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Is Nordstrom staring at a ‘no-growth’ retail future?

Written by Tom Ryan

Nordstrom's New Concept shop featuring a collaboration with Japanese publishing house Printings.jp - Photo: Nordstrom

In a scathing note, analysts at UBS described Nordstrom as a “no-growth retailer” that is suffering from eroding price perceptions and a “cultural shift” in shopper behavior. Among the challenges, according to the report:
  • Losing appeal in special occasions/business wear: While Nordstrom has traditionally been a go-to place for business and special occasion attire, UBS’s recent survey finds consumers migrating to discount retailers for these items. Wrote Jay Sole, UBS’s lead analyst, in a note, “We think this reflects a cultural shift where consumers don't think they need to invest in the type of high-quality merchandise available at Nordstrom for work as much as they used to."
  • Further casualization: Wrote Mr. Sole, “Consumers are 'dressing down' more often in every part of daily life. This is not something we think [Nordstrom] can easily recover from."
  • Expected pullback among wealthy: UBS data "suggests high-income US consumer spending will stay weak through the fall season," the report said.
  • Eroding pricing perception: Only Gap and J.C. Penney had a larger year-over-year drop in price perception than both the full-line Nordstrom and Nordstrom Rack banners in UBS’s recent survey. The pricing perception of closer competitor, Bloomingdale's, improved. With the high-end fashion market experiencing minimal growth, any market share loss at Nordstrom at the expense of even a small rival could "significantly" impact Nordstrom.
  • A more discount-driven environment: The rising cost of living and relatively stagnant income thresholds for the middle class are increasingly encouraging consumers, especially younger ones encumbered with high student debt, to favor low prices over quality. While Nordstrom "has historically been a share taker" with its stature just above traditional department stores such as Macy’s, it's no longer in a position to take market share.
UBS said Nordstrom will likely have to increase promotions to change price perceptions and revive traffic, but that will come at the expense of gross margins. UBS added, “Plus, we also doubt [Nordstrom] can leverage SG&A at the new, lower sales growth rate we're modeling." UBS cut its stock rating from "Buy" to "Neutral" and slashed its price target from $65 to $33.

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