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.