Nordstrom and JC Penney both reported declining same-store sales for Q1 2017 on Friday, rounding out a week of department store earnings announcements that showed the strain of falling in-store foot traffic across the sector.
- JC Penney’s same-store sales fell nearly 4% year-over-year (YoY) in Q1, and net sales were $2.7 billion, down from $2.8 billion in Q1 2016. The company does not break out online sales in its earnings, but said continued investments in its online business offset some of its gross margin gains.
- Nordstrom’s same-store sales were relatively flat, but net sales increased almost 3% YoY to $3.3 billion for the quarter. Online sales boosted the company’s overall performance, totaling $787 million, or 24% of net sales, and up 19% YoY. Sales at Nordstrom.com increased 11% YoY to $548 million, while online sales for its Nordstrom Rack and HauteLook discount brands increased 19% YoY to $198 million.
Both companies have been working to convert their large and expensive store footprints into engines for e-commerce growth. Nordstrom hired a new chief innovation officer at the beginning of the year, charged with developing the retailer’s omnichannel efforts around building customers’ mobile devices into its in-store experience. Meanwhile, JC Penney and Nordstrom both offer omnichannel delivery services, such as in-store pickup and ship-from-store. JC Penney said earlier this year that 75% of its online sales in 2016 involved a physical store location.
The retailers seem to be betting on these omnichannel efforts to help them stay relevant by both increasing online sales and drawing customers back into their stores. JC Penney said 40% of customers who pick up an online order in one of its stores make an additional purchase of more than $50 during their visit. However, these efforts will require additional investments in innovation and inventory management at a time when retailers’ bottom lines are under increasing pressure. That will make it critical for them to streamline costs and operations without damaging sales to find the resources for new initiatives.
E-commerce has been on the rise in the last several years, thanks in large part to titans in the industry such as Amazon and Alibaba. E-commerce will truly become the future of retail, as nearly all of the growth in the retail sector now takes place in the digital space.
BI Intelligence, Business Insider's premium research service, forecasts that U.S. consumers will spend $385 billion online in 2016. Moreover, BI Intelligence predicts that number will grow to $632 billion in 2020.
This is hardly surprising considering e-commerce's healthy growth. Though the U.S. retail average growth rate in the first half of 2016 was just 2% for total retail, it was 16% for e-commerce.
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But all of this shopping online creates its own set of challenges, both for consumers and the companies that are trying to get their products onto shoppers' screens and into their shopping carts. In short, you need a plan.
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