Nordstrom said on Monday that it was slashing 400 jobs at its corporate headquarters.
The move comes two months after the department store chain reported a 3% drop in comparable sales for its fourth quarter, and forecast that profit per share would fall 30% in the first half of this year.
The cuts confirm a terrifying new reality for high-end retailers: Wealthy shoppers are reining in spending and — along with the rest of American consumers — refusing to pay full price for anything.
Nordstrom inventory increased 12% in the most recent quarter — a sign that the chain is having a hard time clearing its shelves, and will likely have to rely on promotions to sell the merchandise.
That can be a risky strategy, particularly for a high-end retailer, because too many promotions can cheapen the brand.
Heavy discounting "will ultimately drag everything down with it, including brand image, potentially quality and essentially the value of all things," retail expert Robin Lewis writes on The Robin Report.
But even steep discounts aren't attracting customers like they have in the past.
Restoration Hardware, which also caters to high-end customers, has said that discounts of 20% to 75% off everything in the store have been failing to boost sales as much as in previous years.
"Our attempt to drive incremental revenue through increased promotional activity in the fourth quarter was less successful than in prior periods, signaling a further pullback by the high-end consumer," Restoration Hardware CEO Gary Friedman wrote in a letter to shareholders last month.
Friedman said Restoration Hardware's customers have been reining in spending in part because of volatility in the stock market.
"Our sense is the increased volatility in the US stock markets, especially the extreme conditions in January, which is historically our biggest month of the quarter for furniture sales, contributed to our performance," Friedman wrote after the company reported preliminary fourth-quarter earnings that fell short of analyst expectations.
Customers are also shifting more spending to big-ticket items, such as cars and houses, while splurging less on clothes, shoes, and other fashion items, according to analysts.
(Jeff Schear/Getty Images)
"The shift we have seen over the past several years in which consumers have chosen to spend on 'big ticket' merchandise (cars, homes and home renovations, electronics and smartphones) and experiences seem particularly apparent given the results at Nordstrom," Stifel analysts wrote in a recent note.
"'The religion of consumption has been proven to be unfulfilling' is an observation that is proving to be particularly true this season," Stifel analysts wrote in a research note last fall (emphasis added).
Nordstrom says that it's now going to focus on creating a "more efficient and agile organization."
Blake Nordstrom, a Nordstrom copresident, said in a statement:
We will never change our commitment to serving customers, but recognize how they want to be served has been changing at an increasingly rapid pace. Meeting our customers' expectations means we must continually evolve with them. We see opportunities to create a more efficient and agile organization that ensures we're best positioned to achieve our goals.
Along with Nordstrom, within the last year Macy's, J.C. Penney, Neiman Marcus, and Target have said that they would cut jobs at headquarters.
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