores. If you don’t play in the exceptional lane, you’re just another vendor with garments for sale. Excitement and hustle are two ingredients I used to see sadly missing from most. Right those stores and keep your customers. Focus on more discounting with dirty stores it’s a slow slide to become Macys.
Given the economic concerns that consumers have today, due to inflation, and the last remaining supply chain issues, consumers are pulling back on premium and ultra-premium purchases and trying to make more thoughtful, economic decisions. Combining a premium brand such as Nordstrom’s, and the sense of discovering a bargain, is an impactful combination in today’s market. On the other hand, it is critical that Nordstrum invests in creating Omni channel relationships with customers, especially the best customers. I was unaware that Nordstrom had discontinued its BOPIS program in Nordstrom Rack. I would suggest that revisiting that decision might turn out to be a profitable one if the organization can handle it from an operational standpoint.
CEO Erik Nordstrom says The Rack has “been on a steady upward trajectory throughout this year. And as you know, the foundation of our focus has been great brands at great prices. If they have great brands at great prices, then why go to Nordstrom?
If The Rack is the savior for the department store, spin it off and don’t make it subsidize traditional Nordstrom. Nordstrom must determine what they are. Are they the best department store in a declining business, and will they be the last soldier standing, or will they be a price retailer?
Sales and profits for Nordstrom’s fiscal second quarter continue to decline, and it is below pre-pandemic levels.Part of the reason for decline would be attributed to consumers, who are reducing their spending on premium items to make more financially responsible decisions considering the current economic worries.
Nordstrom focus on customer service, right assortment and operational excellence along with reinventing e-commerce, along with reinstating the BOPIS program in Nordstrom Rack.
It’s a small sample size (and I’ll visit more stores on the West Coast next month), but the focus and depth of assortment in the Mall of America last week was visibly improved over my most recent visit to the Nordstrom store in Milwaukee. Granted, the Minnesota store is much bigger and more heavily trafficked, but I commented a few months ago that I never saw Nordstrom’s assortments looking worse. It’s not a simple task to recover sales momentum but it must start with the inventory content.
I think there is some market confusion between Nordstrom and Nordstrom Rack. My wife found the same pair of shoes at Nordstrom and at the Rack with two very different prices. I wonder with the number of Rack stores growing and Nordstrom stores slowly contracting, if we are seeing folks finally trade down from the full line stores to the Rack?
Nordstrom’s biggest competition seems to be its suppliers. I used to buy my Cole Haan’s at Nordstrom but now I buy them online at Cole Haan’s website. Could we finally be seeing the day where vendors are killing their retail channel?
“Activewear and beauty sales grew in the low-digits during the quarter” – of course they did. They were pandemic darlings, but times have shifted. Buyers need to look ahead to what’s coming, and be mindful of how historical data based on anomalies can impact demand forecasts.
In the current market, they will need to continue to protect their core loyal Nordstrom customers. But the biggest growth will definitely come from Nordstrom Rack and ecommerce.
Nordstrom has a problem: their namesake stores are great…at selling merchandise -specifically business attire – that isn’t much in demand any more; the ‘Rack’ operation has less of a problem there, but it a lot has less of an advantage (doing something lots of stores do….and not very well at that).
Still I would opt for emphasizing the main stores, and hope looking nice comes back into fashion at some point. Of course (merely) emphasizing one of the divisions isn’t the same as getting rid of the other altogether. I wouldn’t recommend that.
A department store, even one as venerable and respected as Nordstrom, has to earn it’s success my offer products, services or a customer experience that others can’t match. It also has to place stores where it’s target consumer will shop.
If one of your formats has to financially “carry” the other, I think you’re doing something wrong.
Nordstrom leadership years ago bristled at people calling them a department store, places which have all sorts of goods with fragmented displays, like Macy’s. Today still operating as the specialty or apparel retailer they are, they may be facing similar brand challenges on the other side of retail, against new clothing brands who have positioned themselves well in a hyper marketplace steeped in the latest trends.
Nordstrom is wise to look at its buying and merchandising from the inside to sort this out, as well in giving energy to the Nordstrom Rack. The economy is feeling queasy right now for many shoppers who simply want a deal. Signs of performance at The Rack sounds promising, so let’s see how traction looks after the holiday season.