Amazon.com (symbol AMZN) is projected to account for one-half of all internet-based U.S. retail sales by 2021, according to brokerage firm Needham & Co., up from about one-third of sales in 2016. The threat to competitors in the retail space has become so dire that a "Death by Amazon" index that tracks the stock prices of 54 retailers sits near a four-year low, according to research firm Bespoke Investment Group, which compiles the index.
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With mall traffic declining as people spend more time and money online, Nordstrom (JWN) would seem like a risky bet. And indeed, Nordstrom has suffered a sharp slowdown in sales and profit growth. But of all the stocks in the Death by Amazon index, Nordstrom looks like the "best situated to succeed," says Bespoke, the index creator.
Despite the threat posed by online competition, Nordstrom's customer base appears to be sticking with the department store. The company serves a more affluent, "fashion focused" client than most department stores, says Bespoke, making it less likely that Nordstrom shoppers will buy clothing on Amazon. Nordstrom also sells a high percentage of exclusive and private-label goods that aren't available elsewhere.
Nordstrom's attempts to attract more budget-conscious shoppers seem to be working, too. The firm is expanding into the off-price market with Nordstrom Rack, which is bringing in new customers and now accounts for about 30% of total sales. Nordstrom is also blending online shopping and in-store experiences. Customers can reserve apparel online to try on in stores, and arrange for curbside pickup of items purchased online.
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Granted, Nordstrom is spending heavily to thwart online competition -- a cash burn that is taking a toll on the bottom line. Analysts expect Nordstrom's profits to fall by 7.7% in the 12-month period that ends in January 2018. But sales should inch up by 3.0% over fiscal 2017, and profit growth should resume in 2018, according to Wall Street analysts' forecasts.
Nordstrom's stock, meanwhile, has been in a downward spiral for two years. The shares still look pricier than those of more troubled department stores. But that isn't saying much. Nordstrom's price-to-sales ratio is just 0.6, a bargain compared with the 3.1 price-sales average for Standard & Poor's 500-stock index. Investors can scoop up a dividend yield of 3.1% while betting on a turnaround in the firm's fortunes.
Nordstrom by the Numbers
- Share price: $47.15
- Market value: $7.9 billion
- Price-earnings ratio: 16
- Estimated 12-month profit growth: -7.7%
- Dividend yield: 3.1%
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